Industry Update: November 2018

On November 2, the Indian market was moved to a Confirmed Uptrend.  Since then, the Nifty has added two distribution days. However, further accumulation of distribution days could lead to change in market status to an Uptrend under Pressure. The US market is currently in a Confirmed Uptrend.  In November, we added stocks primarily from the Pharma and Consumer sectors in our India Model Portfolio.

India’s GDP growth was at 7.1% y/y during the July-September quarter, its lowest in three quarters. Construction and Manufacturing grew at 7.8% and 7.3% respectively, while Mining contracted by 2.4% for Q2.

Given below is a quick update for eleven key sectors:

Automobile: Nifty Auto is in a Confirmed Uptrend and is currently 3.5% below its 50-DMA and 14.9% below its 200-DMA. In the past one month, the Auto index has outperformed the market by gaining 4.2% as compared with a 2.7% gain in the market.

Banking and Finance: Nifty Bank gained 6.6% during the month. The index remains in a Confirmed Uptrend. It added one distribution day. The Federal Reserve kept its interest rate unchanged after a two-day meeting in early November.

Basic Materials: US S&P Metals & Mining Select Industry Index fell 2.94%. The year-to-date loss at the index stands at 3.65%. Nifty Metal is currently in a Downtrend. With this level of volatility in crude prices, we expect volatility to continue.

Capital Equipment: Following a sharp correction in October, the U.S. capital equipment stocks steadied with decent gains in the month. In India, capital equipment stocks gained momentum in November after correcting in September and October.

Consumer: Nifty FMCG is currently in a Confirmed Uptrend and the positive performance was propelled by above expectations Q2 financial results. The global apparel market, especially the luxury segment, has been in a downturn, primarily due to China’s economic slowdown.

Media and Internet: Nifty Media increased 0.3% m/m as of November 22, compared to 1.7% m/m growth in October. The index remained in a Confirmed Uptrend. It continues to face stiff resistance around its 50-DMA.

Oil and Gas: Globally, the crude price touched $60/barrel from high of $85/barrel last month. The dampener for crude came from higher supply from major producers and fear that an economic slowdown will dampen the outlook for demand.

Pharma and Healthcare: In November, US pharmaceutical ETF (IHE) gained 2.3%, retaking its 200-DMA. Nifty Pharma is in Rally. With the earnings season coming to an end, key generic approvals in the US market will be in the main focus area amidst stabilizing price erosion in the US generic market and USFDA approving record number of generic applications. Out of 781 generic drugs approved in 2018, 128 were approved in October.

Retail: The U.S. Retail sector index declined 5% or lost $162B in value, following a decline of 9% in October, thereby breaching 40-WMA support. The Indian Retail sector index increased 10% regaining from consecutive declines in the last three months. Increase was led by Avenue Supermarts and Titan Company.

Technology: Globally, Software uptrend is broken, and is currently under deep distribution. As of Nov end, Nifty IT index, comprising of 10 major IT firms, was in a Rally Attempt. Rupee appreciating from 73.32/$ on 1s November to 70.85/$ on 22nd November and lawsuit against Indian IT firms in the U.S. are the two major reasons behind fall in the IT index.

Telecom: The BSE telecom index increased 4% m/m in November, compared with the 22% m/m decline in October. The telecom market moved to a Confirmed Uptrend in November. The index continued to face resistance around its 50-DMA.

Automobile:

Nifty Auto

Nifty Auto is in a Confirmed Uptrend and is currently 0.6% below its 50-DMA and 13.2% below its 200-DMA. In the last one month, the Auto index increased 5.1%, outperforming market’s 4.7% gain.

Key Developments

–During April–October, automobile sales were 19,575K units (+14.4% y/y). In October, passenger vehicles sales were 284K units (+1.6% y/y) and commercial vehicle sales were 87K units (+24.8% y/y). The top five car manufacturers – Maruti Suzuki, Hyundai, Mahindra and Mahindra, Tata Motors, and Honda, together sold 230K units (+2.1 % y/y).

