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Sensex Trades Flat; Oil & Gas Stocks Out of Favor
Thu, 15 Dec 11:30 am

After opening the trading day on a flat note, Indian share markets continue to trade range-bound with a negative bias. The undertone is a bit cautious following the US Federal Reserve raising its key interest rate for the first time this year. Sectoral indices are trading mixed with information technology and realty stocks leading the gains. FMCG, oil & gas stocks are trading in the red.

The BSE Sensex is trading lower by 16 points and the NSE Nifty is trading lower by 9 points. The BSE Mid Cap index is trading higher by 0.1% while the BSE Small Cap index is trading higher by 0.4%. The rupee is trading at 67.56 to the US$.

Stocks from oil & gas sector are trading mixed with HPCL and Castrol India leading the losses. As per an article in The Economic Times, India's fuel demand surged 12.1% in November on the back of high petrol and diesel sales following demonetisation. One must note that post banning old 500 and 1,000 rupee notes on November 8, the government allowed their use for paying for auto and cooking fuels for almost a month.

Subsequently, this has boosted India's rare imports of the industrial and transport fuel. This has further helped to mop up some of the excess supply of the fuel in Asia.

Reportedly, petroleum product consumption rose to 16.6 million tonnes in November, up from 14.8 million tonnes in the same month a year back. India is taking over from China as the driver of global oil demand growth as its economy expands, boosting the use of diesel in vehicles.

In December, Indian Oil Corporation (IOC) sought up to 80,000 tonnes of 40ppm sulphur diesel for delivery. Notably, IOC last imported diesel in May, when it was cheaper to buy from overseas rather than locally. This was mainly due to a withdrawal of discounts on taxes and shipping by private oil refiners.

Overall, India last imported 503,000 tonnes of diesel in April and 222,000 tonnes of the fuel in May. Moreover, India's diesel exports are likely to reduce over the next few months as refiners try to meet the rise in domestic demand, the reports noted.

One must note that India today imports around 70% of the oil that it consumes. Thus, it goes without saying that in the longer term, India needs to focus on becoming self-reliant as far as its energy needs are concerned.

India to Lead the Growth in Oil Usage (2014-2040)

As reported in the Mint, India's energy consumption is set to double from current levels by 2040. In other words, India will topple China to see the fastest growth in energy demand during this period. The International Energy Agency (IEA) expects India's oil demand to rise by 6 million barrels per day to 9.8 million barrels per day in 2040. Further, it opines that oil production will fall behind demand. Thus, oil import dependence is expected to rise above 90% by 2040.

Moving on to the news from stocks in pharma sector. According to a leading financial daily, Cipla Holding B.V., a wholly owned subsidiary of Cipla Ltd in Netherlands, has entered into a joint venture agreement with Ahran Tejarat Company.

As per the deal, Cipla Netherlands will hold a 75% stake in a joint venture company in Iran while the JV Partner shall hold the remaining 25% stake. Further, the total expected investment of Cipla Netherlands in cash in the joint venture company is estimated at being up to a maximum of 16.9 million euro.

The JV will undertake manufacturing and marketing of the pharmaceutical products in Iran.

Moreover, Issat Company, an existing company in Iran, which is currently owned by the JV partner, is proposed to be used as a joint venture company for the purposes of this transaction. Issat Company has a valid pharmaceutical manufacturing licence in Iran and also owns certain fixed asset, the reports noted.

As the M&A activity has been heating up globally, the M&A activity in the Indian pharma space has been on the rise in recent times. At the end of the day, whether the company is able to derive value from the acquisitions and augment the overall performance will be the key things to watch out for going forward.

Cipla's share price was trading down by 0.8% at the time of writing.

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Nov 22, 2017 10:57 AM