India April’2018 CPI Inflation and Highlights
– India April CPI Inflation firms to 4.58% YoY from 4.28% in the previous month and 2.99% year ago. The headline CPI Inflation exceeded our estimates being at 4.33% and the Bloomberg Median Estimates of 4.40%.
– Headline CPI Inflation excluding HRA Impact stood at ~4.18% YoY in April vs 3.91% in March and is expected to average 4.5-4.7% in FY19.
– Food and Beverages Inflation stood at 3% YoY vs 3.08% in the prev.month and our est at 2.82%
– Pan, Tobacco group inflation firmed up to 7.91% YoY from 7.72% in prev.month in line with our estimates.
– Clothing and footwear inflation firms to 5.11% YoY an 18-month high from 4.91% in March and our est at 4.85%.
– Housing Inflation was at 8.5% YoY vs 8.31% in March and our est for 8.36%
– Fuel and Light Inflation moderated to 5.24% YoY from 5.73% in the previous month. We were expecting a sharper decline to 4.4%.
– Miscellaneous group inflation unexpectedly accelerated to a 15-month of 4.96% an increase of 80 bps from previous month where all the sub-groups witnessed hardening led by Transport & Communication sub-group Inflation rising the most with 166bps increase to 4.55% from the previous month.
Acceleration in Core CPI Inflation
– India April Core CPI Inflation stood at 5.92% YoY vs 5.37% in March’2018 and our own estimates for 5.67%,
– The magnitude of acceleration in Core CPI Inflation by 55 bps in April to 5.92% over previous month has surprised us and that being broad based from all services sub-group is seen to be of a permanent nature which may feed onto non-core segment as well going forward potentially raising upside risk to inflation trajectory.
– We expect CPI Inflation to range between 3.8% to 5.4% in FY19 with our model estimates suggesting Headline CPI Inflation to average ~4.4-4.7% in FY19 (including the HRA impact from State Government Employees) vs 3.59% in FY18 and that excluding the statistical impact of HRA is seen to average higher at 4.22% from 3.89% estimated last month vs 3.39% in FY18.
– With a surprise acceleration in Core CPI our estimates for CPI Inflation stands revised higher where Core CPI Inflation excluding the HR Allowance of Central Government as well as State Government Employees is seen to average 4.93% in FY19 an upward revision of 37 bps from our previous estimate of 4.56% last month vs 4.1% in FY18.
– Until our last update we were in the camp for an accommodative stance to be the way forward as we expect into second half of this fiscal Headline CPI Inflation trajectory is seen to be moderating below 4% for couple of months. However given the backdrop of recent firmness in Core CPI Inflation trajectory we are cautious and will not be surprised should the MPC biasness shift for a token pre-emptive hike in the benchmark repo rate sooner than later in order to anchor the inflationary expectations hereto.
Sunidhi Securities & Finance Ltd.
Stock Market review 2018-17
How to Raise Revenue and be Fiscally Prudent: NILESH SHAH
Fiscal Deficit for FY18 is likely to exceed the budgeted estimate of 3.2% by about 0.3%. This is driven by lower GDP growth and GST collections. Other receipts like dividend from the RBI and spectrum sale proceeds have also fallen short of budgeted estimate. Expenses have also shot ahead of the estimates. The fiscal deficit target of 3% for FY19 looks difficult to achieve as the Government has to do heavy lifting on capital expenditure. Higher oil prices are also restricting the fiscal space. From Industry to Individual everyone is asking the finance minister to be liberal on spending but benevolent on tax collection and yet be fiscally prudent.
Kautilya mentioned that taxes should be collected like bees collect honey from flowers.
Here are my recommendations to the finance minister about how to raise revenue like a honey bee:
• Plug the loophole in bonus stripping and dividend stripping. Nowhere in the world bonus shares are treated at zero cost. Look at all the people who sold their companies over last many years and calculate what tax was paid tax on those gains. Govt can save anywhere between ₹15,000 crore and ₹25,000 crore by bringing bonus share taxation at par with global standard. It is grossly unfair that a small businessman when he sell his firm is made to pay full tax, but big businessmen are given this loophole to exploit with impunity.
• Monetise VSNL land in FY19. That 700- acre-plus land can fetch anywhere between ₹10,000 crore and ₹15,000 crore. You can take the credit of completing the work pending since 2002.
• Cigarette has been taxed heavily compared to non-cigarette tobacco products. A decade back cigarette were taxed 20-25 times more than non-cigarette tobacco products. Today this ratio ranges between 55 and 60 times. This heavy taxation has created a large market for smuggled cigarettes in India. The government is losing anywhere between ₹5,000 crore and ₹10,000 crore as per market gossip. Rationalisation of taxes across tobacco products will ensure reduction in smuggled cigarettes, and increase tax kity.
