Month: August 2014

India goes from fragile to fabulous

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Watching the meteoric rise of India’s stock markets so far this year, one can be forgiven for forgetting that just a year ago, the asset class was a poster child of the emerging market bashing.

Both benchmark indices, the Sensex and the Nifty, swooned last year on fears a tapering of asset purchases by the Federal Reserve will trigger an outflow of funds from the market, falling to year-lows in September.

But this week, India’s stock markets came back from Independence Day celebrations roaring to new life-time highs, as local and foreign investors continued to pile in their money, on hopes the economy will stage a sustainable turnaround.

Read More: This is Asia’s investment moment

The Sensex and Nifty have soared some 25 percent so far this year, and analysts are calling for more gains to come.

Saurabh Mukherjea, CEO of institutional equities at Ambit Capital, expects stocks to run up another 15-20 percent by the end of India’s fiscal year in March next year.

“That has been our call since May this year, and we standing by that view. India’s economy is turning, it’s coming out of a downturn, fiscal and monetary policies are on the right path, and that’s generating confidence in the markets,” he said.

Read More: India retail investors no longer shunning stocks

Sahil Kapoor, chief technical analyst at Edelweiss expects the Nifty to make a dash towards 8,000 points in the near term; it clTuesday at a record high of 7897.50.

“Once that takes hold I see the Nifty rising towards 8,400 points by the end of this year. Generally whenever the index rises by more than 20 per cent in a calendar year we see the index rising for about 8 to 9 months on an average,” Kapoor said.

India stocks started the year well, but the buying momentum really picked up in May when business-friendly Prime Minister Narendra Modi won the national elections by a landslide, on hopes the new government can stem a growth slowdown that’s plagued the economy in recent years.

Read More: The man who would remake India: A 90-day scorecard

The euphoria in markets has prompted local media report to declare that India – which was tagged as one of the ‘fragile five’ economies last year together with Brazil, Indonesia, South Afrda and Turkey – is now part of the ‘fabulous five.’

But analysts caution the rally won’t be smooth-going. “Don’t expect a one-way traffic,” said said Ambit’s Mukherjea. “There will be speed-bumps along the way.”

He warns that inflation remains a big risk. India’s consumer price index is hovering around 7 to 8 percent, and if the number stays at these elevated levels, it may compel India’s central bank to raise rates and put pressure on growth, he said.

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Viral Bhuta, Portfolio Manager (Fixed Income) at UTI International agrees. There is definite upside on the Indian market, he said, but the risks haven’t completely gone away.

“Plus, with the strong run-up, market is looking a bit toppish right now,” Bhuta said, noting that India’s volatility index has fallen to about 13 to 14 points from 35 to 40 before the elections, meaning that volatility is now at a 7 to 8 year low.

“That’s a sign that complacency is setting in, so there is a risk of a reversal in the markets,” he added.

Read More: Five reasons why India’s rebound is real

Still, analysts say investors who are in for the long haul should not be overly concerned with short-term correction or sell-off. “It’s difficult to time the market, but with improving fundamentals, there are good reasons for investors to stay invested,” said Bhuta.

So should India be retagged as a ‘fabulous five?’ “It’s still too early for India to take on that term, we will have to see what happens in the next year or two,” UTI’s Bhuta said. “Perhaps a better term for India would be the ‘fighting five,’ because there are still plenty of hurdles to overcome.”

Mukherjea of Ambit Capital says calling India fragile is a misnomer in the first place.

“India is a country that boasts of multi-year growth story, supported by robust internal demand. Sure there were some rough years, but as we have seen, those who thought India was fragile two years ago has missed out on a great investment story,” he said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

FOMC minutes a market diversion until Jackson Hole

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Federal Open Market Committee releases minutes from its last meeting on Wednesday afternoon, but Wall Street is already downplaying the event as a sideshow in comparison to an annual symposium on monetary policy in Jackson Hole, Wyoming, two days later.

“The FOMC minutes are telling us about what happened three weeks ago, and Jackson Hole, given its precedent for signaling meaningful policy shifts, has taken on this very elevated status; it gets that extra attention even if it is just an academic conference,” said Jeff Greenberg, senior economist at JP Morgan Private Bank.

While investors will parse Wednesday’s minutes for clues as to when the Fed will start hiking interest rates, “the real look ahead for any hints as to monetary policy is Jackson Hole,” said Art Hogan, chief market strategist at Wunderlich Securities.

Fed Chair Janet Yellen and European Central Bank President Mario Draghi are among those speaking at Jackson Hole, with Yellen slated to open the gathering with an address on labor markets, her area of expertise as well as a portion of the Fed’s dual mandate, .i.e. maximum employment, and the other piece being inflation, or price stability.

 Economic data on Tuesday had the cost of living rising in July at its slowest rate in five months. with Inflation still under the Fed’s target of 2 percent, a scenario that gives the central bank additional wiggle room to keep interest rates low even after the Fed halts its bond purchases in October.

The jobless rate rose to 6.2 percent in July, but the measure is not necessarily reflective of Americans who want to work full time but can only find part-time employment, or those so discouraged they’ve stopped looking for work altogether.

“What we’ll hear about from Yellen is more and more commentary on how the unemployment rate is not necessarily representative of a broader slack in the labor market, given the level of part-time workers that want to be full time, and the low level of wage growth. Without all those measures getting back to normal levels, we’re missing the maximum employment part of their mandate, that will dominate,” Greenberg said.

