stockaxis Market Intelligence (Commentary for June 2019; Outlook for July 2019)

We are pleased to present to you our monthly market commentary and outlook for the forthcoming month. The ‘stockaxis’ Market Intelligence’ is a quick update on the markets for the month gone by and our view for the next month. Use our sharp and crisp synopsis to continue building your wealth!

Global Trends

• India is a top market for BBC News with audience figures reaching 50 million in 2018. BBC operates in 9 languages in the country.
• Global airline body IATA says India and China make up for nearly half of air passenger growth in two decades. In the next two decades, the two countries will account for 45% of all additional passenger trips with passengers coming from diverse economic backgrounds.
• India will emerge as the 2nd largest economy in APAC region by 2025 and the 5th largest global economy in 2019 according to IHS Markit. GDP growth forecast will average near 7 per cent mark between 2019-2023.
• EY reports that China and India lead FinTech adoption with 87% adoption rate. FinTech industry in India is rapidly expanding with high awareness due to government initiatives.
• World Bank projects India to grow at 7.5% in the coming three years.
• World Investment Report 2019 released by the UN states FDI flows to India rose 6% in 2018 and touched USD 42 billion thanks to inflows seen in manufacturing, financial services and communications sectors as well as cross-border merger and acquisition services.
• Mary Meeker report on Internet Trends establishes India as the second largest internet user base with 12% of all global users. China has the world’s largest internet base.
• Global electronic gaming revenues will grow 9.6% to USD 152.1 billion in 2019 according to gaming analytics firm Newzoo.
• Bengaluru emerges as a top-ten destination for cross-border investors in APAC. Total real estate investment in the South Indian city was nearly USD 800 million in 2017-18, which doubled in 2018-19.

Domestic Trends

• RBI relaxes leverage ratio (LR) in order for banks to increase their lending activities. LR is now at 4% for Domestic Systemically Important Banks and 3.5% for others.
• A weak dollar and foreign fund inflows send India’s forex reserves to an all-time high of USD 422.20 billion in June 2019.
• AI and Big Data make significant inroads into the BFSI sector with Markets and Markets estimating that the AI market is valued at USD 16.06 billion in 2017 and expected to reach USD 190.61 billion by 2025.
• India will gain 65 million sq. feet of new mall space by 2022 with Mumbai Metropolitan Region, Delhi-NCR, Hyderabad and Bengaluru seeing the highest supply of mall space.
• India aims at the Top 50 position in “Ease of Doing Business” mulling moves to scrap business licensing and ushering in a registration process.
• Indian pharma industry with current global market share of 3.6% sets goals to corner 7% of global market by 2030 according to a joint industry-McKinsey report.
• McAfee estimates 87% companies derive business acceleration from cloud services; however, challenges such as managing risk remain intact.
• Private Equity Firms have pumped in USD 1.1 billion between Q1FY17 and Q1FY19 in the Indian logistics and warehousing sectors with biggest investor interest seen in Bengaluru, Chennai and Hyderabad.
• Delhi and Bengaluru top the list of jobs added as Retail and FMCG set to add 2.76 lakh new jobs between April-September of FY 20.
• India’s manufacturing sector expands at the fastest pace in 3 months as of May 19 as The Nikkei Manufacturing Purchasing Managers’ Index rises to 52.7 from April’s eight month low of 51.8.
• Government will infuse Rs. 40,000 crore in India’s public sector banks in the current financial year; the move is set to help balance sheets and increase lending.
• Number of microfinance accounts rise to 9.33 crore at end of March 2019 exhibiting a growth of 21.9%. The Indian microfinance industry’s gross loan portfolio rises to 1.87 lakh crore, up 38% y-o-y.
• Genius Consultants report states hiring activity will remain steady in 2019-20 with 58% employers expressing optimism on hiring.
• Foreign Direct Investment (FDI) in services sector rises 36.5% to USD 9.15 billion in 2018-19 according to figures released by Department for Promotion of Industry and Internal Trade. Government initiatives have helped.
• Textiles Secretary wants industry to usher in second growth phase and aim for exports near USD 100 billion mark as textile industry pushes to become worth USD 350 billion by 2025.
• Demand for Purpose Built Student Accommodation (PBSA) currently at 8 million bed spaces will reach 13 million bed spaces by 2025 according to a report by Knight Frank. USD 100 million has been invested in PBSA market in 2018.
• Systemwide Non-Performing Assets (NPA) stocks has fallen massively to 9.3% in March 2019 beating RBI estimates. Previous year’s numbers were 11.5%.
• Zenith estimates mobile internet consumption to reach 79 minutes a day by 2021; In 2013, mobile internet consumption was 9.4 minutes while current figures stand at 54 minutes.
• 50 Indian peripheral cities see increased growth of home loans ranging from 15-36% against 8-12% growth in metros.
• Global banks estimate Indian inflation largely in-line with expectations and below RBI target at 3.05% in May. Avenues open up for yet another rate cut.
• Co-living segment in India can grow to be a USD 93 billion market provided operators focus on delivering quality at reasonable prices according to PropTiger.
• Private insurance companies exhibit strong growth in May 19 with annualized premium equivalent rising 28% y-o-y according to IRDAI data.
• Digital payments set to double by 2023 will touch USD 135.2 billion with fastest growth to be seen between 2019-2023 according to Assocham-PWC India study.
• Naukri JobSpeak Index for May 19 at 2,436 up 11% y-o-y. IT-Software, BPO, Education, IT-Hardware, Construction and Engineering and FMCG all show healthy hiring trends.
• India will generate 2 million outbound tourists by 2020. According to Meetings, Incentives, Conferences and Exhibitions (MICE), the tourism market is expected to touch USD 9 billion by 2025.
• Cloud application services will represent almost half of total public cloud services revenue according to Gartner. Public cloud services revenue in the country will reach USD 2.4 billion in 2019, an increase of 24.3% from 2018.
• India’s flexi-workforce has risen to 3.3 million in 2018 compared to 1.2 million in 2015. Such workers free employers from 44 labour laws in the country but rising numbers also indicate formalization of workforce.
• Khadi’s share in textile production has doubled in the last 5 years to 8.49% of the total textile mill production as of 2018-19.
• Kolkata saw the highest y-o-y growth in warehouse space leasing with 191% in warehousing leasing volume. Warehousing space leasing increased 77% in India over last calendar year.
• Logistics sector sees 14.19% job growth in April-September of FY 20. The sector employs 82.4 lakh people as of Q2 FY 18-19.
• Retail and FMCG sectors to create 2.76 lakh jobs in April-September of FY 20. Retail sector alone is poised to increase employment outlook by 2% and add 1.66 lakh new jobs. FMCG/D can see 1% rise and generate 1.10 lakh new employment opportunities

