Bull phase intact; correction lurking: Jhunjhunwala

In May, four days before the election results were announced, super bull Rakesh Jhunjhunwala announced that India is witnessing the mother of all bull runs. Four months later, with a majority Modi government & falling crude prices, he is double bullish. ‘This is just the trailer he says…picture abhi baaki hai…promises the big bull.

Jhunjhunwala is a partner in his asset management firm, Rare Enterprises. A recent newspaper article said that over the last year or so, he had made close to Rs 35 lakh every hour. That is how successful he has been in this market over the last 12 months or so.

In an exclusive interview to CNBC-TV18, he ponders over things, global and domestic, that is transformational for Indian market and economy.

Q: I am going to ask you about two things I think that have changed dramatically between the time we last met which was May 12 and today. One is that we met a few days before counting since then of course the Bharatiya Janata Party (BJP) won, Mr Modi has become Prime Minister (PM) and that in itself has been a fairly transformational thing for the Indian economy. The second one is what has gone on with crude prices, which again has several layered impact on the Indian economy. First up how would you assess what you have seen the Modi government do so far?

A: First of all it is too short a period to assess. Second thing is my comment is that India has to undergo a change. We live in a democracy and change has to be slow. For everything that has to be changed, every decision has to be considered. So to think that Mr Modi and his government could show some miracle in six months would be childish. But I have no doubts that there will be miracles over a period of time and I will at least give a further period of 18-24 months; that’s when you will see the burst of all these actions taking place.

Also I would like to add that as far as crude prices go, in crude or commodities, what has happened, you have had one of the largest bull markets in commodities in the last 15-20 years. Now, I think it is not — people are saying that commodity prices have come down only because the consumption has gone down. I think consumption reduction is very marginal. What has happened is that there was so much super profits in commodities that investment was attracted. I think the super cycle on the commodities boom is over. Now we are going to go through a deep correction and maybe a bear market in commodities. I personally think oil prices will settle somewhere between USD 70 per barrel and USD 80 per barrel and will stay there for a long time maybe bottom at USD 75 per barrel or top at USD 85 per barrel that is what my expectation is.

Q: How does an investor play something like this?

A: I have not done a detailed analysis.

Q: One sector group of stocks or companies that will invest the most are oil sector, public sector companies because they have been strangled virtually by the lack of any kind of freedom in pricing?

A: There is a very big misnotion that Hindustan Petroleum Corporation Ltd ( HPCL ), Bharat Petroleum Corporation Ltd ( BPCL ) and Indian Oil Corporation ( IOC ) were not bearing any part of the subsidy and they were having market related prices including margins and profit.

The only thing was that government was paying them late. So they are biggest beneficiaries in terms of interest cost in normal terms of profit.

Q: But someone like an Oil and Natural Gas Corporation (ONGC) would benefit because the subsidy burden that ONGC had to bear as an upstream company hopefully will come down dramatically or reduce to zero technically if the diesel price deregulation persists?

A: Let me first of all say that I am long ONGC, I am very bullish. Please take advise from a financial adviser, I am extremely interested, I am long ONGC. I feel the biggest beneficiary of this will be ONGC and Oil India .

Last year ONGC’s realisation was USD 41 and my personal opinion maybe in 2016 or in the Budget after that, the government is going to abolish all this and the entire subsidy is going to be borne by government of India. That is what my judgement is, I deserve the right to be wrong. So the real beneficiary of this oil fall – it is a big dilemma that ONGC — if the government of India abolishes the subsidy — is the largest beneficiary in the world of falling oil prices.

Q: So there is a multifaceted set of benefits that India draws from that kind of price region for crude?

A: I think that is one of the small — that is a big benefit –but there are bigger benefit. In a meal, that is like a chutney, it is not the main vegetable and the main roti.

If you look at the world today, countries are facing two kinds of challenges. Some are facing structural problems which include the entire western world, Japan and China. Then there are countries which are facing cyclical problems where I include the developing world and there are countries which is on upturn both cyclically and structurally and India would fall in that category.

Q: I am saying what we expected on May 12. A Modi government is what you anticipated at that point in time. Yes of course this majority was unanticipated but we have got that and that bolsters your expectations. Did you expect crude prices to be at USD 80/barrel?