“Something has changed in the labor markets since the great recession; low wages are being seen across the majority of professions,” said Jim Russell, senior equity strategist for U.S. Bank Wealth Management.

“The big question for the Fed, and for tomorrow (Wednesday) and Friday, is which of these (maximum employment or price stability) is more important. And the theme of Jackson Hole, the labor market, is much more important to the FOMC, and monetary policy, right now than the inflation side of the Fed’s mandate,” Greenberg said.

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Yellen is likely to communicate the view that “the labor market remains incredibly weak, and she’s inclined to keep monetary policy easy until the labor market has healed. We think easy monetary policy is good news for the stock market,” he said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Why Hong Kong may face more property curbs

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Despite a slew of measures aimed at damping down Hong Kong`s runaway home prices, some segments of the market are heating up again, potentially spurring further tightening measures.

“House price momentum is again leading to growth in household indebtedness, raising the risk of further government cooling measures,” Andrew Lawrence, an analyst at CIMB, said in a note last week.

He noted that small-unit prices are now 4.5 percent above where the government last introduced cooling measures, although larger properties of above 700 square feet remain below their 2013 peaks.

“Rapidly rising prices are once again putting pressure on potential homebuyers to get into the market as well as encouraging sellers to delay and ask for higher prices,” he said. “High home costs are adding to social concerns and should recent capital inflows end up on bank balance sheets, lower mortgage rates could add further momentum to the market.”

Hong Kong`s home prices have more than doubled since 2008, driven higher by a flood of cheap money from developed markets` central banks in the wake of the global financial crisis.

The special administrative region`s property market has become the world`s least affordable, according to a Demographia International Housing Affordability Survey, published in January. The survey found average home prices were 14.9 times gross annual median household income, the highest level ever recorded in the survey`s 10-year history.

The number of new and existing homes sold in July jumped to 7,792, after remaining below 6,000 a month for the past year, according to government data.

The increased activity appears to be driven by “optimistic homebuyers” seeking out seemingly affordable primary launches amid limited secondary market supply and relatively low overall transaction volumes, Lawrence said. He noted that data from Inland Revenue`s Buyers Stamp duty receipts suggests foreign buyers and investors buying through companies account for only 4 percent of transactions over the past two months.

To be sure, not everyone expects the rising home prices will spur the government into further action.

“The government will find it difficult to impose more demand-side curbs this time, as the recovery is mainly driven by end-user demand and the government has been promoting home ownership,” Citigroup said in a recent note. “The government has limited options to control demand without hurting end-users.”

The government`s official price index hit its all-time high of 249.80 in June, with small and medium-sized units rising the most over the past six months, it noted.

The bank believes speeding up pre-sale consents — or sales during the period before a project`s estimated completion time — would help to keep prices in check. It noted most developers are still getting their presale consents 12-24 months before estimated completion although the government allows up to 30 months.

“If more primary units are approved for sale in this half, we believe it would effectively slow the recent home price recovery,” Citigroup said.

-By CNBC.Com`s Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

Copyright 2011 cnbc.com

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

The man who would remake India: A 90-day scorecard

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Indian voters put Narendra Modi into office as prime minister three months ago as the former regional governor ran on an agenda of tackling inflation, taxes and rampant corruption.

Ninety days, Modi has made some unpopular decisions, such as approving diesel price hikes and ratcheting up the cost of railway tickets. But how much real change has he brought overall to the world’s largest democracy?

Investment bank BNP Paribas India outlined a number of notable changes made by the government so far under Modi, including:

• The percentage of foreign direct investment allowed in insurance firms was raised from 26 percent to 49 percent, subject to parliamentary approval

• Passenger fare and rail freight rate hikes

• Continuing gradual diesel deregulation—according to Amit Shah of BNP Paribas, the diesel subsidy is very close to being wiped out altogether

• The formalization of rules for long-term infrastructure bonds

• Hiking foreign direct investment limits in defense firms (from 26 percent to 49 percent) and railways (up to 100 percent)

• Simplifying environmental and forest clearance rules

• Controlling inflation by releasing food and grain stocks

• Labor law reforms, mainly relating to procedural changes to statutory filings and labor inspections

John Kriley, international investment analyst at S&P Capital IQ, said Modi needs to enact further reforms while he has early momentum, especially with regard to regulating the retail industry. Kriley characterized Modi’s work so far as “not impressive, but promising.”

“He [Modi] established his credentials for reform in the state of Gujarat and he has pledged to do more for the country as a whole, but what he plans on doing remains to be seen,” noted Kriley.

In addition to the regulatory changes Modi has made, investors have applauded him for bringing about a cultural shift, introducing a certain level of work ethic back to the country, especially the capital New Delhi.

Bureaucrats on the ground in India told CNBC that they’re seeing more top-level executives showing up to work early and spending less time at the golf course.

“He [Modi] has thus created a culture of meritocracy and transparency where earlier a culture of bonhomie and favor-seeking existed,” said Suhel Seth, managing partner at Counselage India, a brand marketing consultancy.

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Several India watchers note Modi’s no-nonsense leadership style is what helped the state of Gujurat become so successful, but it ignited a level of fear in those who worked for Modi.

“Modi has sent out a strong signal that there will no longer be a culture of ‘friends’ doing business together at the expense of governance,” noted Seth.

—By CNBC’s Seema Mody. 

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow