Tuesday was marked by a late rally in the Nifty as it staged a recovery to close above 11,350 levels. The momentum in the Nifty was triggered by two major heavy weights on the index; Reliance Industries and Hindustan Unilever. RIL also crossed the market cap of TCS along the way. Also on the positive side, Core sector growth of 8 infrastructure sectors for June 2018 came in higher at 6.7%. The sharp spurt in the core sector growth was led by healthy growth of over 12% in cement, refinery products and coal. Electricity generation also showed 4% growth for the month of June. This should boost sentiments.
The stock of Eicher was already under pressure due to weak profit growth in the quarter. But the bigger challenge has come in the form of emerging competition from Harley Davidson, the iconic motorcycle manufacturer of the US. Eicher skid 3% on likely competition from Harley Davidson in the 250-500 CC segment. Eicher has already been a multi-bagger with returns of over 10,400% in the last 10 years. With Harley’s US sales flattening, it is looking at India and Asia for targeting the traveller segment. Harley will be targeting the fast growing middle class and the rising purchasing power in India and Asia.
Axis Bank and Indigo got battered in the market after disappoint results. Axis Bank saw market cap worth $700 million wiped out due to poor results. Axis Bank, on Monday, had reported sharply lower profits which fell by 47% for the quarter ended June. There was a sharp increase in provisions for bad debts, which did not go down well. Interglobe Aviation plunged 13% on Tuesday on the back of sharp fall in profits. The owner of Indigo Airlines witnessed 97% fall in profits in Q1 on the back of weak pricing power and sharply higher ATF prices. The spread between RASK and CASK also compressed sharply.
Today’s results probably hold the answer to why Tata Motors had been correcting so sharply in the last few months. Tata Motors reported its first quarterly loss in 3 years on weak JLR sales in the June quarter. JLR accounts for over 90% of TAMO’s sales and almost all of its profits. Tata Motors reported a net loss of Rs.1902 crore for the June quarter on the back of weak JLR sales off-take in China and a sharp increase in input costs for the global auto major. With Chinese output index falling to just about 51, it could be a tough time for Tata Motors in its JLR unit.
After months of sabre rattling, the US and China may be moving closer to a rapprochement. Finally, Trump has agreed to talk and find a solution to the ongoing fracas with China. The US has already imposed tariffs on $34 billion worth of Chinese imports and this figure is likely to go up to $200 billion by September. The trade war has been hitting both ways. While China could see a real impediment for its industrial growth, the US is also facing domestic pressure as jobs are being lost in the sensitive agriculture centres of the US. Not surprisingly, US stocks rose as the US moved closer to trading peace with China. Finally, the winds of pragmatism appear to be blowing in the US and China. Hopefully, a less aggressive approach from both nations should help to soothe frayed nerves of the market.
There appears to be good news on the fiscal deficit front. Quarterly April-June fiscal deficit touched 68.75% of the full year fiscal deficit target. This is much lower than the 80% that India reported in the corresponding period last year. India is expecting to trim the fiscal deficit to 3.3% of GDP to avoid any rating shocks from the agencies. It may be recollected that in the last two years, India has seen its fiscal deficit consistently slip beyond the targets set in the FRBM. That was not good news for the INR and for the external ratings of the economy. Hopefully, this should see a tempering of the fiscal deficit.
