After promising another rapid rally, the Nifty closed flat at 11,389 as the index A/D ratio turned unfavourable during the day. While the metal companies like Tata Steel and Hindalco added some weight to the index, downstream OMCs like HPCL and BPCL came under pressure on Tuesday. Brent Crude inched closer to the $75/bbl mark on Iran sanctions fears. Even as Saudi Arabia is averse to sending shipments through the Bab-al-Mandeb straits in the Red Sea, the Iran sanctions is likely to impact the 2.6 million barrels that Iran contributes as exports. This could be an overhang!
In a bid to protect the interests of Indian textiles industry, government of India doubled import tax on textiles to stem dumping from China. The import tax on nearly 300 textile products was doubled to 20%. China has been dumping cheaper textiles into India and accounts for nearly 45% of the total textile import bill of $7 billion. The textile imports from China have shot up sharply in the last few quarters and are attributed to the government funded price cuts that Chinese textiles offer. The government aims to make Indian textiles competitive and capable of driving the exports engine for India.
With forex reserves depleting and outflows still a threat, RBI is reported to be considering $35 billion NRI bonds in third quarter. With INR closing in on 69/$ and the forex chest down by nearly $25 billion, the NRI bond issue (without currency risk), could be the ideal option by the RBI to fill the gap in the short term. IN a related move, S Gurumurthy of Swadeshi Jagran Manch was appointed to the Board of RBI. Gurumurthy is known for his strong views against globalization. Gurumurthy and Arun Shourie had carried on a relentless campaign against the Congress and the Reliance Group in the late 1980s.
M&M did a lot better than the Indian corporate sector performance overall in the first quarter. M&M announced 67% growth in profits at Rs.1257 crore for Q1. This growth in profits were largely driven by a 23% growth in revenues to Rs.13,551 crore. The company also saw 16.2% growth in automobiles and 123% growth in HCVs during the quarter. India Inc. reported 23% growth in revenues in Q1 but flat margins. According to an ICRA study, the pressure came from cement and airline companies where margins were hit by higher input costs. Metals and FMCG companies saw margin improvement.
A traditionally current account surplus economy has turned into a CAD economy. China recorded H1 current account deficit (CAD) for first time in 20 years. However, the entire CAD was attributed to the first quarter with the second quarter yielding a small surplus. China has been reported $28.3 billion CAD in H1-2018. It may be recollected that China’s current surplus has been consistently shrinking since the global crisis of 2008. However, China is the world’s consumer of last resort and that may not be great news for global markets. The US trade war impact is yet to be seen. Most global economies in the emerging markets and the developed world will be watching a China revival closely as it has been the engine for global growth and global demand in the last decade.
A spurt in revenues for Tata Sons last year was almost compensated by write-offs for Tata Teleservices. Tata Sons’ total annual income of Rs.8,156 crore included Rs.6700 crore as dividends from TCS. Despite total income of Rs.28,102 crore in the year (including TCS buyback), Tata Sons will take a write-off of nearly Rs.24,300 crore as impairment of its investments in Tata Teleservices. It may be recollected that Tata Sons had agreed last year to sell out Tata Teleservices for no consideration to Bharti Airtel in the midst of the massive consolidation in the telecom industry in the aftermath of the Jio launch.
