Monday, April 11, 2016

FPIs remain bullish on Indian markets; pour in Rs 7,600 cr in April

Continuing with their bullish stance on India for the second month, foreign investors have pumped in over Rs 7,600 crore into the country’s capital market in April so far, buoyed by a rate cut by the Reserve Bank.

It follows a staggering inflow of Rs 19,967 crore in the capital markets (equities and debt) last month.

Foreign Portfolio Investors (FPIs) had turned net buyers of equities in March after pulling out a massive Rs 41,661 crore from the market in the previous four months (November to February).

Overall, so far this year, FPIs have invested Rs 7,964 crore in equities, while withdrawing Rs 3,202 crore in the debt markets, resulting into a net inflow of Rs 4,762 crore.

Market experts attributed the huge inflow this month to rate cut by Reserve Bank of India (RBI) in its first monetary policy meet of 2016-17 on April 5.

RBI had reduced the short-term lending rate by 0.25 per cent to over five-year low of 6.5 per cent.

According to the data available with depositories, FPIs invested Rs 3,469 crore in equities till April 7, while they poured Rs 4,152 crore in the debt markets, leading to a total inflow of Rs 7,625 crore.

“Following the recent rate cut by RBI, bond prices have rallied (prices move inversely to rate) which has lead to inflows from FPIs on anticipation of further price appreciation the future,” SAS Online Chief Operating Officer (COO) Siddhant Jain said.

“Also in the recent hike by capital markets regulator Sebi in FPI investment limit for government debt will further lead to more FPI inflows, he added.

Capital inflows by FPIs are often referred to as hot money due to their unpredictability, although the funds continue to remain one of the key drivers of the stock market.


Over the last few years, misfortunes faced by market leader Exide Industries in terms of capacity constraints, market share losses and shrinking margins turned into an opportunity for Amara Raja Batteries. The stock witnessed a strong re-rating in this period and now trades at about 32 times its trailing 12-month earnings, compared with about 11 times five years ago.

Robust growth

The up-move is not without support from the numbers. Even as Exide struggled with dip in profits, Amara Raja’s profits have grown 11-45 per cent each year since 2011-12.

With revenues divided almost equally between the auto and industrial batteries segment, a slowdown in new vehicle sales in 2013 and 2014 saw the company up the ante in the replacement market for batteries, which brings higher margins. With auto sales somewhat recovering in the last year or so, the company’s efforts to make further inroads into supplies to OEMs ( auto manufacturers) has also helped.

Similarly, in the industrial segment, as demand for telecom batteries witnessed a lull in this period, an uptick in UPS and home inverter batteries kept the cash registers ringing.

Softer lead prices also helped the company expand operating margins in the last two years to 16-17 per cent levels compared with 13-14 per cent earlier. Even if the benefits of lower prices of raw material may be scaled down, going forward, prospects remain sound.

Car and bike sales are expected to get a leg-up from factors such as lower borrowing costs, Pay Commission doles and a pick-up in rural demand. Demand for telecom batteries, too, is witnessing a comeback.

The stock has lost about 20 per cent until now from its one-year high of Rs.1,132 (August 2015), taking off some of the froth.

Although still on the higher side, valuations have corrected from its peak of about 40 times.

Given the promising prospects, the stock remains a good bet.


With Zee Entertainment, one of the leading broadcasters, delivering healthy revenue growth over the past few years, the stock has made neat gains. This has been despite the not-so-consistent profit growth, which has been in single digits in recent times. Higher expenses associated with the launch of &tv, a new channel, impacted FY15 numbers. Similarly, a sharp increase in tax expenses and a fall in other income in the December quarter dented net profit growth for the nine-month period ending December 2015.

After tripling to Rs.388, the stock now trades at 44 times its trailing twelve-month earnings, much higher than the 20 times five years ago. Though the stock appears expensive, Zee’s prospects look good.

Zee has a strong foothold in the Hindi and the regional language general entertainment channel space, which accounts for the largest share in the TV viewership base. Given its leading position, Zee is well-placed to garner a good share of the likely higher ad spends by companies in sectors such as FMCG, telecom and e-commerce. An expected improvement in economic growth should drive up company ad spends. In the past too, Zee has delivered well on this front. Zee grew its ad revenue 20 per cent annually between FY10 and FY15. For the nine-month period ending December 2015, it posted ad revenue growth of 29 per cent year-on-year. Sixty per cent of the company’s revenue comes from ads.

Subscription revenue accounts for another third. Income from this source grew 13 per cent during the five-year period ending FY15 and 14 per cent (y-o-y) in the latest nine-month period. While subscription revenue growth is expected to stay on track, there is no near-term trigger for a surge, given the delay in the completion of cable TV digitisation (phases III and IV).

But, as more areas get digitised over time, Zee should benefit from subscriber additions and higher yields in the long run. This will come about with improved reporting of subscribers and better channel packaging, not possible under the existing analog cable system.