–According to the Federation of Automobile Dealers Association, the Auto sector has seen decline in the two-wheelers and passenger vehicles segment during the festive season due to higher fuel prices and low consumer demand. This has led to a substantial rise in the dealer inventory levels.

–The industry body has urged the Government and the RBI to relax the liquidity norms for auto NBFCs, which are the key growth drivers for retail automobile sales. Auto NBFCs operate in a less risky environment as compared with infra and housing NBFCs, due to shorter repayment cycle of automobile loans and higher mobility of the assets.

-On November 15, Classic Legends, a subsidiary of Mahindra and Mahindra, has revived the Czech motorcycle brand Jawa by launching three variants in the mid-priced segment dominated by Royal Enfield.

–Mahindra and Mahindra launched Alturas G4, its flagship SUV, and seeks to garner a 10% in the segment, which is dominated by Toyota Fortuner and Ford Endeavour.

–Drivezy, a vehicle sharing marketplace in nine cities, raised $20M in its Series B funding round. It will utilize the capital to expand into new markets and integrate advanced services.

–Maruti Suzuki will stop bookings for its Gypsy brand from next month. It will be phased out of production in March 2019 as it will not be getting an update for the new ABS and airbag rules that will be enforced soon.

Company Update

–Tata Motors reported Q2 FY19 results; revenue growth of +3.2% y/y and net loss of INR-10bn were below consensus. The poor show was mainly due to a sluggish performance by Jaguar Land Rover due to uncertainty over Brexit and weak demand from China. JLR unit seeks to cut down its spending by £500M in a comprehensive turnaround plan to improve free cash flows and profitability. The stock has poor technical ratings, with an RS Rating of 13 and an A/D Rating of C-. Currently, it is trading 60% off-highs.

Looking Forward

-The industry expects that demand will likely improve after recent cuts in petrol prices. Moderation in crude oil prices, after the U.S. gave a waiver to import cheaper oil from Iran, should further help the demand in auto sector. With an improving vehicle sharing market place, B2B sales can increase, while B2C sales could be impacted. Sales could get leverage if liquidity norms for NBFC are relaxed.

Stocks in Watchlist: Maruti Suzuki, Eicher Motors

Stocks to Avoid: Tata Motors

Banking and Finance:

A Paradigm Shift in Indian Macros

The strengthening rupee coupled with falling crude prices has deflated fears of higher inflation and current account deficit in India. The Indian rupee has strengthened more than 5% this month and slipped below the INR 70/$ mark. On account of improving these macro factors, bond market fell with 10-year bond yield slipping to 7.62% (lowest level since first week of May).

Global View

• The Federal Reserve kept its interest rate unchanged after a two-day meeting in early November. The benchmark rates remain between 2–2.25%. On November 28, the Fed Chairman Jerome Powell said the central bank’s benchmark rate is “just below” neutral, a sharp distinction from a statement less than two months ago. The U.S. and most global markets witnessed a follow-through following the Fed’s comment.

• The Reserve Bank of Australia and the Reserve Bank of New Zealand kept their cash rate unchanged at 1.5% and 1.75%, respectively.

• On November 15, Mexico’s central bank raised its benchmark interest rate on concerns over inflation. It raised 25bps to a nearly 10-year high of 8%.

• The result of stress test carried out by European Banking Authority was out on November 2, with all financial institutions in the European Union passing the test.

Nifty Bank: The Nifty Bank gained 6.6% during the month. The index remains in a Confirmed Uptrend. It added one distribution day during the month.

Leading Industry Group – Financial Services – Specialty (Current Group Rank 56) and Banks – Money Center (Current Group Rank 36)

Lagging Industry Group – Finance Investment Bank/Bankers (Current Group Rank 152) and Finance Consumer Loans (Current Group Rank 100)

Leaders Board – IndusInd Bank (+15% in November), HDFC (+13%), HDFC Bank (+11%), Kotak Mahindra Bank (+10%) and Axis Bank (+7%).