• Estate duty is an acceptable tax in the developed world. For example, in Japan, estate duty is levied at 30 % on worldwide assets. Levy of estate duty on HNIs can create good revenue flow. There are many loopholes around Gift, Trust etc which have made our tax net ineffective. The same needs to be tightened for better tax compliance.
• Create a sovereign fund to manage external reserves of India. There are enough role model from GIC to ADIA which can help improved yield on foreign exchange assets. Even if we can improve yield by 2% on $400 billion of forex reserves it will amount to an income in excess of ₹50,000 crore. The Swiss National Bank last year made profit of $55 billion or more than 8% of Swiss GDP. Obviously, we don’t want the RBI to become an aggressive manager like the Swiss National Bank, but a calibrated risk taking is inevitable in today’s world like what China, Norway, the Middle East countries and Canada are doing.
• The government divestment on a piecemeal basis. They sell PSU companies in small parcels at a discount in the secondary market. If the government can pursue strategic divestment like Hindustan Zinc or Maruti, it can fetch a significant premium. A 25% premium on half of the divestment target of last year amounts to ₹9,000 crore.
• The government is asset rich. There are number of real estate, land, surplus assets, road, port etc which is owned by the government. Such assets can be sold to investors to raise money which can be invested in new infrastructure projects. World is surplus with liquidity and hungry for quality assets. Monetisation of assets across the government and railways can raise substantial sum of money for further investment.
• Custodian of enemy property has assets exceeding ₹1,25,000 crore. Some of them are liquid like shares and some of them are illiquid like real estate. A time-bound programme to liquidate those assets can raise substantial amount of money for next few years.
• The government has created corpus through collection of cess under various categories from highway development , education cess, universal basic obligation to forest conservation. As per the CAG report of FY15, ₹144,522 crore is lying unutilised as unspent cess in various schemes. Some of those can be utilised in the general Budget after appropriate changes in their spending clause.
How to Raise Revenue and be Fiscally Prudent, Too
• levy tax on agriculture income for HNIs. While it is understandable that poor farmers are not taxed, it is beyond logic why rich farmers aren’t taxed. Today many rich people save tax by declaring bogus agricultural income. It is important to ensure HNIs are taxed irrespective of whether they earn their income from farming or otherwise.
• Unclaimed dividends after a few years are transferred to the central government. Similarly, unclaimed deposits, mutual fund units, PF dues and insurance claim/maturity should be transferred to the central government. Law of limitation will ensure that the govt becomes the beneficiary of unclaimed money on a recurring basis. These can raise substantial resources for the government.
• The RBI has very high capital adequacy compared to developed world central banks and pretty high capital adequacy compared to developing world central banks. While investors and rating agencies will want RBI reserves to remain untouched, they have not complained when US Fed bought sub-prime loans, ECB bought junk bonds and Bank of Japan bought equity in Japanese companies. We should look at utilising RBIs excess reserve for the benefit of Indian Economy.
• Indian tax compliance is poorer than many African nations. It won’t be unfair to say that other than the salaried class, most Indians don’t pay their share of tax properly. It is important to widen tax net through better data analytics. Submission of balance sheet should be a must for all tax payers. Superficial entities such as HUF, AOP, Trust need to be taxed appropriately.
• Indians own more than $1 trillion of precious metals and diamonds. It is important to tax them. Most of these are with HNIs, religious institutions and black money holders. A flat tax of 2% can yield more than ₹40,000 crore. We’ve seen not many people paid wealth tax for lack of stringent penalty. A severe penalty like confiscating undeclared gold will push many people to comply with precious metal and stone tax. Keeping high exemption limit will ensure that majority of household won’t have to pay tax on their holding.
India economic growth trajectory improves in Q2 FY18; On course for an annual growth of 6.6%
Highlights on Q2FY18 Real GVA
– Industry wise GVA growth (read as Q2 vs Q1 in %) stood as :
o Agriculture, forestry & fishing : 1.7% vs 2.3%
o Mining & Quarrying : 5.5% vs -0.7%
o Manufacturing : 7% vs 1.2%
o Electricity, gas ..: 76% vs 7%
o Construction : 2.8% vs 2%
o Trade, hotels …:9.9% vs 11.1%
o Financials. Real estate: 5.7% vs 6.4%
o Public administration, defence : 6% vs 9.5%
o Overall GVA Growth: 6.1% vs 5.6%
Thoughts on GVA
India Q2 FY18 Real GVA growth uptick to 6.1% YoY from 5.6% in Q1 FY18 carries an impressive build up in growth momentum led by the pick-up in manufacturing segment which represents ~ 18% of GVA. It is Impressive with manufacturing contribution having dropped to as low as 20 bps of 5.6% GVA in Q1 FY18 saw a sharp recovery to 130 bps of 6.1% in Q2 FY18.
While stronger than expected momentum for Manufacturing growth at 7% YoY in Q2 from 1.2% in Q1 has surprised us the loss of momentum in Trade, hotels to 9.9% YoY in Q2 from 11.1% in Q1 and into Financials, Real estate to 5.7% YoY in Q2 from 6.4% in Q1 has also disappointed. Having said that, the loss of momentum in latter is possibly due to change in methodology for recognizing GST as a proxy from an earlier Sales Tax regime as an indicator.
We expect the 2H FY18 GVA growth to average at 7.4% followed by a 1H GVA growth averaging at 5.8%. The incremental 1.6% growth contribution for 2H is seen coming by way of 60 bps from the Industrial segment, primarily led by steadying manufacturing growth; 110 bps growth contribution from the Services segment that had been subdue in 1H FY 2018 led by Financials, real estate segment. Agriculture contribution is seen in -10 bps for 2H FY18.
Overall we expect FY18 GVA to be at 6.6% unchanged from that in FY17 but the return of momentum in Manufacturing is seen to be encouraging and the same is expected for the financials, real estate starting Q3 FY18 and onwards.
We expect RBI retaining its GVA growth projections for FY18 at 6.7% in its December MPC meet.
Sundihi Securities & Finance Ltd.
BENEFITS OF SYSTEMATIC INVESTMENT PLAN (SIP)
5 Market Triggers to Watch Out for in Coming Months
Investors await clarity on inflation, geopolitical frictions, US Fed action, rising dollar and earnings recovery
India is one of the best performing Asian markets this year. The Nifty has gained 23.2% so far this year and as of Friday’s closing level of 10,085.40, it is just 0.5% shy of its all time high of 10137.85.ET takes a look at triggers that could influence the market direction in the coming months.
Money managers believe earnings recovery will be the top factor to watch out for. The largely weak first quarter earnings have been ignored as investors expect the demand picking up in the upcoming festive season, giving a boost to earnings. “After challenges faced by companies during GST implementation, the market is hoping demand will pick up in the festival season and reflect in October-December earnings. If that gets delayed, then there is a risk to the market rally,“ said Dhiraj Sachdev , senior fund manager at HSBC Global Asset Management.
This factor primarily concerns the ongoing worries over North Korea’s missile programme. The In war of words be tween the US and North Korea over the latter’s nuclear programme had sent global markets into a tailspin in August and continues to weigh on investors’ sentiment. Foreign Portfolio Investors pulled out `12,600 t of Indian markets in August crore out of Indian markets in August and have sold shares worth `3,100 crore in September so far. North Korea has said it will complete its nuclear programme in the face of strengthening sanctions. Sachdev of HSBC said the market is currently expecting that these tensions will not escalate into a war-like situation.
US FED ACTION
The Fed has pencilled in three rate hikes in 2017 and has already moved twice. The next hike is expected in December but before that, the US central bank is expected to unveil the timing of its balance sheet unwind in September. Analysts said the commentary of the Fed will be closely watched. “They have already said they will tighten the balance sheet, but if there is any deviation and they don’t go ahead with that, it would be a riskpositive event for the market,“ said Vaibhav Sanghavi, co-chief executive officer at Avendus Capital Alternate Strategies.
The US dollar is down to its lowest level in nearly three years and most of the greenback’s decline is being attributed to disappointment with the pro gress of tax reforms and stimulus agenda by US President Donald Trump’s administration. “The DXY (US Dollar Index) is looking pretty weak. It could increase if the tax reforms and fiscal push in the US comes through,“ said Sanghavi of Avendus.A reversal in the trend could hurt emerging markets including India.
Retail inflation surged to 3.36% in August from 2.36% in July due to rise in food and petrol prices, dashing hopes of the RBI, cutting rates in the near future. Analysts said they expected oil prices to remain stable in the near future, but if they rise, it could put inflation at a further risk. A further uptick in inflation could hurt sentiment on the Street as well.
Himanshu – Sunidhi Securities
Fund Insight – August end 2017
• Highest ever monthly equity flows at INR 218bn.
• MFs were net buyers to the tune of INR 179.4bn in Aug as against INR 118bn in July.
• Total MFs AUM stands at record high levels ofINR 20.59tn, up by 3.1% (INR 0.62 tn) in Aug-17.
• Equity AUM (Equity + ELSS + ETF+ FoF) stands atINR 6.99tn was up by INR 153bn MoM.