A: It bolsters the reality.

Q: But there is a double good whammy here because we have also had crude prices come down. Does this double whammy of good factors make you a double of a bull than you were in May is the question I was trying to get?

A: If you talk to me about India’s bullishness I cannot express how bullish I am. When I came to the market in 1985 the index was 150. I feel India as a country is at 150. People may call me anything, mad bull, big bull but these are my feelings. And when I think about the factors involved it is the thought I get. Because we are underestimating, we have a cyclical upturn, we have the best structural upturn in the world.

I envisage that post 2017-18 India will grow double digit I don’t know for how many years.

Q: I want to connect what you have said about the Modi majority if I may call it that, the bear market in commodities and what is going on in the rest of the world with regards to central bank policy because it has been most confusing in the last month, right?

A: Structurally the richest countries of the world have never faced the problem they are facing today. With commodity prices going down, inflation — people are talking of deflation— why should interest rates go up and even if they do, then by what measure? I am told deposit rates in Singapore are 20 bps. Suppose those deposit rates become 1 percent, what difference is it going to make? Are you coming to India to earn 1 percent? So all this is overhyped.

So I am of an opinion that what happens in the world could affect us may be for a week, 10-15 days or one month. But I don’t think interest rates will go up aggressively. I think they wont go up. Even if they go up, the quantum of rise will be one which is not going to affect sentiment towards India.

Second, India is going to be the best performing economy, I am not saying market, amongst the developed and developing world for a long period of time. Also there are a lot of investments waiting to come into India, which needed change in policy which is happening.

Q: All bull runs go through corrections at various points in time. We did see a lot of volatility in October. We also saw our markets come off their peaks by about 3 percent or so which was probably the mildest of corrections relative to how other markets did. Are we therefore in imminent danger of an impending correction over the next few months given how much we have run up?

A: We had a nonstop rise from 5200. In August 2013 the market bottomed. In August 2013 I said the mother of all bull markets is ahead of us. In December 2013 I said I believe the bull market has already started, in May 2014 I said this is the mother of all bull markets. This is just a trailer, you just watch the action movie. We had a rise from 5200 to 8200, a 3000 point rise. Correction can come anytime but I don’t think especially the last two days the screen is indicating any correction. And it is my feeling and opinion and I deserve the right to be wrong that if any serious correction will come, either it will come post December and finish before the Budget or it will come post Budget.

Q: When you say a very serious correction what would the depth of that correction be roughly?

A: It could be 33 percent of the rise. You go from 5200 to 9200, you always lose some points. I am not sure when it will start but corrections are part of market.

Q: So would it be fair for me to assume that you are still long on your trading portfolio?

A: I am bullish.

Q: Have you changed your trading strategy over the last month or so?

A: I do not make a strategy. I watch the screen, buy-sell, so there is no detailed planning, analysis.

Q: That is very self-effacing. I do not believe?

A: Want can I do if you don’t want to believe me. I have no conference with my people at 8:30. I come to the office at 11:00. I give orders at 9:15. I do not consult anybody.

Q: But your orders would be based on some analysis?

A: It is based on my intuition and my understanding which is not preplanned.

Q: I am curious to know because I know a lot of your followers would be keen to know how is it that Rakesh Jhunjhunwala pick stocks, does he do hours of financial analysis, does he talk to managements ahead of time before he puts his money into the stock to find out what the integrity of the management is, whether he agrees with their vision, their expectation. How do you pick stocks?

A: I am more a big picture investor rather than analysis and there are so many factors. Investing in a sense requires intuition of so many senses but I look at the big picture and when I am convinced I do not listen to anybody and I have been wrong, wrong, wrong many a time. I am luckier than I am smart, let me tell you that.

Q: Do you talk to managements of the companies before you invest in them to get a sense of what their vision is?

A: Sometime there is a value that when you invest don’t investigate later. I met the promoter of DHFL on the airport by chance. He told me I should look at his stock. It was at ridiculous valuation. When I saw it was at Rs 110. I told him that I will look at the stock and talk to you. I first bought those shares then I called him. Therefore, at certain valuation it’s now invest and not investigate later.