Laggards Board – Indiabulls Housing Finance (-15% in November) and Yes Bank (-9%).

Key Developments

On November 19, RBI’s 18 board members met to discuss key issues relating to current stand-off between RBI and the Government. Three important outcomes from the meeting were:

• To retain the capital adequacy ratio at 9%, while the board agreed to extend the transition period for implementing by one year to March 31, 2020.

• To set up expert panel to examine economic capital framework.

• RBI to rework PCA framework for banks and to restructure MSME loans.

The next RBI board meeting is scheduled on December 14.

Looking Forward: The RBI will announce its monetary policy on December 5. After the below estimated GDP growth data, consensus estimates no change in rates. RBI is expected to rework on PCA framework, if norms are relaxed, then banks will have more corpus for lending.

Basic Materials:

Global Front

In November, US S&P Metals & Mining Select Industry Index fell 2.94%. The year-to-date loss at the index stands at 3.65%. The index is following the general market weakness in the US market.

Nifty Metal

Nifty Metal is currently in a rally attempt. The index was in a Downtrend at the start of the month but gained a bit of strength in the second week.

Metal Price Update

The weakness in steel rebar price in China due to weakening demand and trade war concerns have heavily weighed on commodity prices, especially metal. This month, amid more concerns surrounding the trade war with the U.S., most metals on the London Metal Exchange (LME) fell. Metal prices dropped steeply and YTD returns of all the important metals remain in the red. On YTD basis, Aluminum, Copper, Nickel are down 10-15% each, while Lead and Zinc are down 24% each.

Earnings Update

Tata Steel’s profit for the September-ended quarter surpassed estimates owing to the inclusion of Bhushan Steel and its financials into its books. Net profit for the quarter stood at Rs 3,604.2 crore (269%yoy)—above consensus estimates. The company also reported an exceptional gain of Rs 163.7 crore. Exceptional gain worth Rs 130 crore was attributed to liabilities that need not be written back. Gains also stem from the sale of subsidiaries in joint venture in relation to its European operations.

Stocks to focus: Aarti Industries

Stocks to avoid: JSW Steel

Looking Forward

–Crude process has a great affect on chemicals and metal industry as it serves as an important raw material. Crude prices have been extremely volatile this month. However moderation in crude prices should help lower the input costs for some sectors.

–Gold has always been an investment during the bear markets. Gold almost lost $100 per ounce from the start of the year leading gold exchange-traded funds to YTD losses near 5%. But now since the era of bulls has come to an end, Gold may catch the attention of investors.

– In China, iron ore futures are at a four-month low. In November, rebar prices fell by more than a fifth from the YTD high. Consensus estimates that weakness in Chinese steel prices could see steel prices in Indian market decline by INR 3,000/tonne over the next couple of months.

Indian companies affected this month: Hindalco Industries Ltd, Vedanta Ltd, and National Aluminium Co.

Global companies: Alcoa Corporation (USA)

Capital Equipment:

Following a sharp correction in October, the U.S. capital equipment stocks steadied with decent gains in November. The rise was anticipated after a 11% decline in October, the sharpest fall in over five years. Though the sector witnessed constructive momentum, we maintain a cautious stance at this point as, to a large extent; the underlying factors have not changed. Q3 earnings season has been weak compared to a solid Q2. In terms of Q3 earnings, capital equipment’s sectoral performance in the S&P 500 is close to the bottom, only ahead of the energy sector.

In addition, the new home sales data for the month of October dropped to its lowest level in more than two and a half years, indicating persistent weakness in the housing market. On top of it, trade deals between the U.S. and other countries call for a defensive approach within the sector. We believe a mixed earnings season and weak macro factors will limit upward potential for the sector.

In terms of sub sectors, we observed new leadership in the containers and packaging segment, while aerospace and defense continues to hold ground. On the negative end, building-cement/concrete/aggregates, building-maintenance and services, and machinery-construction and mining lagged the sector.

