Mumbai: Shares in India resumed their march toward record highs, riding on improving macroeconomic indicators and optimism about earnings. The pendulum seems to have swung decisively away from pessimistic talk, and should provide momentum to the underlying bullish fervour.
Exports in September galloped 26 per cent, the fastest pace in six months, to $28.6 billion (Dh104.9 billion), official data showed, narrowing the trade deficit to its lowest level in seven months. “India’s growth story is back,” tweeted Commerce and Industry Minister Suresh Prabhu.
Factory output in August, released during the week, showed the manufacturing sector regained its foothold despite problems with the implementation of a new national sales tax. The Index of Industrial Production (IIP) climbed 4.3 per cent, the quickest in six months and beating forecasts by economists, after a revised 0.9 per cent crawl in July.
“The sharp upturn in IIP may be indicative of the restocking exercise before the commencement of festive season in the economy,” rating agency CRISIL said in a note.
Consumer price inflation, a key gauge that the Reserve Bank of India (RBI) relies on for determining monetary policy, was barely changed in September at 3.28 per cent, below market expectations of between 3.5 and 3.6 per cent. After hitting a low of 1.46 per cent in June, retail inflation has been accelerating on rising fuel and food prices.
The data could revive hopes for lowering borrowing costs. The central bank kept interest rates unchanged this month, citing emerging price pressures and had raised its retail inflation projection for October-March to a range of 4.2 to 4.6 per cent.
“We expect the RBI to stay on hold in our base case (75 per cent probability), but given the possibility of undershooting on macro forecasts, we also assign a 25 per cent probability to a cut,” securities house Nomura said.
Record high
The strong data was particularly refreshing after economic growth slowed sharply to 5.7 per cent — the weakest pace in more than three years — in the June quarter as disruptions caused by last November’s high-value currency ban and the launch of Goods and Services Tax took a toll.
Brighter prospects for the $2.3 trillion Indian economy, Asia’s third-largest behind China and Japan, drew droves of investors into the market. The 50-share Nifty index, which is mimicked by fund managers, shot to an all-time high of 10,191.90 on Friday and closed at 10,167.45, gaining 1.8 per cent over the week.
The top-30 Sensex, which is also closely tracked by investors, rose 1.9 per cent — its biggest weekly gain since mid-July — to 32,432.69. It is within hand-shaking distance of its record 32,686.48 reached in early August.
“This is the perfect setting to celebrate Diwali,” stock trader Bharat Shah gushed. “Expect more fireworks next week.”
Diwali, the festival of lights, heralds the new year for the trading community. The market will hold a special “moorat” trading on Thursday evening, an auspicious occasion for investors to make token deals. The market will be closed on Friday for Diwali.
A shift in household savings into financial assets from traditional avenues such as gold and property has provided a springboard for equity markets to override volatile foreign cash flows. Overseas funds were net sellers in August and September, but the market withstood the sell-off with minor bruises.
Investors poured Rs. 189 billion into equity funds in September, shy of a record $203 billion in August, according to the Association of Mutual Funds in India. The net inflow during April and September, the first six months of the financial year, tripled to Rs. 804 billion. Falling interest rates on bank term deposits, sluggish property market and dwindling lure of gold are expected to propel more savings into financial assets.
Even large state-controlled pension funds long loathe to dabble in riskier assets are increasing their exposure to stocks to improve their returns.
Reliance forges ahead
After the market closed on Friday, energy conglomerate Reliance Industries Ltd with a diversified portfolio, said its consolidated net profit for the September quarter rose 12.5 per cent from the same period a year earlier, bolstered by robust refining margins and its petrochemicals business. The result was slightly below market forecasts, but there was a silver lining in its telecom operations.
The company, which operates the world’s largest oil refining complex at Jamnagar in Gujarat, reported a nine-year high gross margin of $12 per barrel of oil — more than a fourth higher than the Singapore benchmark, because Reliance’s sophisticated refinery can process cheap high sulphur content crude oil.
Consolidated net profit climbed to Rs81.09 billion from Rs72.09 billion a year ago, but was down nearly 11 per cent from the June quarter, which was expected.
Chairman and Managing Director Mukesh Ambani, India’s richest man, said the company’s telecoms unit, Reliance Jio Infocomm, which began operations about a year ago, made a profit before interest and taxes of Rs2.6 billion. The company spent more than $2 billion to lay fibre optic cables across the country and with its aggressive pricing acquired 138.6 million mobile subscribers by end-September. The unit, however, made net loss of Rs2.71 billion on revenue of Rs61.5 billion.
When trading resumes on Monday, the results should boost Reliance shares, which have a market value of almost Rs. 5.6 trillion, the most for any Indian company.
TCS, IndusInd
Tata Consultancy Services (TCS), the country’s biggest software services company that gets most of its revenue from exports, beat street forecasts with a quarterly net profit of $1 billion, an 8.4 per cent increase from the June quarter, while revenue rose 3.2 per cent sequentially to $4.74 billion.
The company added one client in $100 million or more revenue category, and six clients each in $50 million-plus, $20 million-plus and $10 million-plus bands despite tougher business environment. It also signed 28 clients worth $1 million or more in annual revenue during the quarter, and took in 15,868 employees taking the total staff to 389,213.
“Large deal wins this quarter, a good pipeline, and bottoming out of the retail sector softness positions us well,” CEO Rajesh Gopinathan said. “Strong broad-based client metrics … demonstrates our increasing success with newer customers.”
Analysts at Deutsche Bank said the robust earnings indicated early signs of demand revival and raised its target price on the stock to Rs3,000 from Rs2,750. The share closed Rs2,556.75 on Friday, up 4.6 per cent on the week.
Brokerage CLSA said a key takeaway from the result was the recovery in operating margins, which leapt 1.7 per cent over the quarter to 25.1 per cent.
Smaller rival Wipro Ltd is scheduled to release its earnings on Tuesday.
IndusInd Bank, controlled by non-resident Indian billionaires Hindujas, posted a 24.9 jump in quarterly earnings and almost a similar rise in net interest income as demand for loans grew at a rapid pace.
Net non-performing assets, a crucial measure for banks, was stable at 0.44 per cent as a percentage of total loans, while at the gross level they declined a trifle to 1.08 per cent from 1.09 per cent in the June quarter.
The stock rose 4.1 per cent over the week to Rs1,750.15.
Other big results in the holiday-shortened coming week are Federal Bank on Monday, ACC, Axis Bank, Bajaj Auto and ICICI Lombard General Insurance Company on Tuesday, and UltraTech Cement on Wednesday.
— The writer is a journalist based in India
