New high as Fed minutes hint at gradual hikes

Sensex rises 1.48% to 30,705.03 points and Nifty regains 9,500 mark, amid rally in equities across the world

MUMBAI: Indian stocks rose to record highs on Thursday, tracking global equities, after minutes of the US Federal Reserve’s meeting on 2-3 May showed policymakers favouring a gradual approach to interest rate increases.

Local stocks also received a boost from investors covering short positions ahead of the monthly expiry of derivative contracts. Market participants do not foresee any big, immediate risks to the rally in light of continued inflows from foreign and domestic investors.

The BSE’s benchmark Sensex rose 448.39 points, or 1.48%, to a record close of 30,705.03 points. The National Stock Exchange’s Nifty index rose 149.20 points, or 1.59%, to 9,509.75 points, only 16 points away from a new record close.

“Expectation of continued improvement in earnings coupled with strong inflows are driving the market,” said Harsha Upadhyaya, chief investment officer, equity, at Kotak Mahindra Asset Management Co. Ltd.

“Earnings are in line or marginally better than expectations. Some of the drags are in sectors such as corporate-facing PSU (public sector undertaking) banks. To that extent, we may not see overall robust earnings growth.”

Overall, earnings growth has remained tepid. For 201 non-financial, non-oil industry firms in the BSE 500 index, net sales improved 6.82% from a year ago in the quarter ended March and net profit rose 0.51%.

With no sharp earnings upgrades, overall market valuations have run up too, as the chart shows.

But two factors are at play. One, investors are taking an optimistic view on overall earnings growth, based on policy steps such as the implementation of the goods and services tax (GST) and an ordinance which empowers the Reserve Bank of India to intervene directly to help clean up the ₹9.6-trillion bad loan mess in the Indian banking sector.

“We believe the government’s current measures are steps in the right direction,” said Tanvee Gupta Jain, economist, UBS Securities India Pvt. Ltd, in a report on Thursday.

“Despite the gradual and lopsided pace of recovery on the ground, we believe the ongoing structural reform push by the policymakers will help improve productivity dynamics and lay the foundation for sustainable growth.”

GST is proposed to be implemented from 1 July. The tax reform is billed as the biggest the country has undertaken since independence.

“Things are improving on the macro front, with GST implementation on the horizon and with the bad asset resolution ordinance etc.,” said Nirav Sheth, head of equities at SBICAP Securities Ltd. “Financial year 2018 looks better on the earnings front.”

Sheth expects Nifty companies to report 17-18% growth in net profit in the current fiscal year.

Both foreign institutional investors (FIIs), who have infused a net of $7.75 billion in Indian shares in the year so far, and domestic institutional investors, with net purchases of ₹12,823.62 crore, have bought this view.

The second factor at play is that while earnings have been tepid at the macro level, leading to a sharp rise in company valuations, there are pockets of value in the market, say fund managers.

“At this juncture, while a shallow and sectoral correction in not ruled out, a sharp and sustained overall correction is not in sight,” said Upadhyaya. “Stock picking is the key.”

Elsewhere in Asia, China’s Shanghai Composite index gained 1.43% and Hong Kong’s Hang Seng index advanced 0.8%. South Korea’s Kospi rose 1.1% and Japan’s Nikkei 225 advanced 0.36%. European shares erased gains after trading firm in the first half.

US stocks rose to fresh records in early trading on Thursday.

The Fed minutes showed policymakers were in agreement that they should hold off on raising interest rates until it was clear that a recent slowdown in the US was temporary. NEW DELHI: Two companies, including fashion chain Benetton India Pvt. Ltd have sought approval of the government for single brand retail trading in India.

Benetton India has sought approval to undertake e-commerce and retail trading of imported goods, according to the Department of Industrial Policy and Promotion (DIPP).

Karnataka-based Actoserba Active Wholesale Pvt. Ltd wants to undertake single brand retail trading and e-commerce of Zivame branded lingerie products.

Two foreign individuals -- Katarzyna Dmoch and Rami Shinnawie—have also sought nod from the government to set up a 100% foreign-owned Indian retail arm of Caracole Interior Designs, Qatar.

Currently, foreign direct investment of up to 49% is permitted under the automatic route but beyond that limit, government’s nod is required.

Foreign investment is allowed subject to certain conditions, which require products to be of a “single brand” only and to be sold under the same brand globally.

Furthermore, in respect of proposals involving FDI beyond 51%, it is mandatory to source 30% of the value of goods purchased from India, preferably MSMEs or micro, small and medium enterprises .

To attract more foreign direct investment in the sector, the government is considering allowing 100% foreign investment through automatic route in single brand retail to attract a larger number of global players in the sector. NEW DELHI: India’s landmark tax reform, the goods and services tax (GST), may not be good news for farmers. Retail prices of commonly used fertilisers and micronutrients are likely to increase, not only raising the cost of cultivation but also leading to imbalanced use of fertilisers.

Last week, the GST Council fixed a 12% rate on fertilisers, up from the current 4-8% rates, depending on raw materials used and in which states the products are sold. For urea, the most commonly used fertiliser, prices may go up by ₹300 to ₹400 per tonne.

For other fertilisers such as diammonium phosphate (DAP) the hike in retail prices could be as high as ₹3,000 per tonne in states such as Punjab, Haryana and Uttar Pradesh, where there are no taxes at present on the farm nutrients, calculations by industry executives show.

The proposed 5% GST on road transport could further escalate retail prices as transport of fertilisers has been hitherto exempt from service tax.

As most states did not levy any value-added tax (VAT) on micronutrients, organic manure and biofertilisers, the 12% GST rate will mean a rise in retail prices of these minor fertilisers.

“For urea, if the government wants to foot the bill it will have to bear an additional (subsidy) burden of around ₹1,000 crore, else retail prices will go up by ₹20 per bag (of 50kg each),” said a fertiliser industry executive who did not want to be named.

Urea prices are currently controlled by the government and fixed at around ₹5,630 per tonne.

The executive added that since prices of non-urea fertilisers have been decontrolled, the rise in retail price of a 50kg bag of DAP will be around ₹125 (currently it costs ₹1,000- 1,100 per bag), or a 10% rise in retail prices.

“This will take away the gains from the previous year when a fall in price of imported inputs led to lower retail prices of decontrolled fertilisers,” the executive said. “We were expecting the government to fix a GST rate of 5% which would have reduced the burden on farmers but that did not happen.”

More importantly, GST, which will be enforced from July 1, will likely widen the price gap between urea, which is heavily subsidised, and complex fertilisers such as DAP, forcing farmers to continue over-use of urea.