Q: But that is a chance meeting with the promoter of a company. Do you otherwise consciously try and call if a company looks interesting to you from financials or valuation point of view do you call the management?

A: I do not have much money to invest, whatever you think. I do not have trading income every year and that’s the only thing I can invest and I do not want to take debt beyond a point and I do not want to rotate my portfolio constantly. I want very little turnover in my portfolio. Therefore, I am not looking very minute eye and nowadays I do not want to invest in small companies.

Q: Why? Small companys means smallcaps, midcaps companies like what we traditionally know as smallcap, midcap?

A: It is difficult to buy, difficult to sell.

Q: Aren’t these what market call multibaggers?

A: Rather than a hunt for the multibaggers now if I get 21 percent return on my stock I will be a king. If I will get 24 percent, I will be an emperor.

Q: Why is it this that you moved away from aspiring to want to identify the next 10 baby multibaggers?

A: When I bought Titan first time, I thought the price will be Rs 200. I bought up to Rs 120. The price is Rs 8,000. So it’s not easy. Lot of people ask me give us the next Titan. If I will know it I will tell you.

Q: On May 12, you told me you were long software and pharmaceutical but that you have also started building big positions in cyclical. Do cyclical still look very appealing to you?

A: Depends on which one because there are lot of cyclical.

Q: You had mentioned a few stocks then I am taking the liberty to mention those stocks. You had said Dewan Housing Finance Corporation (DHFL) at that point, Escorts at that point – those were some of the stocks you spoke of.

A: With a time horizon of five-ten years, any Indian company with good corporate governance, good allocation of capital, good return on equity, unutilised capacity I am bullish on.

Q: Financials, industrials. A: Everything but these are – going to a sector also you look at the criteria of companies; what is the profile, what is the problem but one thing is there in cyclical the rewards are going to be very good but you have to have patience. Q: Have you been adding financial stocks to your portfolio?

A: I am adding financials.

Q: What is it within financials that appeals to you, are you looking at some of the more non banking financial companies (NBFCs) kind of companies or are you looking at private sector banks or public sector undertaking (PSU) banks. I am not asking you for specific names. I am asking you for larger areas that might interest you?

A: I am not looking at PSU banks and from investment angel I am not buying any PSU banks. According to me the public sector banks profitability will go up, there will be upturn but the problem is they need so much of equity. I keep selling every year, keep selling every year. Actually my request is for Government of India to decide for five years what is a disinvestment for three years and do not disinvest a company every year. If you sell Oil and Natural Gas Corporation ( ONGC ) today then make a pledge that for 24 to 36 months we will not sell ONGC. If you respect the equity, the market will respect your equity. So, India to get better valuation of public sector stocks whether banks or otherwise need to have a planned disinvestment programme for the next three years.

Q: In industrials are the specific areas that look interesting to you, more interesting or more promising because the last set of earnings that we went through last quarter, not this time, there were quite a few expectations that took a hard reality check or knock if I could say so on industrials.

A: For trading I sold all my cyclical, most of them and not all and my economy related immediate economy related stocks just one or two months into the rally in June-July because there are lot of expectation built in which is going to take time. If you want to buy, buy with a three-five year horizon.

Q: You sold and you rotated your money into what?

A: I am talking of trading positions. Q: I am talking of trading positions only? A: I won’t tell you what I bought.

Q: Not stocks but sectors?

A: I don’t want to talk companies; I do not want to talk sectors.

Q: In May, you had told me that Infosys was still some time away from a turnaround. Now with a change in leadership, do you believe that that company and therefore the stock by extension look more interesting?

A: This is the first quarter – I do not know, I am hopeful and it could be a very good turnaround. They have underperformed TCS and there is no doubt about it by leaps and bounds. So let us see what happens and I think they could and they could not, I do not know.

Q: We have seen USL go through a fairly rough patch over the last few quarters, a delay in announcing its earnings. There is a cleanup going on there. How confident do you feel about the USL story?

A: Over the next 15 years.

Q: Hopefully two-five years? Who has seen 15 years?

A: I have bought USL and at this moment I think that if I have 50-53 percent of India’s liquor market and I have Diageo’s skills and corporate governance; the short-term maybe a little cloudy but the long-term is – you cannot imagine. You have 50-53 percent India’s liquor market, you have the world’s largest company owning it, you have the highest corporate governance, you have the highest skills in running spirits business, I think it’s a lethal combination.

