Mint ST : 2019-02-11

PLAIN FACTS : 8 : 4

PLAIN FACTS

04 MARK TO MARKET MONDAY, 11 FEBRUARY 2019 NEW DELHI S&P BSE Sensex Nifty 50 Nifty 500 Nifty Next 50 Nifty 100 S&P BSE Mid-cap S&P BSE Small Cap CLOSE 1-WEEK CHANGE (%) CLOSE 1-WEEK CHANGE (%) CLOSE 1-WEEK CHANGE (%) CLOSE 1-WEEK CHANGE (%) CLOSE 1-WEEK CHANGE (%) CLOSE 1-WEEK CHANGE (%) CLOSE 1-WEEK CHANGE (%) 36,546.48 0.21 10,943.60 0.46 9,036.90 -0.21 26,536.60 -1.09 11,094.10 0.25 14,328.81 -2.13 13,656.75 -2.11 1-MONTH CHANGE (%) 3-MONTH CHANGE (%) 1-MONTH CHANGE (%) 3-MONTH CHANGE (%) 1-MONTH CHANGE (%) 3-MONTH CHANGE (%) 1-MONTH CHANGE (%) 3-MONTH CHANGE (%) 1-MONTH CHANGE (%) 3-MONTH CHANGE (%) 1-MONTH CHANGE (%) 3-MONTH CHANGE (%) 1-MONTH CHANGE (%) 3-MONTH CHANGE (%) 1.57 3.71 1.31 3.26 -0.68 1.16 -4.16 -2.61 0.57 2.45 -5.28 -3.49 -6.62 -6.38 6-MONTH CHANGE (%) 1-YEAR CHANGE (%) 6-MONTH CHANGE (%) 1-YEAR CHANGE (%) 6-MONTH CHANGE (%) 1-YEAR CHANGE (%) 6-MONTH CHANGE (%) 1-YEAR CHANGE (%) 6-MONTH CHANGE (%) 1-YEAR CHANGE (%) 6-MONTH CHANGE (%) 1-YEAR CHANGE (%) 6-MONTH CHANGE (%) 1-YEAR CHANGE (%) -3.54 6.20 -4.42 3.47 -7.26 -3.06 -11.49 -11.03 -5.44 1.23 -11.80 -13.94 -19.04 -24.68 SHORT TAKES m Bond rallies New Zealand’s 10-year yield has slid to a record as Australia's has declined. 10-year bond yield (in %) 5 4.5 4.5 New Zealand Australia 44.1 3.5 Harsha Jethmalani A dull show Cement companies had recently hiked prices in some regions; but these could not be sustained and were rolled back W X [email protected] In the absence of pricing power, realization growth for cement makers has been subdued. 3 ith cost pressures now easing and demand playing catch-up, a revival in prices would have done wonders for cement stocks. Indeed, in their bid to pass on elevated operating costs, cement companies recently raised prices in north and central India. Unfortunately, these increases could not be sustained and were rolled back. This means the outlook on realizations is not likely to improve anytime soon, making valuations still look unattractive, despite correcting from the highs of the previous year. According to Motilal Oswal Securities Ltd, in mid-january, cement companies increased prices by ₹7-10/ bag. One bag equals 50kg. However, these hikes were not sustainable and were rolled back in a few days in parts of central India. “Moreover, in Delhi 2.5 Realization growth in December 2018 quarter 2 Year-on-year change (in %) Finmin seeks transfer of ₹27,380 cr from RBI retained towards risks, reserves 2.1 1.4 ACC 1.5 10 Feb 2014 8 Feb 2019 Source: Bloomberg December quarter earnings reported so far show subdued growth in price realizations 5.6 Ultratech Cement X Large-cap cement stocks are trading at 1-year forward Ev/ebitda of 9-17 times, far lower compared to the highs last year NAVEEN KUMAR SAINI/MINT 4.4 Shree Cement Growth concerns push down bond yields 3.6 Jkcement bit.ly/2gy5k10 -4.7 Ramco Cements Cement demand is likely to be subdued in the run-up to the general election due to lack of new project launches X 3.6 Mangalam Cement The rally in global bond markets is picking up pace as economists slash growth forecasts, spurring central banks to turn dovish. New Zealand’s 10-year bond yield slipped as much as six basis points to a record low of 2.08%, while Australia’s benchmark declined by as much as eight basis points. Japan’s 10-year yields fell to their lowest in five weeks, while those on German bunds are below zero all the way out to nine years. “Increasing concerns over the global economy are pushing yields down around the world,” said Shinji Hiramatsu, general manager of the fixed-income department at Sompo Japan Nipponkoa Asset Management Co. Ltd. “The market is especially worried about the Chinese economy, with more signs of a slowdown seen in Europe.” -5.8 Sagar Cements 1.2 Average Source: Reliance Securities VIPUL SHARMA/MINT and Jaipur, only a ₹2-3 hike per bag were sustainable. In Punjab, prices declined by ₹10 per bag owing to poor demand,” it said in a report on 31 January. The broking house also feels that although companies in the south have announced hikes in the range of ₹30-50/bag from 1 February, such large increases are not sustainable. In Tata Steel: Soft steel prices slam earnings outlook in near term BLOOMBERG Subpar returns Hedge funds have refused to chase the equity rally, with exposure sitting near a 12-month low. HFRI Equity Hedge Fund Total Index S&P 500 Total Return Index Vatsala Kamat R. Sree Ram (in %) Facing the heat 31 Jan 2018 [email protected] [email protected] Tata Steel’s operating profit dropped 25% sequentially in the December quarter, reflecting weak steel prices and subdued demand. I nvestors ignored Mahindra and Mahindra Ltd’s (M&M’S) doubledigit revenue growth in the December