The lag effect of the rate hike on the Nifty

The lag effect of the rate hike on the Nifty led it lower by 100 points to 11,244 levels. The price damage was mostly in rate sensitives like banking and auto stocks. Ironically, the INR strengthened another 17 paisa to touch 1-month high of 68.26/$. Despite weak equity markets and negative FII flows, INR was positively reacting to the fact that the 25 basis points rate hike will absorb most of the rupee pressure versus the dollar. The good news tomorrow for the markets could be that India is likely to postpone raising tariffs against US imports. India will now seek to resolve the trade issue amicably.

In the midst of all the worries about the rising price of crude and the impact on CPI inflation, ONGC reported a stellar 61% growth in net profits for Q2 at Rs.6140 crore. Total revenues were also up by 43% at Rs.27,213 crore as the net realization per barrel of crude for ONGC went up sharply from $45.92/barrel to $67.97/bbl. Crude output was marginally lower compared to the last year but that did not matter. It only goes to show that if the price crude even stabilizes around the current levels, the stock of ONGC will stand to benefit substantially in top line and bottom line terms.

The silent outperformer within the NSE indices has been the pharma index. It is not overpriced like IT and it is more defensive compared to the rate sensitive stars like banking and auto. Pharma index has touched a 6-month high and outperformed the Nifty YTD. Q1FY19 is expected to see a sharp turnaround in the profits of pharma companies. Investors are also finding pharma a reasonably priced defensive bet in the light of rising global bond yields. A lot will predicate on the hope that the US FDA story really does not take a negative turn from here on. Diversified pharma players could be a better bet.

The positive cues for the FMCG space, especially for those with a rural and traditional twist, continues in the form of stellar results announced by Marico for the first quarter. Q1 net profits at Marico grew by 10% to Rs.255 crore. This bettered the street expectations and was largely driven by a spurt in rural demand for its principal lifestyle products. Rural markets grew at 28% compared to 16% growth for urban markets. This rural thrust could be the big story for Indian FMCG stocks as they are betting heavily on a revival in rural demand in the aftermath of higher MSP payable to Kharif farmers.

The era of hawkish central banks may be back, or is it really the case? There was a start to the hawk club by the Bank of England where all the 9 members voted unanimously for a 25 basis point rate hike in the benchmark rates. The street was expecting a 7-2 vote in favour of a 25 basis points rate hike but it turned out to be a 9-0 vote in favour of a 25 basis points rate hike. With this rate move, the benchmark rate in the UK goes up by 25 basis points from 0.50% to 0.75% and has come as a surprise a day after the US Fed maintained status quo on rates. The UK, however, could have larger problems to contend with. The BREXIT vote is already 2 years old and it now has a short time left to meet the commitments of its secession from the EU. How that pans out will determine the future course of action for the BOE.

Even as the race between Apple and Amazon to the $1 trillion club heats up, Apple may be approaching the $1 trillion market cap first with just $27 billion left to cover. This move brings back the ghost of a famous previous market giant that tumbled from the high pedestal. Ironically, the only other company (GE) that has held the distinction of most valuable company for a longer period of 11 years (compared to Apple’s 7 years), is today a pale shadow of its old self. The company built by Neutron Jack, has lost tremendous value for its overly aggressive foray into financial services.

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