Pleasant Surprise! Nikkei India manufacturing PMI clocks a six-month high in July

The growth in the seasonally adjusted Nikkei India Manufacturing Purchasing Managers’ Index was mainly on account of rise in the export orders, which were the most pronounced in five months

Bucking weakness seen across much of the rest of Asia, the seasonally adjusted Nikkei India Manufacturing Purchasing Managers’ Index (PMI)-a composite single-figure indicator of manufacturing performance came at a six-month high of 52.7 in July, from 51.3 in June. The 50-mark demarcates contraction from expansion.

The growth was mainly on account of rise in the export orders, which were the most pronounced in five months. Further while, outstanding orders that accumulated for second consecutive month added to positive trigger.

Notably, growth of both domestic and foreign clients was reported, with new business from abroad rising at the quick pace since February. Reflecting the rebound in new orders, Indian manufacturers raised their buying levels in July.

The rate of expansion was marked and faster than in June. Concurrently, stocks of purchases were accumulated again in July and at a pace that was the fastest in the year-to-date. Conversely, holdings of finished goods fell, with survey respondents indicating that orders were often fulfilled directly from stocks.

On the price front, a marginal rise in costs was registered, whereas average selling prices were unchanged over the month. Despite accelerating since June, the rate of inflation was only marginal and historically muted.

Worryingly, however, Indian manufacturers continued to cut workforce numbers in July. Nonetheless, the rate of job shedding was only marginal as around 96% of panelists reported no change in employment from the levels recorded in the prior month. Also, there was evidence of building pressures on the capacity of Indian manufacturers’ operations, as outstanding business was accumulated for the second month running and at the quickest pace since March.

The latest data although suggests that manufacturing upturn has gained trajectory, but the upcoming PMI data releases will suggest if manufacturing sector can sustain this momentum. Interestingly, firms holding back from rising output price, which could be done in order to pass the effect of raw material to consumer, is good news for Reserve Bank of India, which is expected to leave interest rates on hold.  RBI is scheduled to review monetary policy on August 4, wherein it is unlikely to tweak policy before October, particularly with retail inflation at an eight-month high after food prices spiked.

Rupee recoups further ground after strong start! RBI policy awaited

Indian currency is unlikely on account of prevailing caution ahead of RBI policy meet on August 4.

Indian rupee, after making a strong start, recouped more ground and was trading stronger against dollar on Friday tracking positive local equities. Besides, dollar sales by exporters also provided required impetus to Indian currency. However, further uptick of Indian currency is unlikely on account of prevailing caution ahead of RBI policy meet on August 4. India’s central bank is unlikely to tweak policy before October, particularly with retail inflation at an eight-month high after food prices spiked. On the global front, dollar recovered slightly against the yen on Monday, after suffering a setback late last week when subdued U.S. wage growth clouded the outlook over when U.S. interest rates were likely to rise.

The partially convertible currency is currently trading at 63.97/$, stronger by 17 paise from its previous close of 64.14 on Friday. The currency touched a high and low of 63.94/$ and 64.01/$ respectively. The Reserve Bank of India’s (RBI) reference rate for the dollar stood at 64.00 and for Euro stood at 70.16 on July 31, 2015. While, the RBI’s reference rate for the Yen stood at 51.55, the reference rate for the Great Britain Pound (GBP) stood at 99.8356.

Sensex, Nifty remain positive

The BSE Midcap and Smallcap indices have advanced almost a percent each at 11,380 and 11,928, respectively.The BSE Midcap and Smallcap indices have advanced almost a percent each at 11,380 and 11,928, respectively.

The market continues to trade with a positive bias, on the back of sustained buying in bank, power, realty and consumer durables shares ahead of RBI policy.

So far, the key headline indices have touched an intra-day high at 28,222 and 8,562, respectively.

As of 1035 hrs, the BSE Sensex is up 81 points at 28,167 and the NSE Nifty has added 19 points at 8,551.

In the broader market, the BSE Midcap and Smallcap indices have advanced almost a percent each at 11,380 and 11,928, respectively.

