Investments are unlikely to pickup in a hurry given weak demand and increased leverage on corporate balance sheets in India
Investments are unlikely to pickup in a hurry given weak demand and increased leverage on corporate balance sheets, says Nomura in a research note based on data from Centre for Monitoring Indian Economy (CMIE).
“However,” it says, “a gradual upturn in the global growth cycle and a stable government with the right policies may gradually revive the investment cycle over the course of 2015-16. Given the central role that investments play in driving potential growth, we will be tracking this data closely.”
New investment projects moderated to 1.7% of GDP in Q1 2014 from 4.9% in Q4 2013. The fall is not surprising; the rise in Q4 investment was led by government-owned companies, which tends to be more volatile, and has likely reversed due to the upcoming elections. Private sector investments, which are more stable, rose marginally.
On a four-quarter rolling total basis, new investment projects stood at 3.5% of GDP in Q1, broadly similar to levels in 2013. This suggests that the slowdown in investments, which started in 2008-09, has come to an end. New investments are stabilising, but at very low levels, concludes the research note. This observation is shown in the graph below:
Note: GDP for Q1 2014 are Nomura estimates. Source: CMIE, CEIC and Nomura Global Economics.
If the Nifty closes below the day’s low, it may head lower
Except for a few minutes of trading in the green in the morning, the Indian benchmark traded in the red for the entire session. The BSE 30-share Sensex opened at 22,598 and immediately hit a high at 22,621 while the NSE 50-share Nifty opened at 6,772, hit a high of 6,777. Both the indices hit a low of 22,369 and 6,697, respectively. Sensex closed at 22,509 (down 42 points or 0.19%). Nifty closed at 6,736 (down 16 points or 0.24%) snapping the 10 days of upmove. The NSE recorded a volume of 94.12 crore shares.
The only five gainers among the other indices on the NSE were M N C (1.02%), Pharma (1.02%), F M C G (0.38%), Metal (0.19%) and Consumption (0.10%) while the top five losers were P S U Bank (2.02%), C P S E (1.85%), P S E (1.29%), Bank Nifty (1.19%) and Infra (0.97%).
Of the 50 stocks on the Nifty, 18 ended in the green. The top five gainers were Asian Paints (3.54%), Jindal Steel (2.86%), Hindustan Unilever (2.59%), Lupin (2.23%) and Ambuja Cements (2.17%). The top five losers were Bank of Baroda (3.07%), Bhel (3%), DLF (2.89%), P N B (2.48%) and I D F C (2.43%).
Of the 1,560 companies on the NSE, 643 closed in the green, 826 companies closed in the red while 91 closed flat.
The Reserve Bank of India (RBI) has decided on Thursday to grant "in-principle" approval to two applicants viz., IDFC and Bandhan Financial Services Private, to set up banks under the Guidelines on Licensing of New Banks in the Private Sector issued on 22 February 2013 (Guidelines). IDFC fell 2.38% on the news to close at Rs 124.95 on the BSE.
L&T Finance Holdings, IFCI were among the others who had applied for banking licence. These were the top two laggards in the ‘A’ group on the BSE. L&T Finance Holdings crashed 9.71% to Rs69.75 while IFCI fell by 8.51% to Rs25.25.
Shriram City Union’s managing director GS Sundararajan is confident of achieving 25% top line growth for next fiscal year although for this year, the company hopes to record marginal growth on top line. The stock was among the top three gainers in ‘A’ group on the BSE.
Coal India closed the year with a production of 462.5 million tonnes, which was 19.5 million tonnes off the target set for 2013-14. While the growth rate stood at 2.3%, at least two of its seven coal-producing subsidiaries showed a drop in production. However, its chairman S Narsing Rao said that the company would go all out to touch the half-a-billion mark in production this year. The stock, was among the top three losers in the Sensex 30 stock, fell 2.21% to close at Rs 280.85 on the BSE.