Detailed MF-wise activity during Aug 2017 –
Ø HDFC MF major additions were Infosys(INR8.64bn),State Bank Of India(INR2.76bn) and ICICI Bank(INR2.69bn).It’s major reductions were Maruti Suzuki India(INR5.66bn),Adani Ports and Special Economic Zone(INR4.06bn) and Tata Motors(INR1.26bn). New entries included Cochin Shipyard (IPO) and Godrej Consumer. Mahindra Life space Developers and V-Guard Industries were complete exits.
ICICI Pru MF’s major additions were Infosys(INR9.64bn), HDFC(INR4.92bn) and Larsen & Toubro(INR4.39bn). It’s major reductions were HDFC Bank(INR4.16bn),Tech Mahindra(INR3.17bn) and Bajaj Finserv(INR2.05bn). Jagran Prakashan and Berger Paints were new entries. Reliance Capital was a complete exit.
SBI MF’s major additions were Housing Development Finance Corporation(INR3.25bn),HDFC Bank(INR2.72bn) and Bharti Airtel(INR2.26bn). It’s major reductions were Infosys(INR4.12bn), State Bank Of India(INR1.09bn) and Tata Steel(INR0.43bn). New entrants included Jindal Steel & Power and Alembic Pharma. Supreme Industries was a complete exit.
Reliance Nippon MF’s major additions were RBL Bank(INR1.78bn) and State Bank Of India(INR1.47bn). It’s major reductions were Oil & Natural Gas Corporation(INR1.49bn),Vedanta(INR0.98bn) and Kotak Mahindra Bank(INR0.96bn). Fresh entries included Cochin Shipyard LtdINR3.59bn), and VRL Logistic (INR 0.67bn). Future Lifestyle Fashions was a complete exit.
Aditya Birla SL MF’s major additions were Housing Development Finance Corporation(INR1.5bn), Whirlpool Of India(INR1.49bn) and Infosys(INR1.45bn). It’s major reductions were State Bank Of India(INR2.15bn), Godrej Consumer Products(INR0.91bn) and Reliance Capital(INR0.79bn). Fresh entries included Jamna Auto Industries and Great Eastern Shipping. Kaveri Seed was a complete exit.
Franklin Templeton MF’s major additions were Dr. Lal Pathlabs(INR1.25bn), Sobha(INR1.21bn) and Tata Motors(INR0.89bn). It’s major reductions wereGrasim Industries(INR3.93bn), Bharti Airtel(INR1.71bn) and TVS Motor Company(INR1.21bn). Cochin Shipyard Ltd was a new entry while Tata Communications was a complete exit.
UTI MF’s major additions were Tube Investments Of India(INR0.96bn),Tata Motors(INR0.6bn) and Dr. Reddys Laboratories(INR0.56bn). It’s major reductions were Axis Bank(INR0.56bn),Mahindra & Mahindra(INR0.42bn) and IDFC(INR0.39bn).New entries included Infibeam Incorporation, Cochin Shipyard Ltd and PTC India. Jaiprakash Associates was a complete exit.
DSP BR MF’s major additions were Housing Development Finance Corporation(INR2.07bn),Hero MotoCorp(INR1.34bn) and Bajaj Finance(INR1.01bn). It’s major reductions were Infosys(INR1.82bn),State Bank Of India(INR1.61bn) and Manappuram Finance(INR1.38bn). Mahindra & Mahindra Financial Services and Bajaj Finserv were new entrants in the portfolio while Zee Entertainment was a complete exit.
Sebi to reduce mutual fund schemes by half –
India Trumps Hong Kong as No. 1 for Home-Price Gains in Asia
Sebi gives suspected shell companies a chance to be heard
Sebi issues a second communique to stock exchanges, asking them to look at the tax returns and financials of the suspected shell companies for the past 3 years
Reserve Bank of India’s Third Bi-Monthly Monetary Policy Resolution for 2017-18
Following are the highlights of the Reserve Bank of India’s
Third Bi-Monthly Monetary Policy Resolution for 2017-18 (Apr-Mar):
* MPC cuts repo rate by 25 bps to 6%
* Reverse repo adjusts to 5.75%
* MSF, Bank Rate adjusts to 6.25%
* See real FY18 GVA growth at 7.3%
* Maintain neutral policy stance with focus on 4% CPI
* MPC to continue monitoring movements in inflation
* MPC to study if recent inflation data transient
* MPC notes some upside risks to CPI reduced, not materialised
* To take steps to make Base Rate responsive to fall in costs
* Eases some norms for liquidity coverage ratio computing
* Separate limit for interest rate futures for FPIs
* Some upside risks to CPI have reduced/not materialised
* 4 MPC members voted for 25 bps repo rate cut
* Dholakia voted for 50 bps repo rate cut
* ED Patra voted for status quo on repo rate
* Next MPC meet on Oct 3-4