Sectorwise, the BSE Consumer Durables index has spurted 1.4 percent at 11,243. The Power, Realty and Bankex indices have gained over a percent each.

On the other hand, the BSE Metal index has declined 0.5 percent at 8,622. The IT, Oil & Gas and Capital Goods indices are also down 0.2-0.3 percent each.

The breadth is extremely positive in morning deals - out of 2,291 stocks traded on the BSE so far 1,545 stocks have advanced, while 682 stocks have declined.

SBI is the top Sensex gainer - up over 3.5 percent to Rs. 280. Tata Motors and Maruti Suzuki jumped over 2 percent each at Rs. 393 and Rs. 4,427, respectively.

ICICI Bank, Reliance, Axis Bank and BHEL are the other prominent gainers.

On the flipside, Hero MotoCorp slipped over 2 percent at Rs. 2,615, on the back of fall in monthly sales. Larsen & Toubro has dropped almost 2 percent at Rs. 1,756.

Hindustan Unilever, Mahindra & Mahindra and Coal India have shed 1.5 percent each at Rs. 906, Rs 1,340 and Rs. 433, respectively.

The face of distribution in Europe is altering significantly

Distribution is evolving across the globe, but the European market presents its own challenges. Despite the best intentions of the founders of the European Union, the trading bloc remains something of a patchwork quilt when it comes to financial regulation.

Asset managers that opt for a cover-all distribution strategy instead of taking into account the individual tastes and needs of institutions in different European countries are at risk of failing, according to the latest issue of The Cerulli Edge - Global Edition.
 
Following the customized approach is, however, no simple task, says Cerulli Associates, a global analytics firm. Success entails finely balancing growth ambitions with the additional costs this route incurs.
 
Distribution is evolving across the globe, but the European market presents its own challenges. Despite the best intentions of the founders of the European Union, the trading bloc remains something of a patchwork quilt when it comes to financial regulation. Asset managers seeking to capitalize on the opportunities that come with a population of some 503 million--the world's third largest after China and India--also need to factor in the different languages, currencies and cultures.
 
"The face of distribution in Europe is altering significantly. Strategies need to be adapted to each market as well as each asset manager's capabilities and goals if success is to be realized," says Barbara Wall, Europe research director at Cerulli Associates, noting that growing interest among European institutions in diversification is giving rise to new opportunities.
 
Managers' distribution strategies that once did not even make the menu are now being considered as a "main course" by some allocators as European institutions learn to "expect the unexpected," says Wall.
 
Developing relationships can be logistically tough. A basic pan-European strategy needs regular visits to 10 capitals, from London to Munich to Helsinki, one practitioner told Cerulli. Germany alone has investment centers in Berlin, Hamburg, Cologne, Dusseldorf, and Stuttgart. The diverse landscapes--languages, regulatory environments, historical experiences, and preferences--also raise the costs of doing institutional business in Europe compared with, say, the United States. Narrowing one's focus can save expenditure, says Cerulli. A strong brand identity also helps when crossing borders, often providing the edge for large organizations.
 
"Cerulli research shows that cutting out the middleman in distribution is a key objective for institutional asset managers this year--one which we believe will persist given that cost-cutting pressures are not likely to abate anytime soon," says Justina Deveikyte, an analyst at Cerulli.
 
Other Findings:
 
Global sponsors that have fared well distributing to Latin America's Andean-based pension managers from a base in Santiago are having to revise their distribution models in light of emerging opportunities elsewhere in the region. While Cerulli believes that the Chilean capital remains a compelling option for servicing high-net-worth individuals, building on its existing asset-gathering capabilities to capitalize on new business prospects is proving difficult. Operations in Brazil and Mexico may be the answer.
 
New entrants to the United States need to be able to offer expertise that enables them to stand out in the overcrowded, highly competitive marketplace, says Cerulli. Subadvisory arrangements with a third-party manufacturer may be the best means of entry without building significant distribution infrastructure. The cache of an unfamiliar, but skilled non-U.S. manager may appeal to the subadvisory sponsor.
 
