Infosys runs ahead, HUL slows down and The Week That Was

Weekly Newsletter

There seems to be no respite to the ongoing downtrend. Indices have lost further ground closing lower by more than 2% this week after plunging nearly 5% in the previous week; both the key indices hit their respective 52-week lows during the week amid weak global cues and weakening Indian currency against the US Dollar. The rupee weakened and hit 28-month low of Rs67.69 against the US Dollar.

The result season has begun and nothing really in it so far to exude confidence as far as corporate earnings are concerned barring Infosys which delivered better than expected results. Infosys delivered growth of 2% qoq in constant currency terms adjusting for one time revenue in the preceding quarter. Volume growth was strong at 3% qoq despite furloughs and challenges in some top clients. Buoyed by a good performance in Q3, the company has raised full year dollar growth guidance to ~13% yoy in constant currency terms.

Going ahead, the slow economic recovery and poor show reported by Corporate India, quarter-after-quarter, will continue to be a concern. The coming week has a number of larger companies announcing their results. These include RIL, HCL Tech, Axis Bank and Asian Paints. We expect RIL to report a GRM of US$11/bbl as compared to US$7.3/bbl reported in Q3 FY15 and US$10.6/bbl in Q2 FY16. Petrochemical prices too have seen a correction in line with the crude oil prices but we expect the spreads to remain flattish. While it may be difficult to predict the timing of broad earnings pick up, but a recovery has started in many companies outside the Nifty. It would be prudent for investors to identify these stocks and sectors rather than wait for a full-fledged recovery.

Infosys Ltd has posted results for the third quarter ended 31st December, 2015. The net profit for the quarter stood at Rs.3,465 crore. The revenue for Q3 stands at Rs.15,902 crore. The Consolidated EBIT Margin was at 24.9%. Revenue guidance increased to 12.8%-13.2% in constant currency. Volume growth was at 3.1% quarter on quarter. The attrition declined to 13.4% on standalone basis.

HUL disappoints; Q3 net profit at Rs. 971 crore

Hindustan Unilever Ltd has posted a net profit of Rs. 9714.00 mn for the quarter ended December 31, 2015 as compared to Rs. 12521.70 million for the quarter ended December 31, 2014. Total Income has increased from Rs. 78943.90 mn for the quarter ended December 31, 2014 to Rs. 81206 mn for the quarter ended December 31, 2015.

Union Budget to be presented on February 29

The government has confirmed that the Union Budget will be presented on February 29, 2016. Given the sky high industry expectations on several fronts and the current macro economic scenario of the nation, the budget is very critical for the NDA government. Finance Minister Arun Jaitley has already hinted that the budget will be more “social sector centric” and inclusive to different groups.

2016 – Why is the stock market falling?

Rising concerns over a global slowdown, particularly due to a possible hard landing in China, heightened geo-political tensions and lack of visible recovery in India Inc earnings are the reasons for the ongoing fall in the stock market. A strengthening USD is resulting in flight of capital to safety and all emerging markets are getting painted with the same brush by FPIs. A major part of the year 2016 is in for a volatile period and may not see substantial absolute return on Nifty/Sensex, at least in the first half.

Global concerns will continue to plaque the market time and again. China has historically never stopped with just one or two rounds of currency devaluation and this time may not be any different. Any further devaluation on its part would result in currency wars among emerging markets to maintain their export market share. The US Fed may raise rates for the second time in April or May and markets are mostly likely to get jittery ahead of crucial Fed meets during the course of the year. We expect a gradual 50-75 basis points hike by the Fed over next 18-20 months.

World Economic situation is challenging: Jaitley

The Union Finance Minister Arun Jaitley said that Indian economy is on path of recovery despite uncertainty and volatility in global economic situation. He said that India recorded a higher growth of 7.3 per cent in 2014-15 as compared to 6.9 per cent growth achieved in 2013-14 and 5.1 per cent in 2012-13, despite the slowdown witnessed in the world economy, pointing toward resilience of the Indian economy. He said that the rate of growth of GDP in the first half of the current financial year 2016-17 is estimated to be 7.2 per cent. The Finance Minister was making the Opening Remarks during his pre-Budget consultation Meeting with the leading economists.

Low crude prices! Good or Bad for India? The debate continues

Even at $30 a barrel, crude oil prices do not seem to have found their bottom yet. In fact, oil prices have kept falling steadily to hover at a level not seen since 2004. And the fall has been pretty staggering: from $110

Remember, it stood at $110 a barrel in June 2014. The fall began by mid-2014, when global demand started to slowing down as Europe reeled from a debt crisis in the euro zone and the Chinese economy started stumbling. Around this time, US crude oil production nearly doubled since 2010 and it was still producing more and more oil. Crude prices have fallen almost 20% since the start of the year,

Traditionally, the oil producing bloc of the Middle East used to manage the production tap to keep a check on prices and for long the conventional wisdom had held that Saudi Arabia needed $100 a barrel oil to balance its budget. But this time around both Saudi and the Opec bloc acted differently.