Outperforming sectors: Building-Heavy Construction, Aerospace and Defense

Underperforming sectors: Building-cement/concrete, maintenance & services, and machinery-construction

India 

Outmatching the U.S markets, rotation graph in India took an U-turn by moving towards the improving quadrant while it was going into a weakening quadrant in the previous month.

Cement manufacturing companies emerged as the top gainers in the month, bringing this u-turn in the rotation graph, while metal fabrication companies dragged it marginally down. Electrical equipment companies continued at last month’s pace, when Havells India and V-Guard Industries emerged as the frontrunners. So, we are highlighting Havells India and Ircon International, the best performer of the month, in the monthly summary.

Outperforming sectors: Building-Cement/Concrete/Ag, Building-Construction Products/Misc

Building-Heavy Construction and Electrical-Power/Equipment

Important results  

• NCC Ltd announced a strong Q2 results on November 13. Total income went up 112.26% to Rs. 3261 Cr, EBITDA of Rs.401 Cr, and net profit to Rs.123 Cr.

• Siemens reported strong Q2 results beating both top and bottom line consensus estimates. Revenue grew 25% y/y to Rs. 2,694 Cr, new orders went up 38% to Rs.3,720 Cr, and net profit dropped 55% to Rs.279 Cr.

Important news 

• On November 15, Ultratech Cement got NCLT approval to acquire Binani Cement

• On November 22, Gmr Infrastructure signed a concession agreement for the development of commercial port in Andhra Pradesh

Stocks to focus: Ircon International, Havells.

Consumer:

Global View: While major lodging players recorded a fall in occupancy rates in the U.S. – a key market, the numbers showed a strong growth prospect in APAC and Europe. The strong dollar was one of the major reasons, but so was the oversupply of rooms and cannibalization by non-traditional players such as Airbnb. The global apparel market, especially the luxury segment, has been in a downturn, primarily due to China’s economic slowdown and the impact of the trade-war between U.S. and China.

Nifty FMCG Index: For November, the index was up 5.5% m/m, almost similar to the 5% registered in the previous period (October), and grew >12% YTD. The index is currently in a Confirmed Uptrend. The positive performance was propelled by Q2 financial results delivered by Nestle, Marico, and ITC, which were above expectations. The rapid increase in the rural consumption aided earnings growth of these companies.

India Apparel market: The increase in demand in the domestic market would also lead to a rise in cloth production; in FY 2018 it grew ~6% y/y. Along with the rise in income levels, increased penetration of organized retail has driven the demand for textiles. Cotton yarn accounted for almost 60% of FY 2018 fabric production.

International apparel giants such as Hugo Boss, Marks & Spencers, Diesel, and Kanz have already started operations in India, taking advantage of the fact that 100% FDI is permitted in the sector. The cumulative FDI in the sector crossed $3B in 2018, up over 70% from 2016. The proposed hike in FDI limit in multi-brand retail should bring in more foreign players and give customers more options.

The organized apparel segment is expected to grow at a CAGR of more than 13% over the 10-year period, which bodes well for numerous international players.

FSSAI Regulation: In mid-November, the food safety and standards authority of India (FSSAI) released the final notification following the draft made in March 2017 with regard to the quality of advertisements to be maintained by the packaged food companies in India. The Indian packaged food companies are restricted to use fresh/natural unless the food remains unprocessed.

Stocks to focus

As of November 22, Britannia and Nestle India yielded YTD returns of 30.9% and 27.6%, respectively, comprehensively outperforming India’s broader index Nifty with YTD of >9%. These stocks are the safest bets. While both stocks were going through a downtrend, they are regaining momentum and are trading above their 50-DMA support. Other consumer stocks that show momentum include Hindustan Unilever and Colgate Palmolive India.

Stocks to avoid

KRBL Ltd., the basmati rice processing company, generated negative YTD of 45.6%, trading below its 200-DMA. Shares breached their 50-DMA recently, in line with the overall downtrend in the market.

Page Industries

The stock dropped below its 40-WMA on high volume and its RS Rating decreased to 81 from 92 in the last seven weeks. The Company’s sales growth of 10% y/y was the weakest in more than 16 quarters as volumes declined in the men’s innerwear category.

