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stockaxis Market Intelligence (Commentary for September 2017; Outlook for October 2017)

October 04, 2017

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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

  • US President Trump’s proposed revamp of the US tax system and possibility of another Federal Reserve (Fed) rate hike resulted in the US dollar and global borrowing costs rising.
  • Oil prices rose as a result of rising tension in oil exporting countries of northern Iraq and Kurdistan, with the latter voting for independence. Brent crude rose 60 cents to $58.50 a barrel and US light crude rose to $52.74 a barrel.
  • According to the European Commission, economic sentiment in the Euro zone rose to levels last seen in July 2007, with optimism percolating across nearly all sectors.
  • Gold prices fell while the US dollar rose as a result of expectations of the US Fed hiking interest rates in December 2017. Spot gold was down 0.2% at $1,278.36 per ounce.

Domestic Trends

  • India's factory output (based on the Nikkei/Markit Manufacturing Purchasing Managers' Index) remained at 51.2 in September (same as in August).
  • The Asian Development Bank (ADB) has reset India's GDP growth forecast for the current fiscal to 7 per cent and China’s to 6.7 per cent.
  • “In the next 10 years, the Indian economy will grow from the present 2.5 trillion to over 7 trillion, and will rank among the top three economies in the world,” India’s richest man and Reliance Industries’ Chairman and Managing Director, Mukesh Ambani said.
  • ‘General Re’, the reinsurance unit belonging to Warren Buffett’s Berkshire Hathaway Inc., has received a license to set up its Indian office. India is the world’s fastest growing reinsurance market.
  • The Reserve Bank of India is expected to hold interest rates steady in the near future to deal with signs of rising inflation.
  • The Indian Rupee weakened vis-à-vis the dollar over the month ending September at 65.2623 (63.93 at end-August).

Market Trends

  • The markets provided several entry opportunities with FIIs become net sellers resulting in stocks being available at attractive valuations.
  • FIIs recorded a net outflow from the Indian stock markets to the tune of Rs. 11,836.18 crores in September 2017 against a net outflow of Rs. 14,293.49 crores in August 2017.
  • On the last day of trading in September 2017, the Nifty closed at 9,788.60, down 129.3 points over the previous month-end.
  • The Nifty 50 P/E ratio was at 25.43 at end-September 2017.

Highlights

  • The good: Continuation of global recovery, good monsoons, low interest rates
  • The bad: Possibility of further Fed rate hike, signs of rising inflation, stronger INR

StockAxis’ Outlook for October 2017

The market for ferrochrome, a key raw material for the production of stainless steel, is on the upswing. There is virtually no substitute for ferrochrome in the manufacture of stainless steel; additionally, supply of ferrochrome is limited due to limited availability of chrome ore.

With a step up in production of stainless steel in China, a key producer of stainless steel, there has been a significant rise in demand for ferrochrome. This has led to ferrochrome prices doubling and prices of chrome ore (used to produce ferrochrome) nearly tripling. We expect the supply of ferrochrome to remain tight going forward, which is beneficial for ferrochrome producers.

Ferrochrome players with captive mines are the key beneficiaries since they have their own raw material supply (these players don’t rely on external raw material suppliers). Not only do these companies have the advantage of captive raw material supply, they are also able to keep their raw material costs down. Additionally, players with power plants (manufacturing ferrochrome is a power-intensive process) have an added advantage.

End-to-end players with captive chrome ore mines, ferrochrome production facilities and further conversion into finished stainless steel products enjoy the maximum advantage since they are able to capture margins at every stage of production and obtain market prices for finished stainless steel products.

Our in-depth research in the ferrochrome space has spotted investment-worthy companies with strong growth prospects.

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!

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