Q: What about e-commerce valuations? Is there some way you are looking at playing what is going on the e-commerce space?

A: I think it is crazy.

Q: I asked Ramesh the same question and he said I am approaching the proxy for me because most of these companies are unlisted are logistic players, supply chain players.

A: Do I have to participate in every party in the world. I want to ask you one thing, JustDial has got Rs 700 crore cash in the balance sheet.

Q: JustDial was one of your big investments

. A: I sold it. He is going to raise Rs 1,000 crore for what? What is he going to do with Rs 1700 crore cash in his balance sheet, how is he going to use? We will have inorganic opportunities, okay. So there is no respect for equity. Anyway, in the short-term, the price could be Rs 10,000 but I know entrepreneurs who give respect to equity, give returns to its investors.

Q: Do you think some of these start-ups like Flipkart etc have diluted way too much, way too quickly?

A: They could grow but how much the investors will earn, I have a doubt.

Q: I want to ask you one stock specific question. There are two – Your interest in MCX and your interest in GSFC .

A: I have a position in GSFC, it is a trade, it is not an investment.

Q: And MCX?

A: I made an investment in MCX and I am very bullish.

Q: On the exchange business?

A: No, the exchange business – because I think it is like in 1999 when I bought CRISIL , everybody wanted a play on the financials in the Indian market. I thought CRISIL is the best proxy for financials. It is unique. If I want to have an investment in India’s financials, MCX is best because unique. It is a play on the trading and the hedging and the liquidity and the growth of Indian markets. To establish a near monopoly with 85-90 percent market share in commodities, I think it is unassailable position.Q:


Q If your expectation is that we are set at the beginning of a bear market in commodities, do you expect that to play out in any fashion on trading volumes for an exchange like MCX?

A: Consumption is not going to go down and once all this trading, once you are habituated – in India, where is the hedging? Where is the development of the financial markets in the attitude?

Q: Is this five-year investment for you, ten-year investment for you?

A: Who knows.

Q: But it is an investment, it is not your trading portfolio? A: It is an investment. Q: GSFC?

A: I am bullish.

Q: Let me ask you what would your message to fellow investors in the Indian equity markets be on this auspicious occasion of Diwali?

A: I will say be bullish, ride for longer-term, there is a lot of money to be made in the stock markets but invest what you can afford or invest with an idea that there could be risk also. So invest what you can afford easily, don’t be cynical about India. It is going to be the greatest opportunity we ever had and the next – India is going to be a bull market, which will surprise you even five years later, ten years later, fifteen years later and twenty years later. I deserve the right to be wrong, believe in India, happy investing.

Axis Bank Q2 profit may jump 18%, assset quality key: Poll

Axis Bank , one of the largest private sector lenders, will announce its second quarter (July-September) earnings on Friday. Profit after tax is expected to grow by 18 percent to Rs 1,612 crore from Rs 1,362 crore on yearly basis, according to the average of estimates of analysts polled by CNBC-TV18.

Net interest income, the difference between interest earned and interest expended, may jump 14 percent to Rs 3,342 crore in the quarter ended September 2014 compared to Rs 2,937 crore in same quarter last year.

Key things to watch out for would be its asset quality as the management had said (after Q1 earnings) that it will review asset quality guidance post Q2FY15.

In Q1, asset quality surprised positively with stressed assets went down 22 percent Q-o-Q to Rs 1,100 crore. The bank had maintained its stressed assets guidance at Rs 6,500 crore for FY15 as against Rs 5,700 crore in FY14.

Also restructuring may be keenly watched. In Q1FY15, fresh Restructuring was down by 57 percent sequentially to Rs 480 crore.

Net interest margin of the bank is expected to remain stable. Analysts expect that in 3.7-3.9 percent range for the quarter.

Loan growth is estimated to be healthy during the quarter at 19 percent Y-o-Y while deposit growth is likely to be modest at 10 percent.

Fee income may moderate in July-September quarter, feel analysts. According to the poll, estimate is around 8-10 percent on yearly basis.