Gone are the days when distributing UCITS funds could serve as the default entry strategy for the Asia ex-Japan region, observes Cerulli. Foreign managers typically have to develop country-specific and localized business strategies to successfully gather assets in Asia's fragmented mutual fund markets.

Yes Bank MD Rana Kapoor's relative acquires stake in iOrderFresh

iOrderFresh was launched about nine months ago by Nitin Sawhney.

Best Foodworks, an investment company led by Alkesh Tandon, has acquired a significant minority stake in iOrderFresh for Rs. 6.4 crore, according to reports.

A report says the Tandon is the son-in-law of Yes Bank promoter and managing director Rana Kapoor.

The Tandon is set to join the board of iOrderFresh as director.

iOrderFresh was launched about nine months ago by Nitin Sawhney. 

Arun Jaitley slams Congress for ‘hurting the economy’

The passage of the constitution amendment bill in the current monsoon session of Parliament is crucial for the Government to meet the 1st April 2016 GST rollout deadline.

Finance Minister Arun Jaitley on Sunday lambasted the Congress party for its obstruction tactics inside the parliament and added that the main opposition party’s attitude can hurt the Indian economy.

“The Congress party and its leader may be upset with the Government for political reasons. They may be upset with the electorate for the 2014 verdict. The Congress party should accept and seriously introspect after having ruled the country for the longest period of time that negativism hurts the country,” the Finance Minister said in his post on social media website Facebook.
To break the logjam in the parliament, the NDA government has called an all-party meeting on Monday. 

The passage of the constitution amendment bill in the current monsoon session of Parliament is crucial for the Government to meet the 1st April 2016 GST rollout deadline.

It may be recalled that the Congress-led opposition has not allowed the parliament to function properly during the ongoing monsoon session, demanding the resignation of external affairs minister Sushma Swaraj and Madhya Pradesh chief minister Shivraj Singh Chouhan.

In addition, the Congress, the CPM, the CPI and the AIADMK have given a dissent note in the final select committee panel report on the GST bill submitted in the Rajya Sabha in July.

RBI Monetary Policy: What will Raghuram Rajan do?

RBI’s outlook on inflation and economic growth will provide the cues on the future interest rate trajectory. In this respect, India’s wholesale price index during June fell at an annual rate of 2.4%, the eighth consecutive monthly decline. The contraction is clearly due to softness in oil prices.

The consensus call for the upcoming RBI monetary policy meeting is a status quo on interest rates, as a cut during June was proclaimed to be front-loaded. Nevertheless, the wording of the monetary policy will be very crucial. RBI’s outlook on inflation and economic growth will provide the cues on the future interest rate trajectory. In this respect, India’s wholesale price index during June fell at an annual rate of 2.4%, the eighth consecutive monthly decline. The contraction is clearly due to softness in oil prices. However, consumer price inflation during June inched higher to 5.4%, when compared with the reading of 5.01% in May. Retail food inflation for June surged to 5.48% from 4.80% during the prior month. This is due to rise in foodgrain prices on account of a series of unseasonal rains during the first half of this year. There is positive development on the monsoon front with India Meteorological Department reporting that the rain deficit witnessed due to the lull in the first half of July is shrinking. Overall rainfall during the season is just 5% below the normal (50 year average). Private weather forecaster Skymet is painting a positive picture as well predicting heavy rains across the country till the first week of August thereby compensating for the overall rain deficit. This can assuage the concerns regarding the probability of a further spike in food prices.

Meanwhile the central bank is comforted by healthy foreign exchange reserves and sharp descent in crude oil prices. Lower oil prices have provided much needed relief to the country’s current account balance, wherein India imports majority of its energy needs. On growth numbers, output of India’s core eight infrastructure sectors grew 4.4% in May, the highest growth rate in six months. The core sectors grew 3.8% during May 2014. This is a much better improvement when compared with the declines in March and April. The recovery is attributed to the surge in the production of coal and refinery products. Meanwhile, India’s industrial production grew 2.7% in May 2015, slower than the growth of 3.4% in April. The slowdown has been attributed to sharp decline in capital goods and consumer goods numbers. The softness in Industrial output numbers was seen in spite of better-than-expected core sector output. In recent times, IIP number has been largely inconsistent.

