September 2008
Market & Economic Review
The MSCI India Index rose in sterling terms last month. Financials performed well on expectations that margins will improve with higher lending rates, while the IT sector gained on the back of a weakened dollar.
The central bank kept interest rates stable during the month, as the increase in domestic wholesale prices slowed. Meanwhile, the Indian cabinet approved a pay rise for 5 million government employees.
Second-quarter GDP growth slowed to 7.9% year-on-year as high inflation hurt consumer demand. This is still brisk growth by historical standards.
In August, we topped up Satyam Computer Services. Conversely, we reduced Hero Honda following a run-up in its share price. We sold ONGC as the government’s policy on fuel subsidies remains unclear. In addition, we are uncomfortable with the company’s recent acquisition of UK-based Imperial Energy.
Our holdings posted positive second-quarter results, although numbers reflected inflationary pressures and a slowing economy. ICICI Bank’s growth remained strong, but loan growth slowed and higher provisioning curbed net profits. ITC benefited from steady cigarette sales, even as raw material costs hurt its other businesses.
In corporate news, Piramal Healthcare will acquire Germany-based PlasmaSelect’s blood plasma products. ICICI Bank entered into an agreement with the US’ Export-Import Bank to finance Indian buyers of US exports. Infosys Technologies is expected to acquire UK-based Axon Group, while Tata Consultancy Services is looking to buy Citigroup’s back office unit.
Outlook
External headwinds remain a key influence on market sentiment. At the domestic level, we expect economic growth to moderate. Yet, policymakers may not be done raising interest rates. The new central bank governor has said lifting rates is the answer to controlling inflation. The true level of prices is understated because of government price caps and subsidies, notably of fuel, which are a huge off-budget cost. The government recognises inflation as arguably the key campaign issue in next year’s election. We, therefore, remain cautious in the current operating environment. That aside, we believe that our holdings, with their sensible managements and strong balance sheets, are relatively well insulated from immediate price pressures.
Source: Monthly Factsheet Aberdeen Asset Managers Limited