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Global Share Markets End the Week on a Dull Note
Fri, 23 Jun RoundUp

Global financial markets ended the week on a dull note. This was on back of the Federal Reserve's release of its May 2-3 policy meeting minutes.

After raising the benchmark interest rate by 25 basis points. The Fed seemed to be open to further rate increases in the year. Fed policy-makers forecast a rebound in economic activity from a dull first quarter when U.S. gross domestic product posted its smallest increase in three years. Most policymakers now think that the Fed should take steps to trim its balance sheet later this year as long as the economic data holds up. However, trimming the balance sheet would tighten financial conditions.

The US markets were up 0.1% for the week gone by.

Coming to Europe, Britain and the rest of the European Union (EU) started their negotiations to decide the status of expats, the UK's divorce bill and Northern Ireland border. The negotiations also include some other compensatory issues. The British and EU Brexit negotiators stressed on goodwill and also the huge complexity and about the tight deadline in their talks.

UK's FTSE100 ended the week down by 0.8%, while Germany's DAX and France's CAC40 ended the week lower by 0.4% and 0.2% respectively.

Meanwhile, crude prices tumbled to 9-month lows as doubts grew over OPEC's ability to cut oil supplies, weighing on stocks worldwide and adding to worries over the resilience of sectors most geared to economic growth.

Key World Markets During the Week

Back home, Indian indices closed marginally higher over the week. While Indian indices reached new all-time highs during the week, the pared most of the gains and continued to consolidate due to lack of major triggers to support the up move. The BSE Sensex was up by 0.3% for the week.

BSE Indices During the Week

Now let us discuss some key economic and industry developments during the week gone by.

In news from economic sector, with forecast of normal monsoon, economic think-tank, the National Council of Applied Economic Research (NCAER) in its latest 'quarterly review of the economy' has revised upward the gross domestic product (GDP) growth for the current financial year to 7.6% from 7.3% projected earlier. NCAER also scaled up the country's gross value added (GVA) growth from 7% to 7.3% for the year.

The think tank further projected wholesale price index-based (WPI) inflation at 6.7% for the current fiscal year and kept optimistic prospects for the agricultural sector in 2017-18, owing to normal monsoon forecast. It added that the level of water storage in the country's main reservoirs in 2017-18 is better compared to last year, in fact better than the average storage over the last ten years.

In our view, GST promises to transform India into a single common market and many sectors are subject to benefit immensely from the transition.

NCAER though stated that while there is ample liquidity in the system and bank lending rates have come down post - demonetisation, bank credit is yet to pick up, as it is being weighed down largely by an excess amount of gross non- performing assets on balance sheets.

India's GDP stood at 7.1% for the fiscal year 2016-17, as compared to 8% in the previous year, while for the Jan-Mar quarter it stood at 6.1% against 7% in the previous quarter of FY17. Gross value added (GVA) for FY17 stood at 6.6% over 7.9% in the previous year, while for the fourth quarter it stood at 5.6% against 6.7% in the previous quarter.

The Indian economy is likely to pick up pace in the next two fiscal years. The Credit rating agency, Fitch Ratings in its latest report 'Global Economic Outlook' has forecasted the Gross Domestic Product (GDP) of the country to grow at 7.4% this year and 7.6% in the next fiscal year buoyed by rising public spending on infrastructure.

The rating agency added that the investment in India is also expected to witness gradual rise owing to transmission of supportive monetary policy along with the government's various structural reforms.

The report further said that the upcoming Goods & Services Tax (GST) regime will facilitate trade within India and reduce transaction costs. However, the rating agency also pointed that the demonetization move did have a material impact on spending and its lagged effect on the economy is quite puzzling and the effects would be expected to be quite rapidly felt - but partly reflects the challenges of measuring spending in an economy with a large informal sector.

