In this briefing:
- India Monthly Report Feb’19 – Mar’19
- HDFC Ltd- It Deserves Its Premium Valuation Tag
- India: Modi’s Charisma Set to Overcome the Headwinds of Incumbency and Electoral Pacts
- Indian Mobile – ARPUs Inflect as the Worst May Be over for Bharti, Although Not for Vodafone IDEA
- Jain Irrigation: From Up Close The Crop Doesn’t Look Healthy
1. India Monthly Report Feb’19 – Mar’19
Indian indices were the least performing among the select global indices with S&P BSE Sensex and Nifty 50 generating returns of negative 1.65% and negative 0.81% in domestic terms respectively. In Dollar terms, they fell by 0.81% and 0.09% respectively. Indian Rupee witnessed an appreciation of 0.85% during the period and has risen from 71.44 USD/ INR to 70.84 USD/ INR. Among the select indices, Dow Jones was the best performer with dollar returns of 3.4%.
| Performance of Select Indices during Feb’19 | ||
| Index | Returns in Domestic Currency | Returns in USD |
| S&P BSE SENSEX | -1.65% | -0.81% |
| NIFTY 50 | -0.93% | -0.09% |
| Nikkei 225 | 2.87% | 1.17% |
| Dow Jones Industrial Average | 3.40% | 3.40% |
| HANG SENG | 2.51% | 2.49% |
| FTSE 100 | 0.78% | 2.22% |
Among the sectoral indices, Nifty Media was the highest gainer with a 17.56% return in domestic terms and 18.56% in USD terms. The worst performer has been Nifty PSU Banks with a decrease of 5.82% in domestic terms and 5.02% in USD terms.
Performance of Indian Sectoral Indices in USD | INR Returns | USD Returns |
NIFTY MEDIA | 17.56% | 18.56% |
NIFTY METAL | 1.99% | 2.85% |
NIFTY IT | 0.05% | 0.90% |
NIFTY REALTY | -0.50% | 0.35% |
NIFTY PVT BANK | -0.59% | 0.26% |
NIFTY PHARMA | -0.94% | -0.10% |
NIFTY AUTO | -1.02% | -0.18% |
NIFTY BANK | -1.09% | -0.25% |
NIFTY FIN SERVICE | -2.04% | -1.20% |
NIFTY FMCG | -3.10% | -2.28% |
NIFTY PSU BANK | -5.82% | -5.02% |
2. HDFC Ltd- It Deserves Its Premium Valuation Tag
In continuation of the Housing Finance Series (pleas click here and here for the earlier articles), this article provides a detail on HDFC, the largest Housing Finance Company (HFC) in the country. The company has a market share of 38% in the private sector. It is a AAA rated with one of the best asset quality among its peers.
The key strength of HDFC is its ability to generate low cost funds from multiple sources that helps in maintaining its spread irrespective of the interest rate cycles.
Given a long term secular trend of the housing industry in India, we expect HDFC to remain a key beneficiary. A strong corporate governance standard, high management quality and a robust risk management may help in sustaining the return ratios as well as the asset quality that are among the best in class.
3. India: Modi’s Charisma Set to Overcome the Headwinds of Incumbency and Electoral Pacts
If the election were to be held at the end of last week, we estimate that the BJP would have won just 213 seats, and the NDA it leads 265 — falling 7 seats short of a majority. Electoral alliances — particularly the fact that the BJP faces a less-fragmented opposition this time than in 2014 in UP, Karnataka, Bihar and Jharkhand — would ensure that. But the quality of party campaigns, and the performance of an incumbent government, also have major impacts on India’s electoral outcomes.
With the election campaign underway, there have already been a stream of defections from other parties to the BJP, indicating that the “wind” is blowing the BJP’s way, and this is likely to be another “wave” election (like those in 1977, 1980, 1984 and 2014). The Modi government has not only made India the fastest-growing economy in the G20, CPI inflation has averaged 4.5% in the past 5 years (versus over 10% in the previous 5), the poor have near-universal access to cooking-gas, bank accounts and toilets (3 crucial necessities that were denied to more than half of Indians until 2014!) and the rupee is stronger now than 5 years ago (having suffered two currency crises during the UPA2 regime). Plus India has made significant gains on national security and the fight against terrorism. We expect that the NDA will gain another 50-60 seats (over our baseline scenario) in UP, Madhya Pradesh, West Bengal, Odisha and Rajasthan during the election campaign, ensuring a very comfortable majority of 315-325 seats for the ruling alliance.
When combined with the fact that the NDA will also have a working majority in the Rajya Sabha, we expect the next one year to be characterized by very substantive legislation, including a thorough liberalisation of the labour market — ensuring greater flexibility for the organized sector, but substantially better protections for workers in the unorganized sector. This should transform India’s economic prospects over the next five years, ensuring a manufacturing revolution that takes real GDP to a 10% annual growth handle over the next 5 years. Both the Indian rupee and equity markets have begun to price in such an outcome this week. We would Buy India despite the challenging valuations!
4. Indian Mobile – ARPUs Inflect as the Worst May Be over for Bharti, Although Not for Vodafone IDEA
Chris Hoare sees increasing signs that the worst is over, at least for Bharti Airtel (BHARTI IN). ARPUs and therefore revenues are bottoming. The 3Q numbers were the first quarter where the market as a whole grew sequentially (+2.5% QoQ) since Jio launched. We expect profits to follow. Signs of stabilization are much clearer for Bharti, as the performance gap vs Vodafone Idea (IDEA IN) remains wide. Both Bharti and IDEA are raising around $3.5bn of new equity. However, as we wrote previously, we do not think this is enough for Vodafone IDEA and expect the company to continue to lose market share. By contrast, Bharti’s capital increase puts the company in a strong position going forward and allows investors to fully discount extreme stress scenarios.
5. Jain Irrigation: From Up Close The Crop Doesn’t Look Healthy
Notwithstanding, the revenue growth Jain Irrigation Systems (JI IN) (JISL) seems to be lacking efficiency in utilization of fixed assets. The sale of stake in a subsidiary company raises eyebrow. Another bug that should bother JISL is the quality of its earnings. This impairs any positive forecast on operating profit. The situation becomes sticky when the issues of free cash flow, performance of subsidiaries and threat to goodwill are thrown in the matrix.
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