It was a day of sharp gains in the Nifty, which gained over 70 basis points on Monday to close about the 11,550 mark. The rally was led by heavyweights like Tata Motors, Tata Steel and ONGC. But the real thrust came from L&T in the aftermath of the buyback announcement over the weekend. The stock market was also helped by the Rupee which closed 47 bps stronger at Rs.69.83/$. The recovery in the rupee was triggered by a sharp bounce in most Asian currencies on Monday. Of course, the trade deficit of $18 billion for July will continue to be an overhang. A lot will depend on the CAD as % of GDP.
The private insurers may finally start seeing the LIC cannibalizing syndrome benefits kicking in. JP Morgan and Citi continue to remain bullish on the Sector. Both the brokerages are betting on the private insurers gradually eating into the market share of LIC. In fact, July marked the 7th straight month of market share decline for LIC, which now stands at 69.5%. Private insurers are now focusing more on margin quality than on business volumes. LIC, apart from taking a majority stake in IDBI Bank, will also be financing many of the railway and infrastructure projects in a big way.
It was the largest devaluation in history by Venezuela in the midst of its worst economic crisis. Venezuelan president, Nicolas Maduro, announced a 95% devaluation of the Venezuelan Bolivar as the crisis in the economy deepened due to hyper inflation. The currency moved from 285,000/$ to 6 million/dollar over the weekend. As an offset, the minimum wages have been hiked by 3500%. This almost the Bolivar worthless and it remains to be seen if the strategy of dropping the currency works. Financial advisors have also been advising Turkey to devalue the Lira, which Erdogan has refused to.
With an attrition rate of over 20%, the manpower challenges continue at Infosys. Not surprisingly, the stock cracked 3% on news of CFO, MD Ranganath’s exit from the company. It may be recollected that Ranganath took over as CFO of Infosys in 2015 after the controversial exit of the then CFO, Rajiv Bansal. The markets are worried about the move as this represents the fourth CFO exit from Infosys in the last 5 years, which is normally not a very healthy trend. The stock has rallied sharply in the recent past. Founder, Narayana Murthy, has expressed disappointment at the exit of Ranga.
With the IPO market under strain, the government may look to raise Rs.12,000 crore through PSU buybacks. The government is looking to avoid the IPO route to divest by having cash rich PSUs to buyback part of the government holding. A buyback is seen as a price bottoming signal and is likely to be a more tax efficient method of rewarding the shareholder. The government is also concerned about the possibility of asset stripping in PSUs. Hence, they may be asked to move their non-core assets into an SPV. The special purpose vehicle (SPV) is intended at separating the core business of the PSU from the ancillary businesses to avoid any prospects of acquirers looking to indulge in asset stripping. Most PSU are sitting on huge land banks, which could make them easy targets for large funds.
Notwithstanding market uncertainty, the systematic investment plan (SIP) inflows are normally considered to be a good indicator of retail appetite for equities. SIP flows have been maintaining consistently above the $1.2 billion mark for the past few months. This inflow represents a 53% growth in flows on a YOY basis. At Rs.7554 crore, the July SIP inflows are at an all-time high. The SIP flow is critical for the success of AMCs as they represent a gradual and regular inflow and also help the investors get the benefit of rupee cost averaging over time. SIPs typically represent retail appetite.
