Midnight News Update – Aug 16th 2017
CPI inflation and WPI inflation came in higher for the month of July at 2.36% and 1.88% respectively. The CPI inflation is up by nearly 90 basis points on a MOM basis. The real reason for the sharp uptick in CPI inflation was vegetables which were driven by the prices of tomatoes which crossed Rs.100/kg. The sharp rise in inflation is also indicative of the fact that the RBI may put off rate cuts in its October monetary policy. The RBI has a target of 4% sustainable inflation and the current CPI inflation is well below that level. However, the RBI monetary stance continues to be neutral.
The trade data for the month of July 2017 came in slightly more favourable. While imports were still up by 15% on a YOY basis, the total imports were at least $2 billion lower than the previous month. However, the big worry appears to be the gold imports which are up by 95% on a YOY basis. That could be more due to the base effect as 2016 was a year of weak gold demand. The trade deficit at $11.45 billion was slightly lower than the previous months, but the full year trade deficit for the fiscal is likely to be closer to $200 billion, which are nearly half the total forex reserves of the RBI.
Gold prices corrected on Monday more as a result of easing tensions between North Korea and the US. Over the few weeks, North Korea has been threatening to launch an all-out nuclear attack on key US installations. Trump had also warned that he would eliminate North Korea complete. In the last few days, the rhetoric has waned obviously with the larger involvement of Russia and China also in the peace process. Gold has normally been a safe haven investment in times of economic and geopolitical uncertainties. This could be the beginning of a revival in EM Equities across India.
Reliance Capital plans to monetize its general insurance business, Reliance General Insurance, by selling a stake in the company. The initial valuations have pegged the value of the 25% stake in RGI at Rs.2000 crore, giving the company an enterprise valuation of Rs.8000 crore. Additionally, Reliance also plans to hive off its Reliance Life, Reliance Nippon AMC as well as its Reliance Home Finance arm into separate units. Reliance General Insurance announced full-year revenues of Rs.4000 crore last fiscal and has been growing at over 40%. The summation of these efforts is already visible in the price of Reliance Capital.
The quarter ended June has been a tepid quarter for Indian companies in terms of quarterly results announcements. While 13 companies beat estimates and 19 underperformed, the remaining 18 companies announced results that were on par with expectations. Among the outperformers were companies like ACC, Bharti, IndusInd Bank, RIL, Vedanta, IOCL and Tata Steel. Then we had companies like HDFC Bank, Hero Moto, HUVR, Infosys, M&M and Maruti which announced results that were at par with expectations. Finally, the underperformers included some marquee names like Asian Paints, Axis Bank, TCS, L&T, ONGC and SBI. Among the banks, the private banks did a lot better than the PSU banks. The most disappointing performance came from pharma with weak earnings across the board.
In his independence address to the nation, Narendra Modi has underlined the latest crackdown, which has identified Rs.1.75 lakh crore of deposits for additional scrutiny. That is nearly 25% of the fresh funds that were infused into the banking system in the aftermath of demonetization. This needs to be seen in the light of other Indian companies who have had to face disgorgement of profits earned through creation of shell companies. But the big positive from the note ban has been that the economy has been pushed towards greater digitization of monetary and financial transactions.