Media and Internet:

The Nifty media index rose about 5% m/m in November, compared with 1.7% m/m growth in October. On November 28, the index broke above its 50-DMA resistance level for the first time since May, and continued to trend upward. The market remained in a Confirmed Uptrend.

Key Events

• Zee Entertainment Enterprises promoter Subhash Chandra has decided to sell 50% of his stake in the Company in a bid to secure large-scale financial backing and compete in a market prone to major technological disruptions.

• Saregama India reported Q2 FY 2019 results. Revenues and net profit grew 64% and 233%, y/y, respectively, primarily driven by a 40% increase in the sales of Carvaan, the portable digital audio player. Saregama also witnessed a 28% increase in its B2B licensing business.

• Balaji Telefilms reported Q2 FY 2019 revenues of INR 119.07 crore, representing growth of 8.5% y/y. The Company reported EBITDA loss of nearly INR 20 crore and a bottom-line loss of more than INR 15 crore. Management expects EBITDA to turn positive in the next two to two-and-a-half years.

• PVR opened a new multiplex at Maruti Solaris Mall in Anand, Gujarat. With this launch, PVR now operates the largest multiplex network with 734 screens at 158 properties in 63 cities. The Company has aggressive capex plans for FY 2020.

• Inox Leisure commenced operations of its multiplex cinema theaters in Gwalior, Madhya Pradesh. The Company is now present in 67 cities with 133 multiplexes and 542 screens.

• Netflix India announced a new line-up of eight films and an original series, which is aimed at countering Hotstar, Amazon Prime Video, and local subscription players such as Alt Balaji and ZEE5. Amazon Prime introduced a localized Hindi user interface.

Stock to focus: PVR, Zee Entertainment Enterprises, Saregama India, Info Edge.

Oil and Gas:

Global View:

• Globally, the crude space touched the lowest point YTD this week. Concurrently, natural gas futures hit more than four-year highs.

• The dampener for crude came from higher supply from major producers and fears that an economic slowdown will dampen the outlook for demand. U.S. waivers on Iranian sanctions and data showing incremental oil rigs from U.S. drillers also contributed to the losses.

• Meanwhile, natural gas prices reached their highest point since February 2014 as inventories remain significantly below their five-year average amid predictions of strong demand with the early onset of cold weather.

• Light Sweet Crude is trading below both its 10- and 40-WMA and is currently ~29% off highs, with the next support at ~$42.05. The focus is now toward OPEC plans for output cuts.

India:

• The Nifty Energy Index, comprising 10 companies belonging to the petroleum, gas, and power sectors on the National Stock Exchange of India, registered lukewarm performance in the near-term. The index delivered mixed results during the month, falling drastically at the start of the month and slightly improving post the mid-month mark. Overall, the index witnessed a 2.69% rise over the past four weeks, underperforming the Nifty index return of 3.74%.

• The stock prices of OMCs recovered gradually over the past month owing to a steady weakening of global crude prices.

Stocks to focus: Reliance Industries, Bharat Petroleum, Hindustan Petroleum Corporation Limited.

Stocks to avoid: NTPC

Pharma and Healthcare:

Global Front

In November, U.S. Pharmaceutical ETF (IHE) gained 2.3%, retaking its 200-DMA. However, globally Healthcare remained one of the leading sectors.

Nifty Pharma

Nifty Pharma is currently in a Downtrend. It has underperformed the Indian market by losing 4.9% as of November 30, whereas Nifty Index gained 4.7%. The Indian Pharmaceutical market reported double-digit growth of 12.2% in October, compared to single-digit growth prior to that for two months. Ipca labs, Glenmark pharmaceutical, and Lupin are the fastest to grow in the last three months ending October.

Looking Forward

• With the earnings season coming to an end, key generic approvals in the U.S. market will be in the main focus area amidst the stabilizing price erosion in the U.S. generic market and U.S. FDA approving record number of generic applications – 781 generic drugs approved in 2018, with 128 in October.

