Sensex Opens Lower after CPI Inflation Surges; Bank & FMCG Stocks Fall

Wed, 13 Dec 09:30 am

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Asian indices are lower today as crude oil futures steadied and market participants awaited cues from major central banks. The Shanghai Composite is off 0.17% while the Hang Seng is down 0.24%. The Nikkei 225 is trading down by 0.26%. Overnight, the US stocks closed higher amid growing optimism that Republican lawmakers would be able to revamp the corporate tax system.

Back home, India share markets have opened the day marginally lower after India suffered a macroeconomic setback with retail inflation unexpectedly accelerating to a 15-month high. The BSE Sensex is trading lower by 56 points while the NSE Nifty is trading lower by 14 points. The BSE Mid Cap index opened down by 0.1% while BSE Small Cap index opened the day up by 0.1%.

Sectoral indices have opened the day on a mixed note with bank stocks and FMCG stocks witnessing maximum selling pressure. While, consumer durables stocks and healthcare stocks leading the gains. The rupee is trading at 64.48 to the US$.

Meanwhile, Virtual currency bitcoin hit another all-time peak on Tuesday, two days after the launch of the first ever bitcoin futures on a US exchange and ahead of the start of another futures contract next week, as investors grew optimistic that the US$20,000-mark is within reach.

Telecom stocks opened the day on a mixed note with GTL and ITI Ltd leading the losses. As per an article in a leading financial daily, Warburg Pincus, a global private equity firm focused on growth investing will acquire up to a 20% equity stake in Bharti Telemedia Limited, the DTH arm of Airtel, for around US$350 million.

Of this, 15% stake will be sold by Bharti Airtel and the balance by another Bharti entity which holds 5% stake.

Upon closing of the transaction, Airtel will own an 80% equity stake in Bharti Telemedia Limited. The proceeds will be used to fund growth plans as the company looks to strengthen its hold in the country's DTH market, which is in the midst of consolidation.

Bharti Telemedia offers DTH services under the Airtel TV brand. It had around 14 million subscribers and around US$550 million in revenues during the 12-month period ended 30 September 2017.

One shall note that, Reliance Communications has already announced sale of its DTH arm to Pantel Technologies and Veecon Media and Television.

Last year, Zee Group owned Dish TV had announced merger of its business with Videocon d2h, which is pending before the Information and Broadcasting Ministry for approval.

Notably, Warburg had earlier invested US$292 million in Bharti Tele-Ventures for a 19% stake between September 1999 and July 2001.

When Airtel went public in January 2002, the Warburg stake was diluted to 15%. The firm sold its entire stake in Airtel in three tranches during 2004-2005 for a total realization of US$1.61 billion.

Bharti Airtel share price opened up by 1.2%.

Moving on to the news from the economy. India's retail inflation grew at 4.88% in November, mainly due an increase in foods and oil prices.

Retail inflation, measured by Consumer Price Index (CPI) hit a seven-month high at 3.58% in October, while rising 3.63% in November a year ago.

One shall note that, CPI is the main price gauge that the Reserve Bank of India (RBI) tracks.

The data released showed that the bulk of the rise in inflation was due to rising food prices as the food inflation stood at 4.42%, compared to 1.90% in the month of October.

Last week, the RBI's Monetary Policy Committee (MPC) forecasted that retail inflation will hover around the range 4.3% to 4.7% in quarter ended December and March, higher than the previous projection of 4.2-4.6%.

The MPC also said that that inflation expectations, i.e., food and fuel inflation, edged up in November. Inflation expectations of households surveyed by the Reserve Bank have already firmed up and any increase in food and fuel prices may further harden these expectations.

The uptick in inflation is expected to further affirm RBI's stand of maintaining a neutral stance. The repo rate which was last trimmed in August, thus seems unlikely to receive a further cut, which may come across as a dampener for private investment.

The chart below shows how India's inflation and policy rates stand in comparison with other Asian economies.

India's Policy Rates Compared to Asian Economies

However, at Equitymaster, we do not attempt to predict how and when macroeconomic developments will unfold. Instead, we focus all our energy on understanding the underlying business strength of companies. In fact, the ValuePro team is always on the lookout for all-weather stocks whose fortunes are not tied to economic cycles.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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