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In a step towards resolution of the non-performing assets (NPA) crisis, banks led by the State Bank of India are set to decide the fate of three large defaulters - Essar Steel, Bhushan Steel and Electrosteel Steels - which constitute nearly half the loans of the top 12 defaulters identified by the Reserve Bank of India (RBI).

The bank's action follows the RBI order to initiate insolvency and bankruptcy proceedings against the top 12 defaulters that account for a quarter of total bad loans in the banking system.

Last week, the RBI's internal advisory committee had sent the list of 12 accounts to bankers for immediate reference under the Insolvency and Bankruptcy Code (IBC). These 12 accounts are led by SBI (six of them), PNB, ICICI Bank, Union Bank, IDBI Bank and Corporation Bank.

According to RBI, these 12 accounts owe Rs 2.5 trillion to the system, which constitutes around 25% of gross bad loans. Of these, the three defaulters owe Rs 1 trillion combined. Banks have outstanding loans worth Rs 450 billion to Essar Steel, Rs 470 billion to Bhushan Steel, and Rs 110 billion to Electrosteel Steels.

The lenders and borrowers are set to discuss the possibility of the losses that banks would have to incur in reorganizing these loans, and the amount of equity that promoters will have to bring in.

Bad loan recovery has gathered momentum after years of hesitation since the government empowered RBI to direct banks to take big defaulters through the process prescribed under the Insolvency and Bankruptcy Code (IBC) that specifies timebound resolution.

Banks that have been hesitant to follow this route fearing huge writedowns of asset values have been forced get cracking following the Reserve Bank's directive.

While these are steps in the right direction for better accountability in the sector, the RBI has a lot to do if it plans to strengthen India's banking sector, which is reeling under large non-performing assets (NPAs).

In news from economic sector, clearing the air on farm loan waiver, the Union Finance Minister Arun Jaitley has said that the Centre is not considering any proposal for farm loan waiver and it will stick to its fiscal deficit target of 3.2% of gross domestic product (GDP) for 2017-18. He added that states that want to go in for waiver schemes must generate them from their own resources.

Arun Jaitley's statement comes at a time when states like Madhya Pradesh, Rajasthan and Maharashtra witnessed violent farmers' protests over support price and loan waiver. After Uttar Pradesh and Maharashtra, Punjab also announced a loan waiver for farmers but the central government refused to do the same. Despite a bumper crop this rabi season, farmers in many states are in distress because of sharp fall in prices in both domestic and global market.

Farmers in various parts of the country have been agitating, seeking higher support prices for their produce as well as waiver of farm loans.

In a bid to boost Indian electronics and software manufacturing industry, the government will come out with a new policy for electronics and software production, as well as for data protection and will set up innovative zones for start-ups.

According to a leading financial daily, the Minister of Electronics and Information Technology Ravi Shankar Prasad, exuded his confidence that India is well-positioned to become a US$ 1 trillion digital economy in next few years. The minister said that the government will be shortly laying down the new electronics policy.

Noting that India ranks third among global startup ecosystems, the Minister said that the country needed to have start-up clusters for facilitations. To help create Special Innovative Zones, he further said that they are working on a framework for a Start-ups Cluster Policy in coordination with Nasscom and the Data Security Council of India.

Highlighting the potential of the new economy with avenues like digital payments and e-commerce, the Minister pointed out that the focus needs to be on creating technology that is affordable, developmental, and inclusive.

He further said that there are already about 81 cases filed under the IBC and 18 of these have been initiated by financial creditors. On subdued loan growth, Jaitley noted that banks are making their best efforts.

In other news development, the goods and services tax will kick in from July 1.

This comes as the GST Council has stuck to the scheduled rollout of the new tax regime.

As per the news, the panel has relaxed the time for filing initial invoice wise returns for the first two months. The hospitality industry has got a breather with five-star restaurants getting parity with other AC restaurants at 18% GST and the Rs 5,000 room rent limit moving up to Rs 7,500 for 28%.

Implementation of GST promises to transform India into a single common market and there are many sectors which will gain immensely from this transition.

