Graphic: India's blue-chip, small-cap shares on dual path as economy cools

Century Plyboards (India)

04/07/2019 10:32

* Divergence between Nifty 50 and Nifty Smallcap 100 at
14-yr high
    * Investors cautious amid economic slowdown in India, trade
war
    * Mounting corporate debt, shadow banking crisis among other
risks
    * Handful of large, established conglomerates seen as safer
bets

    By Sachin Ravikumar and Gaurav Dogra
    BENGALURU, July 4 (Reuters) - India's blue-chip shares are
vastly outperforming those of smaller companies as investors
avoid risky bets in a slowing economy, with the gap between the
two groups at its widest in more than a decade.
    The country's benchmark blue-chip indexes hit record highs
last month after Prime Minister Narendra Modi cruised to
re-election, but the stock markets remain polarised.
    While the blue-chip Nifty 50  .NSEI  has climbed about 12%
in the last one year, the Nifty Smallcap 100  .NIFSMCP100  has
slipped nearly 13%. The divergence between the two is at its
widest since 2005.
    

    Money managers say increasing caution about a prolonged
economic slowdown at home and a global trade war has driven
portfolio investment flows into a handful of India's largest
firms, such as IT services provider Tata Consultancy Services
Ltd  TCS.NS , lender HDFC Ltd  HDFC.NS  and oil-to-telecoms
group Reliance Industries Ltd  RELI.NS .
    Their position as established market leaders with
double-digit revenue growth makes them safer bets in a slowing
economy.
    Asia's third-largest economy grew at its slowest pace in
more than four years in January-March. A delay in crucial
monsoon rains this year could further undermine the agriculture
sector that makes up 15% of the economy.  urn:newsml:reuters.com:*:nL4N2420ZF
    "There is a cyclical slowdown in the economy, and investors
are not so confident about the near term," said Mahesh Patil,
co-chief investment officer at Mumbai-based Aditya Birla Sun
Life AMC, whose team oversees about $13 billion in equities.
    
    CREDIT CRUNCH, RISING DEBT
    A growing funding crisis among India's shadow banks is also
hurting private consumption, hitting sales across markets from
construction tools to auto parts.
    March-quarter earnings at plywood manufacturer Century
Plyboards  CNTP.NS  and tyre maker CEAT  CEAT.NS  - two Nifty
Smallcap 100 firms - both fell due to lower sales to real estate
and auto companies, respectively, two industries where the
credit crunch has exacerbated a slowdown.
    Profit margins at smaller firms lagged those at their larger
peers, Refinitiv Eikon data shows, even as both sets of
companies showed similar levels of revenue growth.
    
    
    Several small companies are either heavily indebted, or have
faced allegations of corporate misgovernance.
    Jet Airways  JET.NS , once India's biggest private airline,
suffered a spectacular decline after running out of cash, while
companies part of business tycoon Anil Ambani's Reliance Group
face mounting debt or allegations of improper accounting.
 urn:newsml:reuters.com:*:nL4N23O3LH
    "If we find corporate governance that is not in line with
our estimates, we don't put money in the market," said Jinesh
Gopani, head of equities at Axis Mutual Fund in Mumbai.
    "We are being very, very selective."

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Spread between Nifty and small cap 100    https://tmsnrt.rs/2FOISct
Nifty and small cap 100 market cap    https://tmsnrt.rs/2FLEN8z
Revenue growth and net margin for Nifty vs Nifty small cap 100
index    https://tmsnrt.rs/2Yq0rGS
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Sachin Ravikumar and Gaurav Dogra in Bengaluru
Editing by Vidya Ranganathan and Jacqueline Wong)
 ((saisachin.r@tr.com; +91 80 6749 7649; Twitter: @sachinr27))