Arvind Subramanian named India’s new Chief Economic Advisor

The government today appointed Arvind Subramanian as India’s next Chief Economic Advisor. Arvind Mayaram will be handing over the baton to Subramanian who will hold the post for the next three years.

Subramanian whose work experience includes working with the International Monetary Fund (IMF) has also taught at the Harvard and John Hopkins University.

Subramanian’s impressive and long career includes working for the World Bank, World Trade Organisation and UNCTAD.

Soon after he was appointed to the post, Subramaniam told the media that his focus will be on growth, employment generation, investments and providing equitable growth for all Indians.

Economic experts say Subramanian is the right man for the job. C Rangarajan, former chairman, Economic Advisory Council to the Prime Minister, who has also taught Subramanian, says this appointment has been an excellent one. “

Subramanian has had an outstanding work experience. He is an expert on China and on the problems of globalization. The best thing is that he is familiar with the problems faced by economy,” says Rangarajan.

S Narayan, former finance secretary says, “Subramaian is a very pro-growth person. He will give fresh direction to Indian economic development.”


Sebi fines Glaxo for failing to make regulatory disclosures Penal

Capital market watchdog Sebi today slapped a fine of Rs 25 lakh on Glaxo Group Ltd, a promoter entity of drug maker Glaxo Smithkline Pharmaceuticals , for failing to make timely disclosures about its aggregate shareholding to the company and the stock exchanges.  Glaxo Group “neglected the duty of making timely disclosures” to the stock exchanges the BSE and the NSE, on various occasions, the Securities and Exchange Board of India (Sebi) said in its order.

Sebi came across the violations by Glaxo Group while examining the draft letter of offer filed by Glaxo Smithkline Pharmaceuticals along with UK-based Glaxo Smithkline plc and Glaxo Group, to acquire 24.33 per cent stake in the India-listed group entity. As on quarter ending September, 2014, Glaxo Group held 35.99 percent stake in Glaxo Smithkline Pharmaceuticals as the largest promoter shareholder. Penalties, totalling to Rs 25 lakh which needs to be paid within 45 days, have been imposed by the capital market regulator for violating various provisions of Sebi’s Takeover Regulations.

Under these norms, a promoter of a listed company has to, disclose, together with persons acting in concert with him, their aggregate shareholding and voting rights as on March 31, in the firm, within a prescribed time period, to the relevant stock exchanges as well as the company. Sebi found that Galxo Group, as a promoter group entity, was under an obligation to disclose the aggregate shareholdings to the BSE and NSE as well as to Glaxo Smithkline Pharmaceuticals India for the year 2007.

However, the said disclosures were admittedly made by the entity with an aggregate delay of 60 days. The market watchdog also noted that Glaxo Group was to disclose its shareholdings for the year 2012 and 2013, but made the same with an aggregate delay of 158 days.

GlaxoSmithKline stock price

On October 14, 2014, GlaxoSmithKline Pharmaceuticals closed at Rs 2747.30, up Rs 13.25, or 0.48 percent. The 52-week high of the share was Rs 3054.40 and the 52-week low was Rs 2351.60.

The company’s trailing 12-month (TTM) EPS was at Rs 48.72 per share as per the quarter ended June 2014. The stock’s price-to-earnings (P/E) ratio was 56.39. The latest book value of the company is Rs 238.15 per share. At current value, the price-to-book value of the company is 11.54.


Sept WPI eases at 2.38%, food inflation cools to 33-mth low

Inflation data based on Wholesale Price Index (WPI) for September eased to 5-year low at 2.38 percent against 3.74 percent on a month-on-month basis on lower food and fuel prices.

Food inflation, which came in at 33-month low, stood at 3.52 percent against 5.15 percent, while the fuel and power group inflation came in at 1.33 percent against 4.54 percent on a month-on-month basis. Manufactured products inflation came in at 2.84 percent against 3.45 percent. The July WPI inflation has been revised to 5.41 percent from 5.19 percent.

A CNBC-TV18 poll had estimated WPI to come in at 3.1 percent on a lower primary and fuel inflation.

Even the consumer price inflation data for the month of September, which was released yesterday, cooled off to its all-time low of 6.46 percent, the lowest since India started computing consumer price index (CPI) in January 2012, led by lower food prices and fuel costs.

