Nifty bounced by 52 bps to 11,537 after 6 consecutive down days and provided some relief to the markets. Finally, it was the smart performance put up by Reliance industries that added heft to the Nifty and enabled it to close in positive territory. Apart from healthcare stocks, the Nifty was also ably supported by power stocks as the prospects of resolution to power loans via NCLT appeared to be much closer. However, market continued to face pressure at higher levels on the back of a weakening rupee and rising bond yields on the 10 year benchmark.
In what could be one of the biggest deals in pharma by a mid-sized Indian company, Aurobindo has decided to buy Sandoz dermatology unit in the US for a consideration of $1 billion. Out of the total consideration, a sum of $900 million will be paid in cash by Aurobindo while the balance will be as potential earn outs. The Sandoz US portfolio has a total of 300 products, including the ones under development. Sandoz is a unit of Novartis. Aurobindo stock was up 9.33% and has gained substantial ground since the rally in pharma stocks began last month.
Finally, growth appears to have returned to the Indian corporate top-lines. Indian companies reported 17% growth in revenues in the June quarter. According to ICRA’s study of 660 companies, the sharp rise in revenues may be partially attributed to the base effect due to lag effect of demonetization and the uncertainty ahead of GST last year. In fact, 26 out of the 32 sector groups analysed by ICRA had actually shown positive growth. However, the next two quarters will be a lot more critical as the base impact of demonetization diminishes and the impact of oil and rupee will start pinching.
Mr. Nitin Gadkari has almost made a big pitch in favour of more eco friendly cars in India. India will have electric vehicles (EVs) at 15% of total auto sales by 2023. This will be a major step towards more environment friendly autos in India, as announced by Nitin Gadkari. The government has already prepared a roadmap to convert all vehicles into EVs by 2033. The government will curb sales of fossil fuel cars and incentivize the manufacture of EVs. Companies like Tata Motors have already firmed up plans to aggressively push through plans to substantially shift their portfolio towards EVs.
The vertical fall in the INR continued as importers and banks rushed to buy dollars. Rupee closes at 71.988/$ and 10 year bond yields closed marginally higher at 8.06%. The rupee did dip as low as 72.11/$ before some buying support was lent by the RBI above the 72 mark. However, it is not too clear how long the RBI will support the dollar or whether the RBI will prefer a rate hike to stem the rupee weakness. The INR has fallen rapidly in the last few days. Bond yields were almost flat but there is still a lot of hawkishness built into bond markets. Traders have been expecting an OMO from the RBI. A rate hike is another possibility which could actually hit two birds of one stone; of curbing the volatility in the rupee and also compensating global flows in the form of higher risk adjusted returns.
KRC may have sounded the poll bugle in the newly formed state of Telangana. TRS president K Chandrasekhar Rao dissolves the Telangana Assembly and the dissolution of the assembly virtually hints at early elections in the state of Telangana. In fact, elections in Telangana could happen as early as December 2018, along with other state elections. Elections are scheduled in mid 2019 in Telangana, but Rao may want to avoid a situation where national issues may start dominating the Telangana election process. Rao sees a much better chance of the TRS returning to power if elections are held earlier.