The central bank will also keep a tab on the cues emanating from US Federal Reserve. Janet Yellen has reiterated on several occasions that an interest rate hike this year is on the cards. Yellen has justified her view by stating that the labour market is moving evidently closer to normalcy. The latest FOMC policy statement also conveyed that US economy and the labour markets continue to strengthen. It seems that Fed is gradually reaching its goal, manifested by decent job gains and dip in unemployment rate. With the next FOMC meeting in September, the consensus calls for a 25 basis points rise in the interest rates.  Effectively, there are concerns that a Fed rate hike will dampen the investment flows in the emerging markets. However, we infer that the economy will be able to withstand the repercussions, thanks to wide interest rate differentials between the developed zone and India. In addition, the Indian government is initiating moves to simplify the process to invest in India. The government has approved a policy for composite foreign investment in India. Foreign Direct Investment, Foreign Institutional Investors and other investment routes will be included under one category.

On domestic liquidity management, Reserve Bank of India is surprisingly initiating measures to suck the excess liquidity from the banking system. RBI had announced open market sale of government securities. Of late, the central bank is selling big quantity of shorter-maturity bonds. As a result, India’s sovereign bond yields have remained sticky post June rate cut. In fact, there has been considerable volatility in the G-Sec markets, with yields on the new 10-year benchmark 7.72 G-Sec 2015 surging to 7.91%, while yields for 8.4 G-Sec 2024 touched 8.10% in June. However, the yields later moderated after RBI cancelled weekly Government auction of few papers. Yields on the new 10-year benchmark 7.72 G-Sec 2015 are now trading around 7.80%, while yields for 8.4 G-Sec 2024 are around 7.96%. There is also a perception that RBI might initiate further liquidity tightening steps as the central bank wants call money rates to be on par with the repo rate. On various occasions, call money rates have moved well below the 7% level, indicating surplus liquidity. To counter this, the central bank will keep on conducting open market sale of government bonds.
 
On outlook, subdued economic growth characterized by mixed corporate earnings and uninspiring macroeconomic indicators compelled the central bank to cut interest rates in June. Real demand has not picked up yet; and the economic growth is still below potential. There has been a downward revision to Gross value added estimates for FY2014-15, while the projection for output growth for 2015-16 has been marked down to 7.6% from the previous estimate of 7.8%. Although the incumbent regime has initiated measures to unclog the investment pipeline, the ground reality is not inspiring. Economic activity is conveying mixed signals, with expansion witnessed in core sectors like coal production, while exports, automobile sales and stressed banking sector are exhibiting a dull picture.
 
In addition, the government’s inability to pass important economic reforms has dampened the prospect of a strong recovery in growth. There is a lot of disappointment on the deadlock in the parliament, wherein the opposition is thwarting any meaningful discussion on land acquisition bill and Goods and Services Tax bill. There is a strong perception that nothing will materialise on land acquisition and there is lot of uncertainty regarding the plans to convert the country into one tax zone. The mentioned bills need to be passed in the upper house of the parliament, where the regime lacks the needed majority. The government seems to be facing lot of impediments in providing an impetus to growth. Economic reform is the only panacea; unfortunately it still looks out of reach.
 
Slower growth and tamed inflation may persuade the central bank to go for one more rate cut during the end of this calendar year. Inflationary concerns have mitigated once again after a scare over the unprecedented lull in the monsoon during first half of July. In spite of the recent rise in food prices, CPI inflation remains contained within the RBI threshold of 6%. Lesser than expected monsoon deficit, better food management policy, decline in prices of industrial commodities and relatively resilient Indian rupee will provide the courage to RBI to act on the rates. A rate cut during October-December period can be followed by subsequent rate cut at the fag-end of the fiscal year.