Reacting to the data, finance minister Arun Jaitley said that the fall in inflation data is heartening and that the food inflation is now under control. “Today’s data release for WPI for September at 2.38 percent shows that inflation fell significantly dipping to a five-year low.  Data for consumer price inflation for September at 6.46 percent released yesterday had also shown a decline, he said.

He further added that the government is committed to continuing reforms in food markets that will improve supply responses and keep inflation low and stable. “Growth in vegetable and protein prices that have been contributing to the recent increase in inflation rates have shrunk thanks to the steps taken by the government. Fiscal consolidation and a new monetary policy framework will help bring down inflationary expectations. We are confident that soon we will be achieving a low and stable inflation rate,” he said.

Elated by the double cheer brought in by CPI and WPI, Aditi Nayar, Senior Economist at ICRA, said falling crude, commodity prices coupled with softening food, have helped in bringing down the inflation numbers. Nayar had expected WPI number at around 3-3.1 percent, and says 2.38 percent is definitely positive news.

“The good news at this point in time is that we haven’t seen the impact of diesel cuts yet. That would bring some more softening going ahead and something to look forward to. However, we should still remain little bit cautious as far as other food prices are concerned other than the vegetable reversals,” she told CNBC-TV18.

According to ICRA’s immediate term trajectory expectations, CPI will fall below 6 percent by November and then rise up to around 7 percent in December-March. After that it will be back on Monsoon watch from April onwards.

Nayar expects commodity prices to stay low for a long period but feels the effect will go away. “This year fuel and light has shown a downtrend also because electricity tariff has not been hiked in large number of states. Next year possibly we are going to see fairly steep increases across quite a number of states and that’s something that will bring in a new factor that will firm up inflation, which doesn’t exist at this point in time,” she said. Nayar expects the first rate cut at around June 2015.

According to Samiran Chakraborty, Head of Research at Standard Chartered Bank, the numbers reflect the decline in global commodity prices as it is WPI that picks up the metal, chemical and fuel price declines faster than CPI. He expects the core inflation to come in lower than 3 percent (better than 3.5 percent seen last month).

“So in conjunction with the food price decline which is reflected in both CPI and WPI, the WPI move looks spectacular. Therefore, very good news that on both WPI and CPI we are now getting confirmation that the inflation numbers are low,” he said.

Though Chakraborty agrees the projected inflation trajectory should shift downwards by about 70 bps, he feels it is better to rather wait for couple of more months to check the sustainability of the current momentum change.

“If we simply look at this 70 bps downward shift in the trajectory then we are still probably looking at something like 6.5-7 percent inflation by September next year and in that situation, we might not see an immediate rate cut coming in. But if there is also a momentum shift then even the rate cut could also be on the table,” he said.

Discussing the yield trajectory, Vivek Rajpal, Rates Strategist at Nomura India, said it has been quite favourable for sometime, “but will still be gradual decline”. He expects levels of 8.20-8.25 percent in this fiscal year by January.

And how is the 10-year likely to look one year down the line? Rajpal expects it to be closer or slightly below the repo rate. “I wouldn’t be surprised given the inflation the way it is behaving. Before we get the actual rate cut from Reserve Bank of India (RBI), the 10-year bond should trade below 8,” he added.


BSE to remain shut on Oct 15 due to Maharashtra elections

The Bombay Stock Exchange will remain shut on October 15 on account of elections in Maharashtra. In a circular to traders, BSE said on account of Assembly Elections in Maharashtra, the exchange will remain closed on Wednesday and there will be no trading on that day in equity segment. This trading holiday was not included in the previous 2014 trading holidays list.

A compulsory holiday will have to be observed by all organisations in the jurisdiction where election is to be held.

Other trading segments such as mutual fund segment, currency derivatives, equity derivatives segment and other traded segments will also remain shut for the day.

Other exchanges such as NSE, MCX and NCDEX are also expected to remain shut though no formal announcement to the effect has been made yet


Sept CPI may touch 7.2% on lower food prices The RBI

India’s consumer price inflation probably eased for a second straight month in September helped by lower food and fuel costs, a Reuters poll found.