The implementation of the same is bound to bring more companies under the new tax regime, thus providing a level playing field to organized players that face huge competition from the unorganized segment.

If you would like to dig deeper into the practical implications of GST, I strongly recommend you download Vivek Kaul's free report, What the Mainstream Media DID NOT TELL YOU about GST.

Movers and Shakers During the Week
Company17-Jun-1723-Jun-17Change52-wk High/Low
Top Gainers During the Week (BSE Group A)
JAIPRAKASH ASSO.14.419.4435.0%18/7
RELIANCE CAPITAL600.35653.258.8%693/365
GMR INFRA19.7521.48.4%22/10
Top Losers During the Week (BSE Group A)
LANCO INFRATECH2.561.32-48.4%6/1
VIDEOCON INDUSTRIES23.3517.2-26.3%115/18
CENTRAL BANK100.2586-14.2%125/76
LUPIN LTD1183.051061-10.3%1,750/1,064
MMTC LTD62.2556.8-8.8%74/40
Source : Equitymaster

Some of the key corporate developments in the week gone by.

In the news from Tata Group companies. Tata Steel sold its entire stake in group company Tata Motors through a block deal today. The steelmaker had already informed the bourses last week that it would be selling its stake of 83.6 million equity shares in the automaker to parent Tata Sons on or after 23 June.

Tata Steel sold approximately 2.9% stake in Tata Motors on the BSE at Rs 453.1 apiece bringing the entire transaction to Rs 37.8 billion.

The move comes after the Tata Group has reportedly decided to bring down cross-holdings in the group so that these companies can focus more on their core businesses as well as unlock shareholder value.

The inter-group transfer will take Tata Sons' voting rights in Tata Motors to more than 30%.

According to reports, various Tata group companies own shares worth tens of thousands of crores in each other and this was one of the charges that the ousted chairman Cyrus Mistry had made against Tata Sons management.

As per a leading financial daily, Tata Steel plans to use the proceeds of the sale to pare some of its Rs 700 billion debt.

The steelmaker has been in talks with Germany's Thyssenkrupp AG and others for a joint venture in Europe since last year, as part of its strategy to trim losses amid a global glut of steel. It recently made a Rs 36.2 billion one-time settlement for a pension scheme to turn its U.K. operations viable.

As per an article in a leading financial daily, the Tata Sons is considering buying Air India from the government in partnership with Singapore Airlines.

According to reports, Tata Group chairman N Chandrasekaran has held informal talks with the Narendra Modi government over buying a controlling stake in Air India, the country's national carrier, with 51% equity.

Notably, Air India was launched in 1932 by JRD Tata as Tata Airlines. Its name was changed to the current one in 1946. The government decided to take it over in 1953.

The new owner of Air India will have a fleet of 118 aircraft; boast of flying the highest number of passengers to and fro from India. Air India's domestic market share is 14% and nearly 75% of its capacity is used for international flights.

On the flip side, the mounting debt is the precise reason for the government wanting to exit Air India. The Modi government alone has infused nearly Rs 160 billion since coming to office, and the central exchequer is no longer keen to keep the airline afloat.

However, while Air India's mammoth debt of Rs 550-600 billion is a big worry for the Tata Group, it also realizes that Air India could be its ticket to be top of the aviation game, the reports noted.

As per an article in a leading financial daily, Tata Power Co. Ltd has offered to sell 51% stake in its Coastal Gujarat Power Ltd (CGPL) unit, which runs the 4,000-megawatt (MW) Mundra power plant, for a token sum of Re1.

However, the power generating company's offer is contingent to the government helping to cover production costs at the Mundra UMPP. Tata Power has also assured to stay on as a 49% stakeholder in the project after the stake sale.

The move is a tacit admission by Tata Power of its inability to run the project at the existing tariff of Rs 2.26 per unit.

Reportedly, the losses at Mundra (UMPP) (subscription required) have eroded approximately Rs 38 billion of Tata Power's net worth in the past three years.

