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Sensex Hits 36,000-Mark; Infosys & Tata Steel Top Gainers
Tue, 23 Jan 09:30 am | Rini Mehta, TM Team

Asian equities are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.82% while the Hang Seng is up 1.26%. The Nikkei 225 is trading up by 0.93%. US stocks advanced on Monday as each of Wall Street's main scored records in the wake of a deal by US senators to end the federal government shutdown.

Back home, Indian share markets have opened on a strong note. The BSE Sensex is trading higher by 187 points while the NSE Nifty is trading higher by 49 points. The BSE Mid Cap Index and BSE Small Cap index both opened the day up by 0.7% & 0.5% respectively.

All sectoral indices have opened the day in green with metal stocks and oil & gas stocks witnessing maximum buying interest. The rupee is trading at 64.09 to the US$.

Oil & gas stocks opened the day on a mixed note with IOC & Petronet LNG leading the gains. As per an article in a leading financial daily, HPCL may acquire Mangalore Refinery and Petrochemicals Ltd (MRPL) in a cash and share- swap deal to become India's third-largest oil refiner.

One shall note that, Oil and Natural Gas Corp (ONGC) last week announced acquisition of HPCL for Rs 369.15 billion. After this takeover, ONGC has two refining subsidiaries - HPCL and MRPL.

Reportedly, HPCL (Hindustan Petroleum Corp Ltd) sells more petroleum product than it produces and bringing MRPL's 15 million tonne a year refinery under the fold would help bridge the shortfall.

Further, ONGC plans to maintain HPCL as an independent listed company under whom all its downstream units can be consolidated.

While ONGC holds 71.6% stake in MRPL, HPCL has 17%.

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After ONGC completed acquisition of the government's 51.11% shares, HPCL will become a subsidiary. The transaction allows the government to monetise its HPCL ownership without losing ultimate control of the company.

HPCL will add 23.8 million tonne of annual oil refining capacity to ONGC's portfolio. This together with 15 million tonne refinery of MRPL will create India's second-biggest state-owned oil refiner after Indian Oil Corp (IOC).

Overall, it will become the third biggest refiner behind IOC and Reliance Industries. MRPL will be the third refinery of HPCL, which already has units at Mumbai and Visakhapatnam.

HPCL share price opened up by 0.5%.

Moving on to the news from the economy. As per the International Monetary Fund (IMF), India is expected to grow at 7.4% of its gross domestic product (GDP) in 2018 as against China's 6.8%. This will make India the fastest growing economy among emerging economies following last year's slowdown due to demonetisation and the implementation of goods and services tax (GST).

In its latest World, Economic Outlook update released on Monday ahead of the World Economic Forum in Davos, the IMF projected India's GDP growth rate at 7.4% in 2018 and 7.8% in 2019.

China, during the same period, is expected to grow at 6.8% and 6.4% respectively.

The aggregate growth forecast for emerging markets and developing economies for 2018 and 2019 remain unchanged, with marked differences in the outlook across regions.

In 2017, China's GDP growth rate of 6.8% was ahead of India's at 6.7%, giving the former the tag of being the fastest growing emerging economy. The Indian economy, which grew at 7.1% in 2016, slowed in 2017 due to demonetisation in November 2016 and GST rollout on 1 July 2017.

As for the US, whatever output impact its tax cut will have on an economy so close to full employment will be paid back partially later in the form of lower growth, as temporary spending incentives (notably for investment) expire and as increasing federal debt takes a toll over time, the reports noted.

Meanwhile, in 2017 India was among the three emerging markets, which gained more than 35% in dollar terms. The other two are Hungary and South Korea.

India Outperforms Emerging Market Peers in 2017

The BSE Sensex earned a 35.1% return in the dollar terms and 28% in the local currency in 2017. However, this wasn't enough to beat the midcap and smallcap indices. The midcap and smallcap indices saw a sharp increase of 47% and 58% respectively in 2017.

With this, the market cap to GDP ratio is close to 100%, indicating market at its peak. So, how will 2018 turn out? Here's what Tanushree Banerjee, Co-head of Research thinks:

  • "In 2018, the market would be more volatile and under pressure. Investors should brace themselves for the increasing volatility. Although, earnings are likely to recover, profit margins could get squeezed as companies face rising input cost pressures. Rising oil prices may prompt the government to abandon fiscal prudence at a time when GST collections have been lower than expected.

    2018 will, therefore, be critical for Indian companies to justify their valuations with earnings growth. If the earnings growth does not materialize, correction could be on the cards."

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