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Wednesday 26 April 2017


 ‘Better than expected’ is going to be the most used term by analysts in the coming few months. Ultratech, HDFC Bank, Indian Bank, Wipro and Reliance Industries should thank these pessimistic pragmatic analysts for zooming their stocks. How!  It’s easy, you just need to give a bleak picture of the company and then after the results are delivered, the whole financial media shrieks in chorus, OMG “BETTER THAN EXPECTED”. And then the media circus starts for the next quarter & year estimation. Indian Stock markets were battered over the last few days with so called geopolitical tensions ranging from North Korea to France to Middle East, President Trump expressing his desire for a weak dollar, UK Premier deciding to make hay when the sun shines or till the sun shines. Last but not the least, our own IT top guns giving muted quarterly results.

Though our Indian weather forecasters are betting on divergent monsoon schedule for the country, our stock markets received unexpected French showers with Mr Macron entering the last lap of national elections. So whom should we thank for this global relief rally? Mr Macron whom we hardly know, President Trump declaring that China is no more a currency manipulator, Ms Pen for giving the reason for markets to cheer or David Cameroon who miscalculated everything in the first place. So this is what we mean by global CUES and 50% of the equity markets are run by them. Last week when the UK Prime Minister Theresa May suddenly announced general elections two years ahead of schedule, pound jumped and equity markets fell. Why, are we still anticipating some miracle! Britain and European Union are divorced now and need some strength from these elections to carry on with the impending divorce proceedings. Britain conservatives striking it hot on brexit sentiment and European Union holding on to liberal & market favorite Macron. You can't blame the markets for falling in love with him. We all want equality and hate capitalism but love capitalists. Nobody remembers Gandhi, Karl Marx, Mandela or their ideals. Elon Musk is the ideal for the current generation and so it won't be right to blame the markets. But what happens in case Mr trump gets Ms Pen for company. I think first reaction would be from the USA. And that too by Madam Yellen resigning because she might be asked to perform dual duties for both the FED and the Bank of France. And the country which would top happiness index would be Greece and Mr Tsipras if ranked individually for world politicians. As for Indian economy we’ll be just stunned for some time and then move on with resilience.

Fourth quarter results have started pouring in and are definitely encouraging and we are no more dependent just on FPI flows. Domestic flows have shown enough depth and given strength to our stock markets which are said to have run ahead of their valuations. But when Marc Faber says that Mr Modi is better than President Trump, can we help it. Well for India we know that we got the right fundamentals and FUNDAMENTALS CREATE WEALTH. And this very moment, S&P BSE Sensex has crossed 30,000, Nifty is beyond 9350 & Indian Rupee at 20 month high.

Wednesday 12 April 2017


March has been quite an eventful month for global markets as it revealed a sense of optimism amid political shenanigans. I am talking about the better half of any national government, the Central Bank. The FED, Bank of Japan, ECB, Bank Of England and our own Reserve Bank Of India. Optimism among bankers, especially central bankers is just defined by two words these days, hawks and doves. It can be also less dovish or more hawkish whatever the analysts are more comfortable with to create a melodrama about one of the most boring jobs in financial world, i.e controlling interest rates, reining in inflation and maintaining both sense & sensibility among participants of the financial world. If not for them world economic order would have become an illusory maze.

Early March, European Central bank (ECB) started with being less dovish which meant no change made to their bond buying program with rates being held constant. Optimism came from the rise in headline inflation which was 2% in February on the back of increasing fuel prices which the bankers had been praying for over the last two years. Lack of appropriate structural reforms have made these central bankers god fearing optimists. Bank Of England, led by Mr Mark Carney followed the same rerun though the votes were split 8 to 1 for keeping the rates on hold with a base rate of 0.25% and Inflation being just below 2% in January 2017. Bank Of England was relatively even more less dovish. In between these two divorcees, came Madam Yellen to increase FED rates which the markets digested immediately as she had been preparing the expected delicacy for over 3 months signifying FED’s hawkish stance. US Fed raised its overnight fund rate to 1% and has indicated three more hikes in the current year. US FED under Madam Yellen has almost erased the memories of taper tantrum making the mighty central bank more congenial and humble at the same time. Bank Of Japan policy almost coincides with BOE and was the easiest to comprehend though it sent confusing signals through lesser bond purchases in the month of February. BOJ held short-term interest rate target of minus 0.1 and kept bond purchases intact. The central bank expects inflation to touch 1% by the end of the year as exports & factory output seem to be coming back to life.

Done with G-4, Reserve Bank of India surprised Markets with 25 basis point hike in reverse repo rate taking it to 6% and repo rate being held at 6.25% as expected. Though analysts were predicting some vague standing deposit facility to suck out liquidity, RBI in one stroke has endeavored to remove distortion in the money market caused by demonetization and bring the money market rate in tandem with RBI policy rates. RBI has also allowed banks to invest in REITs and net owned funds of ARCs have been increased to Rs. 100 crore.

Though analysts and financial think tanks would call any of these monetary policy decisions as predictable or nudged by their respective governments, just imagine the financial world without them. Or should we envision if these apex institutions would have got greater sphere for using their functioning armory, there would have been no Lehman, no pound manipulation, no brexit and in Indian scenario PSU banks would have been in better shape.  So let’s hail their credibility and wait for June monetary policy schedule. 

Wednesday 5 April 2017



VOLTAS LTD exhibited strong resilience despite demonetization with double digit growth in both EBDITA & PAT. PAT stood at Rs. 816 Mn against Rs. 573 Mn corresponding period previous year growing 42% YOY. Sequential growth was also strong at 13% in the current December quarter. Revenue declined 6% YOY at Rs. 12001 Mn in the current quarter against Rs. 12724 Mn same period previous year but on quarterly basis, growth was at a strong 22% in Q3 FY17.  EBDITA jumped 2 times and stood at Rs. 1486 Mn in Q3 FY17 against Rs. 812 Mn corresponding quarter previous year as operating expenditure declined 9% YOY. On sequential basis, EBDITA expanded 10% in the current December quarter. Operating expenditure was at Rs. 11171 Mn in the current quarter against Rs. 12226 Mn same period previous year. Other Income grew 2.4 times buttressing company’s bottom-line in the current quarter and was reported at Rs. 597 Mn compared to Rs. 249 Mn in Q3 FY16. With all round double digit growth, both EBDITA & Net Profit Margin expanded 600 bp  & 229 bp YOY respectively. One basis point is 1/100th of a percentage. EBDITA & Net Profit Margin stood at 12.38% & 6.80% in the current December quarter.

Voltas Ltd with market cap of Rs.137067 Mn is India's largest air conditioning company, and one of the world's premier engineering solutions providers and project specialists. The company offers engineering solutions for a wide spectrum of industries in areas such as heating, ventilation and air conditioning, refrigeration, electro-mechanical projects, textile machinery, mining and construction equipment, water management & treatment, cold chain solutions, building management systems, and indoor air quality. The company has performed well despite a tough demonetization hit December quarter both YOY and sequentially due to controlled cost structure, higher other income and lower finance costs. Though intense competition and higher input costs are expected to impact margins, pick up in the domestic economy augurs well for the company.

 We recommend BUY for the stock for medium & long term investment with PE multiple of 26.69 x FY17E & 22.52 x FY18E with a target price of Rs. 525.

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