Sensex Stays in the Green; Energy Stocks Witness Buying Interest

Tue, 10 Jan 01:30 pm

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After opening the day on a positive note, the Indian share markets are trading marginally above the dotted line. With the exception of the realty sector all the sectoral indices are trading on a positive note, with stocks in the oil and gas sector and the consumer durables sector leading the gains.

The BSE Sensex is trading up 130 points (up 0.5%) and the is trading up 34 points (up 0.4%). Meanwhile, the BSE Mid Cap index is trading up 0.3%, while the BSE Small Cap index is trading down 0.6%. The rupee is trading at 67.08 to the US$.

According to an article in a leading financial daily, state run Oil and Natural Gas Corporation (ONGC) will get a price guarantee from Gujrat State Petroleum Corp (GSPC) in the impending KG basin deal between the two parties.

GSPC will buy the entire output at a predetermined price from the KG Basin gas field that it has agreed to sell to ONGC for around US$ 1 billion, a key provision that addressed gas pricing concerns of India's largest crude producer and helped seal the deal.

In late December last year, ONGC approved the plan to acquire the entire 80% participating interest in GSPC's block - Deen Dayal West field- in the Krishna-Godavari basin for a consideration of US$ 995.3 million where geological challenges have delayed the commercial production by several years while mounting GSPC's development cost and overall debt.

would also pay GSPC $200 million towards future consideration for six discoveries other than Deen Dayal West Field, which will be adjusted against the valuation of these discoveries after the approval of their field development plans.

The agreement provides for GSPC buying gas for the field's lifetime at a price linked to forward prices, which are available for next five years. The forward prices for the fifth year have been taken for the remaining life of the field.

The government publishes the maximum price producers can charge for gas from difficult fields such as Deen Dayal West twice a year. According to the current agreement, if government prices were to slide below the forward prices, GSPC will compensate ONGC for the deficit.

ONGC also clarified that GSPC's debt would not come to ONGC following the deal. Deen Dayal West Field and its future income are hypothecated with lenders. GSPC had racked up over Rs 19,700 crore worth of debt while trying to make the gas field commercially viable.

At the time writing, shares of ONGC were trading up by 0.8%.

Moving on to news about the economy. Refuting claims that economic activity has been hit by the withdrawal of high-denomination currency notes, Finance Minister Arun Jaitley said tax collections between April and December 2016 have shown a positive trend and risen significantly.

Dismissing concerns of slowdown due to demonetisation the minister said that both direct and indirect tax collections have shown a robust increase during the April - December period.

As per data released by the finance ministry, indirect tax collections grew by 14.2% in December. Of this, central excise levied at the stage of manufacturing grew 31.6% as compared to the corresponding year-ago period, service tax collections rose 12.4% and customs duty declined by 6.3% mainly on account of a fall in gold imports.

The Direct tax collection was up 12.01% at Rs 5.53 trillion in April-December 2016, compared to revenue in the year-ago period, while indirect tax receipts soared 25% to Rs 6.30 trillion in the same period. When compared to November, indirect tax receipts grew by 12.8%.

The minister stressed that the data is real and not just an estimate, adding that state value added tax collections too have risen for most states.

Indirect Tax Collections Grow Despite Demonetisation

It is quite evident that tax collections have gone up despite demonetisation and can be viewed as a positive sign for the Indian economy. Excise duty has grown as much as 31.6% in December YoY, indicating a rise in economic activity, including manufacturing.

Rising tax revenues are a positive sign for the government, especially in a country where 0.11% of the population pays 80% of the personal income tax.

It is unclear whether the increase in direct taxes is a result of the government's fight against black money, and remains to be seen how the figures will stack up in the coming months.

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