• We expect big players to gain some momentum by U.S. FDA’s approval and increase their market share in the existing drug because of big companies doing portfolio optimization.

• U.S. court has permitted Dr Reddy’s to sell generic version of Indivior’s Suboxone, which has contributed $800M (80% of the total sales) for Indivior in 2018. The market is expecting an additional $50M–75M sales for DRR in FY 2019. Johnson & Johnson’s Zytiga (prostate cancer) drug ($1.4B U.S. sales till September) is facing generic competition after U.S. court rules out JNJ’s appeal to stop generic entry. Dr Reddy’s, TEVA, and Mylan are the leading players to get benefitted from them.

• Mylan-Biocon’s Fulphila (Biosimilar to Neulasta) reached 5.1% volume share and 3.6% sales share in the syringes market. It was the third full month of sales for the drug. Mylan mentioned in its earning call that they have reached 8% market share of the neulasta syringes market.

Stocks to focus: Dr Reddy’s Laboratories, Ipca labs, Aurobindo Pharma, Torrent Pharma.

Retail

Global View:

The U.S. Retail sector index declined 5% or lost $162B in value, following a decrease of 9% in October, thereby breaching its 40-WMA support. The sector underperformed in the last four weeks compared to the outperformance seen in the last quarter. Underperformance of the index was majorly due to a decline in Amazon’s share price following revenue miss in Q3 and broad market decline in the third week of November. Prominent U.S. companies in the retail sector have revised Q4 estimates downward mainly because of increasing transportation cost and higher wages.

Q3 FY 2019 Results

• Amazon’s Q3 net profit beat consensus estimates driven by higher-than-expected profit from AWS. However, revenue missed estimates. Also, the Company’s revenue guidance for Q4 was below expectations. The stock continued to decline in November following the results announced on October 25.

• TJX reported +12% and +19% y/y revenue and net profit growth, respectively. Revenue beat estimates but adjusted EPS of $0.54 missed consensus estimates of $0.61. The Company’s Q4 guidance was below expectations. The stock declined 13% in November.

• Starbucks reported +11% y/y revenue growth beating consensus estimates. Adjusted EPS were $0.62 per share, beating estimates of $0.6 per share. The stock has good RS and A/D Ratings.

India:

The Indian Retail sector index increased 10%, regaining from consecutive declines in the last three months. Increase was led by Avenue Supermarts and Titan Company. Big Basket, the Alibaba-backed start up, announced that it is planning to raise ~$200M in the next few months.

Q2 FY 2019 Results

Titan reported +26% and +3% y/y revenue and net profit growth, respectively. The Company beat consensus revenue estimates while missing net profit estimates. Net profit was lower than expectations due to one-time expenses. The Company has good RS and A/D Ratings.

Technology – Hardware:

After witnessing a huge sell-off in October, semiconductor companies rallied from its October 29 lows. But the rally came to an end soon with the disappointing guidance by Apple on November 1, which led to the global sell-off in the Tech industry. In addition, uncertainty over the progress in the U.S.-China trade war talks has also added to market volatility.

PHLX Semiconductor Index (SOXX) is down 3% in November. Currently, it is trading 2.6% and 8.2% below its 50- and 200-DMA lines, with key moving averages forming a death cross in October. The 50-DMA will act as a key resistance level in the near-term given the high overhead supply. We are looking at immediate support at the October 29 lows of 1,119.

Key developments – in the recent earnings call, companies have raised concern of slowdown in few key end-markets.

• Apple: production cut for all the three new iPhone models, indicating a slowdown in smartphone sales.

• Nvidia: revenue miss and weak guidance due to slowdown in crypto mining.

• Applied Materials: weak guidance due to the pullback in spending by memory IC makers.

Looking Forward – China-U.S. trade talk in the upcoming G20 summit (November 30)

• Negative outcome here will break the market sentiment. In such a case, SOXX can easily breach its recent October lows and fall back in a bearish territory.