While there has been a considerable decline in the coal prices in international market in the recent times, the plant continues to post losses due to under-recoveries on account of cost of coal.

The project has been in a bind ever since the Supreme Court set aside an Appellate Tribunal for Electricity decision that allowed Adani Power and Tata Power to charge compensatory tariff against the increased imported coal cost from Indonesia.

Notably, Adani Power and Essar Power, which also have power projects based on imported coal, are contemplating similar moves, the reports noted.

Moving on to news from pharma sector. Lupin launched generic Desoximetasone cream used for the treatment of inflammation and itching of skin in the US market.

The drug firm had earlier received approval for the product from the United States Food and Drug Administration (USFDA). The drug is the generic equivalent of Taro Pharma's Topicort, which had US sales of US$ 38 million per year.

Reportedly, the company has 151 product filings pending approval with USFDA. Cumulative filings with the USSFDA now stand at 368 with the company having received approvals for 217 products.

Meanwhile, the company's drug facility at Pithampur, Madhya Pradesh, has received five observations from USFDA.

The observations made by the USFDA for the Pithampur unit are the failure to review any unexplained discrepancy, not establishing control procedures, taken samples not representative in nature, acceptance criteria for sampling non-adequate and appropriate controls not been exercised.

Notably, Lupin has been facing heat from USFDA for some months now. The US regulator had given observations on the company's Goa plant, the most important with respect to imports to the US, in April. In May, the Indore unit of the pharmaceutical manufacturer received six observations from USFDA.

The central government sold a 2.5% stake in Larsen and Toubro Ltd (L&T) for about Rs 40 billion through six block deals.

The stake sold by the Specified Undertaking of the Unit Trust of India (SUUTI) brings down the Centre's stake in L&T to about 4.2% from 6.7%.

The State Bank of India (SBI) and Life Insurance Corporation (LIC), New India Assurance and General Insurance Corporation bought over 23.7 million shares in L&T at an average price of Rs 1,764.2 a piece, fetching about Rs 42 billion to the exchequer.

With this transaction, the government has garnered nearly Rs 64 billion from disinvestment so far in the current financial year. The Budget has estimated to collect Rs 725 billion through minority sale and the strategic stake sale of CPSEs.

SUUTI holds equity stakes in nearly 50 companies. In February, SUUTI sold 2% of the 11.7% equity stake it held in ITC Ltd for about Rs 67 billion. It had also sold 9% equity stake in Axis Bank, raising Rs 55 billion.

The Indian government has undertaken the strategic sale of a stake in profitable PSUs to help boost up state revenue and bridge the fiscal deficit. In the last financial year 2016-17, the government raised Rs 462.5 billion through disinvestment, the highest ever amount earned by the sale of an equity stake in PSUs.

Further, the government is also reportedly looking at selling 10% equity stake each in Bharat Heavy Electricals Ltd and Oil India Ltd.

And here's an update from our friends at Daily Profit Hunter...

The Nifty 50 Index traded on a volatile note during the week. On Monday, it opened its weekly session gap up and traded strongly to end the session 70 points up. But the buying interest did not last long and the index slipped to erase its gains in the next two days. On Thursday, the index again rallied 65 points in the first half of the session but gave up its entire gains in the second half thus forming a shooting star candlestick pattern. The pattern indicates a short term reversal top. Finally, on Friday, the index slipped 50 points more to end its weekly session marginally down.

As we mentioned in an earlier note, the 20-day exponential moving average (EMA) is acting a good support for the index since January 2017. The index now closed below this moving average. But the RSI indicator is still near its support zone.

So if the index sustains below its 20 EMA we might see short-term weakness. On the flip side, if the index closes back above its 20 EMA, the bulls might be back in action. You can read the detailed market update here...

Nifty 50 Index trades on a Volatile Note
Nifty 50 Index trades on a Volatile Note

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Jan 17, 2018 01:01 PM