While prices were trending lower, analysts said the Reserve Bank of India’s inflation target further out in January 2016 may be difficult to achieve. The CPI data is due on Monday at 5:30 p.m.

Consumer prices in September were forecast to have risen 7.2 percent, according to a poll of 28 economists, weaker than 7.8 percent in August. It would also be the lowest inflation reading since the indicator was introduced in 2012.

“A fall in vegetable prices on the month is the main reason we expect a fall in CPI,” said Aman Mohunta, economist at Nomura. He added that a statistical base effect from September last year, when inflation was abnormally high, could temper Monday’s data.

The RBI has set a target of bringing inflation down to eight percent by January 2015 and six percent by January 2016 but Governor Raghuram Rajan has admitted to upside risks on the latter target.

“The RBI has done a fairly good job in bringing down inflation expectations, even so six percent by 2016 looks a bit ambitious,” said Shilan Shah, senior economist at Capital Economics in London.

“Any negative effect on local food production and food prices is the biggest risk…it’s the one that’s always there.”

The poll also showed wholesale price inflation, will likely tick down to 3.3 percent from last month’s 3.7 percent, due to a steady fall in global crude oil prices, which hit a near two-year low on Thursday.

The WPI data will be released on Tuesday. The RBI gauges both measures of inflation when deciding on monetary policy, but with risks to the January 2016 CPI target, it is unlikely to cut interest rates this year.

The RBI said it would cut the ceiling on bonds required to be held-to-maturity from 24 percent to 22 percent starting in January 2015, in order to increase liquidity in financial markets.

Infosys Q2 profit seen up 3.4%, Sikka’s strategy key: Poll

India’s second largest software services exporter  Infosys will kick off second quarter (July-September) earnings season on Friday. While the operating numbers will be closely watched, of more interest to the market will be the strategy of newly appointed CEO Vishal Sikka.

According to the average of estimates collated by CNBC-TV18, profit after tax is expected to increase 3.43 percent sequentially to Rs 2,985 crore from Rs 2,886 crore.

Rupee revenue may grow 4.2 percent quarter-on-quarter to Rs 13,307 crore and dollar revenue is seen rising 2.9 percent to USD 2,195 million as against 2 percent growth in previous quarter.

Analysts feel any failure by Sikka to spell a clear strategy could trigger a sell-off as the stock has run up sharply leading up to the results. The stock has risen 15 percent since June 12 (the day Sikka officially took charge). But year-to-date it has gained only 5 percent, while its rivals TCS ,  Tech Mahindra and  HCL Technologies  climbed 23-33 percent, and  Wipro  7 percent in the same period.

The second quarter is a seasonally strong quarter for the sector. Analysts expect a pick up in sequential growth of the company.

Earnings before interest and tax (EBIT) is likely to jump 6 percent on sequential basis to Rs 3,407 crore and margin may expand 46 basis points to 25.6 percent during the quarter on modest rupee appreciation and cost optimisation.

The expansion in margin may be driven by the absence of wage hike. However, this will be offset as Q1FY15 margins benefited by 110 basis points due to change in estimate of useful life of assets. Also higher investments and decline utilisation could impact margins negatively, feel experts.


As far as its full year FY15 guidance is concerned, analysts believe that is likely to be maintained for now despite a likely hit due to cross currency.

Dollar revenue guidance for the current financial year stands at 7-9 percent, which was maintained in the previous quarter but the rupee revenues are expected to grow 5.6-7.6 percent (on conversion 1 USD = Rs 60).

According to the poll, to maintain this guidance, the company needs to deliver a 2.3-3.5 percent compounded quarterly growth rate over Q2 to Q4FY15.

Sikka’s strategy

Analysts expect a balanced calibrated approach from company’s CEO Vishal Sikka. “We expect Infosys to articulate its intent to increase its win-rates and market-share in bread-and-butter offerings (large deals, inframanagement, BPO, ADM) but also chart out a differentiated journey in digital, with Dr Sikka leading the charge. An incremental approach will not help Infosys break new ground,” said JPMorgan.

“If Infosys defines its goal as predominantly wanting to win greater share in bread-and-butter offerings (i.e. reviving the core), it would merely play catch-up with TCS. For a large company wishing to create something distinctive, some disruption is inevitable,” it added.