Market Trends

• FIIs recorded a net outflow of Rs. 688.50 crore in June 2019 against a net outflow of Rs. 2,135.85 crore in May 2019.
• The Nifty closed at 11788.85 on 28th June 2019 against 11,922.80 on 31st May 2019, having fallen by 133.95 points over the previous month.
• The Nifty 50 P/E ratio was at 28.98 at end-June 2019 against 29.49 at end-May 2019. The average P/E ratio for the past 12 months is 27.25.

Highlights

• The Good: Decisive election outcome, continued thrust on reforms, expected FII inflows, stable rupee
• The Bad: Global trade slowdown, US-China trade war, China debt bubble, US-Iran tensions

stockaxis’ Outlook for July 2019

Pre-Budget expectations with Rural in focus
Budget expected to support government’s vision of doubling farmer incomes by 2020

The Union Budget will be presented to the parliament by the Finance Minister Nirmala Sitharaman on July 5, 2019. The government plans to reinvigorate growth through consumption (particularly rural consumption). This requires leaving the farmers with more money in their pockets.

The government has the ambition of doubling farmers’ income through higher productivity, minimising production costs and improving realised crop value. The interim budget presented before the elections had already included a direct income support (DIS) of transferring Rs.6,000 per year to small and marginal farmers. Increasing productivity would entail modernising irrigation and introducing advanced farming techniques in the hope that it improves crop productivity and results in better input efficiency. Farm mechanisation could also be on the agenda. The budget may also look at reducing cost of production for Indian farmers by building storage facilities near farms, reduction of GST on farm products and tax breaks for agricultural co-operatives. Indian farmers have long suffered from presence of middlemen; the budget could look at mechanisms that result in price stabilisation especially for crops that are not included in the Minimum Support Price (MSP). The government could also focus on value additions such as organic crops, that result in better price realisations.

The Indian farmer is largely dependent on rainfall as a means of irrigation. Poor rainfall equates to low income in the Indian farm sector. After the re-election of Narendra Modi, the new cabinet now includes a Minister of Jal Shakti, who is mandated to not only ensure clean water, but also provide irrigation water facilities to farmers.

The budget could focus on part loan waivers, small concessions, repayment incentives for existing credit or interest subvention for affected farmers. There is a possibility of announcement of subsidy and insurance schemes that can provide relief to farmers in hard times. The role of FinTech and InsurTech in providing faster claim settlement could be an area of focus in the coming budget. Research and Development of climate resilient crops may be bolstered given climate change and its impact on the Indian farmer.

Beyond the farmer and into the allied rural sector too there are high expectations from the coming budget. Agricultural exports make up for 10% of the national exports, but most of the exports constitute low value, raw or semi processed goods. There is a huge opportunity here to create policy environment to both increase the quality and the quantum of agri-exports. The government can institute initiatives to boost agricultural start-ups; this could be done by removing bottlenecks such as waiving off collateral requirement for loans, eliminating paucity of growth capital, reducing taxation on angel investments in agricultural start-ups and extending the applicability of existing agricultural schemes to these nascent businesses. Increasing private sector participation in agriculture through public private partnerships could pave the way for introduction of technology, improvement of quality of crops and fostering of innovation in the rural sector. Giving breaks and sops to private sector entities who want to work in the rural sector or providing incentives through subsidies could be a feature of this budget.

The interim budget has already announced reforms like the Pradhan Mantri Kisan Samman Nidhi, Pradhan Mantri Shram-Yogi Maandhan and the Kisan Credit Card Scheme through which farmers can get additional income or credit support. These measures are built to boost rural consumption.

We, at stockaxis, are constantly on the lookout for great businesses run by honest promoters that are available at the right price with sufficient margin of safety. Our stringent stock selection guidelines and clearly stipulated entry and exit points make equity investing a ‘rich’ experience for our investors!

Follow our WhatsApp channel

---