IIP contracts 3.2% in November

The Industrial Production for the month of November 2015 stands at 166.6, which is 3.2 percent lower as compared to the level in the month of November 2014. The cumulative growth for the period April-November 2015 over the corresponding period of the previous year stands at 3.9 percent.

The Indices of Industrial Production for the Mining, Manufacturing and Electricity sectors for the month of November 2015 stand at 131.5, 171.9 and 175.6 respectively, with the corresponding growth rates of 2.3 percent, (-) 4.4 percent and 0.7 percent as compared to November 2014 (Statement I). The cumulative growth in three sectors during April-November 2015 over the corresponding period of 2014 has been 2.1 percent, 3.9 percent and 4.6 percent respectively.

Contraction! December WPI Inflation at -0.73%

The annual rate of inflation, based on monthly WPI, stood at -0.73% (provisional) for the month of December, 2015 (over December, 2014) as compared to -1.99% (provisional) for the previous month and -0.50% during the corresponding month of the previous year. Build up inflation rate in the financial year so far was 0.74% compared to a build up rate of -0.89% in the corresponding period of the previous year.

A disruptive market force invariably makes for a good story. In an era of startups and an innovation-driven economy, every other company claims to be disruptive these days. But very few claims pass the litmus test of disruption – which can either mean creating a new product that addresses a hitherto untapped market (high-end disruption) or to create a cheaper, simpler or convenient alternatives to existing products (low-end disruption). Patanjali Ayurveda Limited (PAL) scores high on both these counts. In a relatively crowded FMCG space dominated by the HULs and ITCs, PAL has emerged as a dark horse posing a serious challenge to the erstwhile barons.

Return to High Growth Path! Are poor IIP numbers postponing the same?

Though the IIP (Index of Industrial Production) numbers for November (down 3.2%) came as a surprise to many, it is something that has been happening since 2011. Since months of October and November are festive ones, industrial houses tend to increase production going into the festive season. Once that is over, large inventory pile up results in companies reducing production. This is what causes contraction in factory outputs and consequently, in IIP numbers.

Also, IIP numbers are known to be quite volatile. Experts believe that volatility is primarily due to the capital goods numbers, which themselves are inherently volatile due to bulky nature of production in the sector. But interestingly, individual IIP numbers of various sectors indicate huge levels of overcapacity in many sectors. So if production does not pick up in near term, then companies will have to bear the fixed costs of the massive overcapacity they have built up in previous years. Another threat looms from countries like China.
Is digital expansion in India favoring only the rich?

Creation of employment opportunities, enhanced public services and dividends of higher growth are low on expectation irrespective of the use of digital technologies spreading rapidly across the world, as stated in World Development Report 2016.

There is also an unequal distribution of advantages of the rapid digital expansion, given that the moneyed population has more access to the same, while the poor is still deprived of the benefits of digital technologies.

With around 70 per cent of the people lying in the bottom fifth of the economic sale having access to a mobile phone, and number of internet users reaching to an estimated number of 3.2 billion in 2015, excluded sections of the society have been woven into a formal system, says World Bank in the report.

Why Q3 FYI6 may be yet another disappointing quarter?

Q3 FY16 is expected to be another disappointing quarter for corporate India and raises concerns regarding a much delayed economic recovery. The net profit for our coverage universe (ex energy & financials) is likely to fall by 2.3% yoy (rise 3% qoq). While revenue is expected to grow by 4.2% and 4% on yoy and qoq basis respectively, EBIDTA margins look to be marginally lower by 20bps at 17.9% (although they rose sequentially by 40bps). Our preview analysis is for 341 companies from our coverage universe of 500. These 341 stocks comprise ~70% of total Indian equity market capitalisation. Profit growth for Nifty companies (ex Sun Pharma and Kotak) is expected to be 5.7% yoy and 6.7% qoq.

10.5% salary increase expected across industries in 2016: Mercer’s survey

As per Mercer’s 2015 India, All Industries Total Remuneration Survey released today, organizations are expecting to increase base salaries by 10.5% across industries and career levels in 2016, and 48% of these companies are expecting to increase their headcount. The comprehensive survey represents 691 organizations across various industry sectors. In 2016, one in two companies are planning to increase headcount with Hi-tech, Shared Services and Life sciences leading the pack. The salary increase forecast for 2016 is quite similar to the actual salary increase for 2015.

Among different industries surveyed, the projected salary increase ranges from 10% to 11% overall, with relatively higher increases for the Life sciences, IT and Chemical industries. Over the years, salary increase differentiation across industries has narrowed down, but there is considerable pressure on talent retention, as budgets remain tight.


[Source:- IIFL]