The company has so far maintained that a three-year turnaround strategy put in place by founder NRN Murthy. And this is likely to stay (cost-effectiveness, sales effectiveness and delivery effectiveness), feel analysts.

Of the three, the company took a number of measures to take out redundant costs. Now most of the cost rationalisation has been done already and that Infosys has a more streamlined cost structure today than 12-18 months back.

But there is still limited success on sales and delivery effectiveness.

On sales effectiveness, the company has taken several initiatives like hiring account managers for effective mining of its key/important accounts and hiring business school graduates.

On delivery effectiveness, it has carved out IMS (infrastructure management services) and digital as separate horizontals in order to encourage focus on these two high-growing services.

Capital allocation

Most analysts don’t expect Infosys to use its cash pile for buyback. They believe the company needs to augment its portfolio by doing mergers and acquisitions and that remains the best use of its cash.

EBRD chief calls for development bank shake-up

The world’s multiple regional development banks need to work together better and shake things up or risk becoming irrelevant, the head of the European Bank for Reconstruction and Development (EBRD) said on Wednesday.

Suma Chakrabarti said the creation of the BRICS development bank and a China-led effort to launch the Asian Infrastructure Investment Bank were a criticism of the existing system for not adapting quickly enough to incorporate new power structures and the needs of emerging markets.

China has chafed at its limited voice at other international financial institutions, including the World Bank, International Monetary Fund (IMF) and Asian Development Bank.

The BRICS group as a whole – Brazil, Russia, India, China and South Africa – have also sought a greater say in the international financial order that was created by Western powers after World War Two.

The countries have been frustrated by the slow pace of change within the IMF, where historic reforms agreed in 2010 to give emerging nations a greater say have been held up by the U.S. Congress.

“The unwillingness and inability of existing players to change and adapt quickly to meet shifting demands always leaves the multilateral system playing catch-up,” Chakrabarti said on the sidelines of the fall meetings of the IMF and World Bank in Washington.

He called on other regional development banks, including the African Development Bank (AfDB) and the Asian Development Bank, to be more responsive to governments and companies that become frustrated by dealing with often-competing priorities or multiple “country strategies.”

“I suspect the vested interests of the different multilaterals makes it difficult to even think about such a nirvana,” he said at the Peterson Institute for International Economics think-tank. “I would like, before I finish my career in development, to see if we can at least pilot such an idea.”

The EBRD was set up in 1991 to help former communist countries of central and eastern Europe make the transition to market economies, but it has expanded its activities to include central Asia and, most recently, North Africa and the Middle East.

Chakrabarti said the various development banks should collaborate on projects, share knowledge and even combine financing in certain areas.

“Surely, that is how a recipient country would organize the multilateral system if it had its way,” he said.


Former Infosys employee files new lawsuit seeking damages

A former Infosys  employee responsible for starting a US investigation into the company’s visa practices has filed another lawsuit demanding damages for alleged wrongful termination.

US national Jack Palmer, who was employed by Infosys in Alabama, said in the lawsuit filed on Thursday with a New Jersey court that he had been discriminated against because he flagged that the company was flouting US visa rules.

The lawsuit, seen by Reuters, did not specify how much damages Palmer was seeking. Infosys did not immediately respond to requests for comment.

Last year, Infosys paid up USD 34 million to end an investigation related to the widespread practice by Indian firms of flying workers to client sites in the United States on temporary visas. US authorities had been looking into Infosys’ use of visas since 2011.

Palmer had previously tried to take Infosys to court, but his earlier case was dismissed in August 2012.

Employment visas are a politically-charged topic in the United States, especially those related to Indian IT services companies that are seen as taking jobs away from Americans.

Infosys stock price

On October 01, 2014, Infosys closed at Rs 3847.20, up Rs 99.55, or 2.66 percent. The 52-week high of the share was Rs 3859.90 and the 52-week low was Rs 2894.00.

The company’s trailing 12-month (TTM) EPS was at Rs 185.71 per share as per the quarter ended June 2014. The stock’s price-to-earnings (P/E) ratio was 20.72. The latest book value of the company is Rs 733.03 per share. At current value, the price-to-book value of the company is 5.25