1. G20 Summit – 30th November & 1st December
a. Trump meeting with Xi
As of date, US has imposed three rounds of tariffs on Chinese goods , totaling more than $250Bn. And China in response has imposed tariffs on $110Bn worth of goods imported from US.
These tariffs have not only effected the two countries it has impacted global trade including automotive & metal prices in particular.
China automotive sales have dropped by 11.6% in October 2018 the biggest drop in seven years. LME Aluminum prices have dropped 15% from its peak in last one month.
What is the expectation?
Expectation is that there will be some signs of trade deal talk progressing and in meanwhile any further escalation will be avoided.
Target Investing Update & View –
As of last night there were reports stating US will not putting any further tariff till spring and trade talks will accelerate during that time.
If this happens which is our base case scenarios then Automotive Stocks - Tata Motors & Motherson Sumi and Metal Stocks – Hindalco will show relief rally.
If this doesn’t happen and comes out negative then rest of $267 Bn goods will face tariffs and the same stocks will witness further downside.
b. Saudi & Russia negotiate deal on OPEC+ Cut
As of date , Brent Crude prices have reduced by 30% from the peak of $86/bbl this is contributed by US , Russia & Saudi all running highest level of production near about 11mn+ b/d. The Waivers provided to Iran consumers have resulted in the accelerated reduction in prices.
OPEC Compliance is at 119% in October 2018 compared to 103% in October 2017 along with high US crude inventories.
What is the expectation?
First expectation is from Bears that Russia will not participate in the production cut as Putin had mentioned that they are ok with price $60/bbl. Second expectation is from Bulls that Russia will participate and the production cut will be 1-1.4mn b/d.
Target Investing Update & View –
As per report last night, Russia confirmed its participation in the OPEC+ production cut but Saudi & Russia were discussing the volume of the cut needed. It is rumored that earlier proposal was made for 300K b/d but Russia is interested in 166K b/d. This would take OPEC+ cut to 1-1.2mn b/d.
If it happens which is our base case scenario, then Brent will move up and reach around $70/bbl soon in which case stocks of Explorers – ONGC & Oil India will move up & OMCs – HPCL, BPCL , IOC will move down.
2. India GDP - 30th November
During Q2 FY 19 Indicators such as Non-Foods Credit , Commercial Vehicles Sales , IIP , Government expenditure and Cement production have shown an uptick compared to Q2 FY18.
Indicators such as Passenger Cars , Cargo Traffic – Airports , Cellular Subscribers , FDI Flows , Oil & Gas production have shown a downtick compared to Q2 FY18.
What is the expectation ?
GDP in Q1 FY19 grew at 8.2% and is expected to slowdown to 7.5%-7.6% in Q2FY 19.
Target Investing View –
If it comes below which is our base case scenario, then we might see some profit booking at these levels but nothing major as GDP is lagged data.
If it comes above then we will see NIFTY cross 11,000 which will be a big psychological level.
3. Indian Automotive Sales – 3rd December
As per channel checks and registrations number compiled the current festival season has been less than last year sales.
Total registrations at RTOs have fallen 16% year on year to 16,56,239 (prov.) in November 2018. With 21% fall in three wheelers, 13% fall in two wheelers and 14% in passenger car. Only commercial vehicles saw, the small fall of 5% when compared to November 2017, which was, post Diwali month.
What is the expectation?
The expectation is that passenger car segment will show 5%-10% fall and three wheeler segment will show highest growth. Commercial vehicle up cycle is estimated to show some signs of peaking.
Target Investing View –
Given total registrations dropping at such a scale we believe that the wholesale sales is going to reflect it more prominently in December month as purchases are deferred on the change of model year which impacts the resale of the vehicle.
We estimate that Maruti will show de-growth of 5% if it comes more then we can see another steep fall in the prices as passenger car registrations are falling. Tata Motors & Bajaj Auto are our positive picks for the sales as both are being helped strong strategy of market share gain. Mahindra will show a slow growth in tractors that might lead to signs of disbursal issues at financing end.