• On the flip-side, we don’t expect much upside from a positive outcome as there are concerns over the slowdown in all the key end-markets. Also, the high overhead supply will restrict any significant up moves.

Indian IT

NIFTY IT index comprising of 10 major IT firms is in rally attempt. Rupee appreciating to 69.76/$ on November 30 from 73.32/$ on November 1 and the lawsuit against Indian IT firms in the U.S. are two of the major reasons behind the fall in the IT index.

Other highlights

• TCS made its first digital acquisition by buying a London-based design company, W12 studios.

• Infosys appointed Jayesh Sanghrajka as its interim CFO before finding a full-time CFO.

Indian IT sector in 2019

• Gartner estimates that Indian IT will spend $89.2B (+6.7% y/y) in 2019 and outperform global IT, which is expected to increase its spending by +3.2% y/y.

• IT services, enterprise software, and IT devices will be the major growth drivers of the Indian IT industry with corresponding increase in spending of 13.5%, 12.9% and 7.4%, respectively.

Technology – Software

Software Uptrend is Broken Globally, Currently under Deep Distribution

Currently, all 10 software groups are ranked outside of the top 60 groups, with more than half ranked outside of the 100 groups. Gaming (ranked 166 out of 197) has been the weakest group since the October sell-off due to heavy distribution in ATVI and EA. Bottom line, we still believe in the long-term secular shift to the cloud/AI, however, over the short-term, large cap stocks need to consolidate post the weakness displayed by FAANG stocks and tech hardware leaders such as Nvidia Corp.

IGV

The North American Software Index (IGV) was down 5.5% this month. It breached both the 50-(-8%) and 200-DMA (-6%). IGV lost 4% in the last six months and ~6% in the last three months, but is still up 12% YTD. We hope for a rebound on the back of upcoming earnings – CRM (November 27), SPLK (November 29), and WDAY (November 29).

Major News

• SAP, the German software giant, announced that it will buy Utah-based Qualtrics International Inc (XM; XM:US) for $8B in cash.

• HCL and Bajaj Finance will replace Wipro and Adani Ports in the 30-share Sensex, effective December 24. Also, in the BSE TECK, NIIT Technologies and TV Today Network will be included in place of Inox Leisure and Infibeam Avenues.

Telecom

The BSE telecom index increased 4% m/m in November, compared with the 22% m/m decline in October. The telecom market moved to a Confirmed Uptrend in November. The index continued to face resistance around its 50-DMA.

Key Events

• Vodafone Idea reported its Q2 FY 2019 results. The Company lost 13M phone customers, while its ARPU dropped 4.7% q/q. It added 4.4M broadband customers in Q2. It plans to invest INR 27,000 crore capex to expand its 4G coverage to cover 80% (from 50% currently) or 1B of India’s population by 2020. Vodafone Idea recently announced fundraising plans of INR 25,000 crore, of which more than INR 18,000 crore will come from promoters. On November 30, ratings agency Crisil downgraded the Company’s non-convertible debentures of INR 6,000 crore ($860.80M).

• Reliance Jio will replace Bharti Airtel to serve the country’s largest and most sought-after accounts in telecom – the railways – from January 1, 2019. Jio reported that its subscribers’ base rose by 13M in September, even as rivals Airtel and Vodafone Idea lost users.

• Vodafone Idea and Bharti Airtel (ART.IN) have decided to switch off low Arpu (average realisation per user) subscribers — those who spend less than INR 35 a month from their network. As a result, roughly 250M 2G users stand to lose their mobile connection.

Positive Outlook

• According to a recent report from the research firm Gartner, the Indian communication services spending is expected to grow at 2.1% in 2019, compared with an estimated 1.5% decline in 2018.

• The revival will be driven by the mobile ARPU growth of BSNL, Bharti Airtel, Vodafone Idea, and Reliance Jio.

Watchlist – In 2018, Bharti Airtel, Vodafone Idea’s technical profile is weak, but needs to watch out for any signs of strength after spending growth in 2019.