US indices closed flat with a positive bias. Data on Wednesday showed February factory goods orders rose 1.6%, topping an estimated advance of 1.2%. A separate report indicated companies in the US boosted payrolls by 191,000 in March, according to figures from the ADP Research Institute in Roseland, New Jersey.
Except for Shanghai Composite (0.74%), Taiwan Weighted (0.19%) and Seoul Composite (0.18%) all the other Asian indices closed in the positive. Straits Times (0.85%) was the top gainer.
Growth in China's services sector slowed slightly in March, data showed on Thursday. The official services Purchasing Managers' Index (PMI) released by the National Bureau of Statistics dipped to 54.5 from February's 55.0, but remained well above the 50 level that is the dividing line between expansion and contraction.
European indices were trading flat while US Futures were trading higher.
During March, auto volumes in passenger vehicles remained steady while two-wheeler and commercial vehicles reported better sales, says Nomura
Auto volumes in March did not show any negative surprises and were mostly in line with expectations from research analysts. "Domestic car industry volumes declined by about 4%, largely in line with our expectations of 2-3% decline, as per our calculations. Two-wheeler industry volumes increased around 23%, above our expectation of 17-18% growth, largely led by stronger-than-expected performance from Honda Motorcycles (HMSI). Medium and heavy commercial vehicle (MHCV) industry volumes declined about 20%, better than our expectation of 27% decline while light commercial vehicle (LCV) volumes declined by around 35% as against our estimate of 35-40% decline," says Nomura in a research note.
Car industry volumes down 4% in March
Nomura said as per its calculations, overall industry volumes are down 4%; largely in line with its estimates of 2-3% decline. New launches continue to drive growth for the original equipment manufacturers (OEMs) – Celerio for Maruti Suzuki India Ltd (MSIL) and Amaze and new City for Honda. The newly launched Datsun GO sold around 2,000 units in just 13 days in March. "Maruti has been able to maintain its market share at around 50%, which is quite positive, in our view," Nomura said.
Among the unlisted companies, Ford has reported only 20% growth despite the launch of EcoSport, suggesting steep decline in sales for existing models like Figo and Fiesta. General Motors (GM) volumes were also down sharply while other OEMs like VW and Renault have not reported yet but we expect weaker volumes due to lack of new models. Toyota volumes declined sharply by 58% partly due to labour issues at its plants, in our view, the research note added.
Two-wheeler industry volumes up 23%
Nomura said, overall two-wheeler industry volumes are likely up 23% in March as against its expectations of 17-18% growth.
While Hero MotoCorp (HMCL) and Bajaj Auto reported largely in-line numbers; all other OEMs like Honda Motorcycles and Scooters India Ltd (HMSI), TVS and Yamaha have reported stronger set of numbers. HMSI volumes increased by 55%, as against Nomura's expectation of about 40% growth.
"Scooter volumes (for HMSI) increased 53% to 2.02 lakh units and bike volumes were up to 1.90 lakh units. This could have been helped by the company offering free 0.5 gram gold coins worth Rs1,500 for Dream series bikes. Honda Shine volumes increased to 94,000 units in March as compared to run-rates of 60,000-70,000 units seen over the past few months," Nomura said.
As per HMSI management, it had 28% market share in the domestic two-wheeler market in March (24-26% over past six months) – the highest ever for the company. This highlights market share loss for incumbents HMCL and Bajaj Auto, Nomura added.
MHCV, LCV volumes down in March
According to Nomura, in MHCVs, there was some improvement in run-rates from last month for all OEMs, Tata Motors, Ashok Leyland and Eicher Motors. "This was likely helped by a cut in excise duties and higher buying by companies to avail depreciation benefits at year-end, in our view. Overall, MHCV industry volumes are down by about 20% as against our expectation of 27% decline. SAAR is indicating flat volumes for the industry in FY15F, in line with our estimates," it said.
LCV industry volumes likely declined by 35% as against expectation of 35-40% decline, Nomura added.