quarter, and focused instead on the disappointment on the margin front. The stock closed 2.6% lower at ₹683 on Friday. Coming on the heels of a sharp 31% decline from the high scaled in August, M&M’S current stock price discounts its one-year forward earnings estimates 12 times. This is lower than the 17-18 times valuation seen last April. Why has the stock got such a drubbing? After all, 11.2% revenue growth of M&M along with subsidiary Mahindra Vehicle Manufacturers Ltd, is commendable given the challenging domestic scenario. Both its segments, automotive and farm equipment, clocked 11-12% sales growth each. The Street is concerned about weakening profitability amid slowing growth. At the analysts’ call, management lowered FY19 growth estimates for the farm equipment segment to about 10% from the earlier 12-14%, and for auto segment to 4-6% from 7-8%. The company will bet on its new launches such as the XUV300 in the auto segment, where its utility vehicle sales have been slipping. Investor expectations on sales growth are likely to contract further in FY20 due to uncertainty on BS-VI emission norms. Further, the peaking tractor cycle that has been robust the past 12 months could hurt volumes. Investor expectations on sales growth are likely to contract further in FY20 due to uncertainty on BS-VI norms Sequential change in Q3 FY19 (in %) Earnings before interest, tax, depreciation and amortization Revenue from operations Sales volumes Profit after tax -5.8 -5.3 -25.2 -43.7 Consolidated figures Source: Company VIPUL SHARMA/MINT 31 Jan 2019 -10 -5 0 5 10 Source: HFR, Bloomberg Rolling downhill VIPUL SHARMA/MINT Mahindra and Mahindra’s one-year forward price-earnings multiple has been steadily falling since July, when forecasts on tractor sales were lowered and pressures on auto sales began to mount. Hedge funds start Feb with lowest stock exposure in yr The smart money is stubbornly refusing to chase the equity rally. While US stocks kept going up, posting their best January in three decades, hedge funds held to their cautious stance, trimming longs while boosting bearish bets along the way. At the start of this month, their net exposure as measured by the long/ short ratio stood near the lowest level since at least last January, showed client data compiled by Jpmorgan’s prime brokerage unit. The defensive posture highlights investors’ lingering unease, despite an equity rebound from last year’s sell-off. In their minds, the Federal Reserve’s willingness to slow monetary tightening may not be enough to offset a myriad of hurdles facing the market, according to Mark Connors, global head of risk advisory at Credit Suisse. Analysts say with inventory in India already high and production rising, a sustained rise in steel prices can be challenging P-E multiple (in no. of times) 20 17.12 18 16 14 12 12.3 10 2 Apr 2018 8 Feb 2019 BLOOMBERG Source: Bloomberg VIPUL SHARMA/MINT US fund managers brace for consumer slowdown With expectations for slowing growth escalating, US fund managers are selectively avoiding stocks in consumer goods companies as lofty valuations, concerns about declining earnings estimates and consumer confidence keep them on guard. Low US unemployment and rising wages should point to a healthy consumer, but worries about global growth, domestic American politics and a Us-china trade war have been wearing on consumer and investor moods. Wall Street expects fourth quarter earnings growth of 14.5% for the S&P 500’s consumer discretionary index—below the 17.8% consensus from October at the beginning of the fourth quarter, according to data from Refinitiv. And for the first quarter, analysts expect discretionary earnings to fall 1.4%, compared with expectations for 6% growth on 1 October. For consumer staples, Q4 earnings are expected to grow 4.5%, down from the 6.7% consensus in October, and are expected to shrink to 0.9% growth for Q1. Pallavi Pengonda Fired up [email protected] Indraprastha Gas has consistently delivered double-digit year-on-year volume growth. A nalysts are excited about Indraprastha Gas Ltd’s (IGL’S) volume growth for the quarter ended December. The Delhi-based city distributor’s gas sales volume last quarter increased 12% over the same period last year. IGL has been able to consistently deliver double-digit growth in volumes for some time now Year-on-year volume growth (in %) 14.2 14 12.9 13.2 12.9 12.2 11.8 Q1 Q2 Q3 Q4 Q1 Q2 Q3 FY18 FY19 Source: Company, Jefferies India (see chart). VIPUL SHARMA/MINT Coming back to the December quarter, sales volume of compressed natural gas (CNG), accounting for about threefourths REUTERS Mark to Market writers do not have positions in the companies they have discussed here

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