Logistics demand for auto halves in festive season

The Agriculture Ministry extended relaxed fumigation norms for imported onions up to Dec. 31, in a bid to improve domestic supply. On Nov. 6, the ministry had liberalised fumigation provisions under the Plant Quarantine (PQ) Order, 2003 till November 30 to facilitate import of the key kitchen staple from Afghanistan, Egypt, Turkey and Iran.

Bharat Heavy Electricals Ltd (BHEL) posted a 42 per cent jump in consolidated net profit at Rs 120.95 crore in the second quarter against Rs 85.24 crore reported in the year-ago quarter. Total income stood at Rs

6,359.68 crore versus Rs

6,934.06 crore a year ago. But BHEL reported a consolidated net loss of Rs 97.98 crore for the first half of the fiscal.

India’s passive indextracking equity funds are set to beat their active stock-picking counterparts in returns for a second successive year as fund managers grapple with volatility and the challenges of outperforming benchmark indexes.

According to Refinitiv Lipper data, India’s passive funds have delivered an average return of 9.6 per cent so far this year, much higher than active funds’ 5.7 per cent. In 2018, passive funds posted 2.3 per cent gains, while active funds had negative returns.

Active funds have historically outperformed passive funds in India when share price moves were more broad-based and market inefficiencies helped stock pickers as they hunted for shares whose prices were not truly reflective of their worth.

But India’s stock market rally has been much narrower in the past two years, with investors preferring some well-established heavyweights over smaller ones owing to broader uncertainties around a slowing domestic economy and the US-China trade war.

For instance, the Nifty-50 has risen 9.67 per cent so far this year, but the Nifty Midcap Index has shed 6.2 per cent and the Small-cap Index has slumped 11.4 per cent.

Pratik Oswal, head of Passive Funds at Motilal Oswal Asset Management Company, said 85 per cent of the Indian stock market had become efficient.

“Finding mispricings has become harder than it was 5-10 years ago,” he said. “A sharp correction in midand small-caps, coupled with mega caps becoming larger, has led to underperformance of most active fund managers.”

Also, the Securities and Exchange Board of India’s (Sebi) rules on holdings of large-cap and mid-cap firms have affected the performance of active funds, analysts said.

At the end of 2017, Sebi said a large-cap equity fund must invest at least

80 per cent of its portfolio in large-cap stocks and mid-cap funds must invest at least 65 per cent in midcaps.

Prior to that, active fund managers had the flexibility to allocate larger amounts to other categories to boost their funds’ performance.

Nonetheless, active funds remain more popular with Indian investors who still haven’t taken to index investing, unlike in developed markets.

The passive funds’ assets under management (AUM) is lower than that of active funds, according to Refinitiv Lipper data. Active funds’ AUM stood at

$94.4 billion at the end of third quarter, while passive funds’ AUM were just

$3.3 billion.

In the US, passive funds’ AUM stands at more than half of the active funds’ AUM, the data showed.

“We don’t have a lot of long-term money flowing into index, the way it does in America or other developed markets,” said Dhirendra Kumar, Founder and Chief Executive Officer of Value Research.

“Indian investors have become curious and they are beginning to invest (in passive funds). But I don’t think it is very big time.”

After a slow Q2, logistics companies saw a slower Diwali this time. While demand from automotive segment was badly hit, even the best of the sectors—e-commerce—saw some slackness in volumes.

In September quarter, logistics volumes recorded around 5 per cent drop due to the sluggishness in the economy. Railway freight volumes too dropped by 3.7 per cent in Q2. The sluggishness was evident in most of the core sectors, including coal, cement and steel. The automobile industry witnessed 20–25 per cent decline in logistics demand.

“The unorganised sector, which accounts for the larger share of market, saw volumes dropping by 4 to 6 per cent. The organised sector has been gaining market share post GST and e-way bill and hence they registered a growth of 4 to 6 per cent. New-age tech-driven logistic service providers form a small segment of the industry. From a smaller base they have been growing faster. Overall, the logistics sector saw flat to negative volume growth in Q2 against 14 per cent growth in the year-ago quarter,” said Shamsher Dewan, Vice-President, Icra ratings.

According to industry players, the demand further got squeezed during the Diwali season this time. “Usually Diwali season sees a spurt in logistics activity and the major contributors are FMCG, industrial goods, white goods, auto and auto ancillary and e-commerce. Logistic demand from the automotive sector would have fallen by around 50 per cent this time. Even other sectors saw volumes de-growing,’ said Sumit Sharma, Co-founder of GoBOLT.

E-commerce has been one sector which has been recording phenomenal value growth during festive season year-afteryear. Technology-driven logistic companies, which largely handle the logistics for e-commerce companies, found that despite the growth over last year, volumes did not touch last year’s growth levels.

“Usually e-commerce companies give us volume projections for the festive season and we prepare ourselves to meet those projections. Till last year, we always used to over achieve the festive season volume projections. This time, the projections were not met. The projections were under-achieved by 10 to 15 per cent,’ he said.

According to Pushkar Singh, CEO of LetsTransport, the projections of e-commerce companies were lower than the previous years. ‘This year the projections of ecommerce companies were not as ambitious as last year. E-commerce still performed much better compared to automobiles and other high value goods,” he said.

The overall slump in demand had influenced ecommerce companies while making projections. Further, with the maturity of the sector, the value of products sold online keeps on increasing every year. This leads to higher value growth compared to volume growth.