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Of Global Markets Hitting Record Highs and Top Stocks in Action During the Week
Fri, 22 Dec RoundUp

Global stock markets ended the week on a positive note. Benchmark indices in US grew marginally by 0.5% during the week.

The Republican-led U.S. Congress gave final approval on Wednesday afternoon to the most sweeping overhaul of the U.S. tax code in 31 years. President Donald J. Trump is expected to sign the bill into law sometime in the next two weeks. The tax reform proposes to cut corporate tax rates to 21% from the present 35%. Less corporate tax could essentially mean that the corporates could become more competitive when compared to other countries leading to additional inflows of money in US. This could in-turn spurt the economic growth and create new jobs.

Benchmark index in Brazil grew by 3.5% during the week. The index gained on the back of healthy gains as witnessed in the industrials, finance and real estate sector.

Stock markets in Asia too witnessed gains with benchmark index in Hong Kong and China surging by 2.5% and 1% respectively. The rise was on account of investors optimism over Beijing's plans to deepen structural reforms and curb financial risks while maintaining steady economic growth in 2018.

Key World Markets During the Week

Back home, benchmark indices in India too logged gains of 1.4% as BSE Sensex closed at 33,915. BJP victory in the Gujarat and Himachal Pradesh elections led to the surge in the indices.

Majority of the sectoral indices ended the week on a positive note with stocks from realty and metal sector gaining the most.

BSE Indices During the Week

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

NaMo Prevails over RaGa in Closely Contested Gujarat Election & Implications on Stock Market

Having lost around 860 points in the early morning trade on Monday as the counting started, S&P BSE Sensex recovered as the day progressed as it became clear that the Bhartiya Janta Party (BJP) would form the government for the sixth consecutive time in a row.

The poll of exit polls predicted the BJP to win with 112 of the 182 seats. Whereas, BJP managed to win 99 seats- way lower than the expectations of the exit polls.

BJP was expecting a thumping majority. Though this remained a distinct dream and was a validation of the fact that people weren't happy with the government's move of demonetization. The data too revealed that a majority of agriculture-dominated constituencies voted against the BJP.

The closely contested Gujarat elections would ensure that the road to the 2019 general elections would not be a one-way contest. As far as the stock markets are concerned, the markets have a Modi premium attached to the stock prices on account of his big bang reforms which have immensely benefited the organized and corporate sector. A not so thumping majority could possibly undermine the 'Modi premium' that the markets are fetching right now.

Moody's Report on India's Power Sector

]Global credit rating agency, Moody's Investors Service and its Indian arm ICRA in a joint report have kept a stable outlook for the Indian power sector over the next 12-18 months, reflecting their expectation of stable industry conditions and government policy initiatives.

The report stated that there would likely be an improvement in the financial position of state-owned electricity distribution companies. Moody's also said that the government's debt restructuring of the financially weak distribution utilities under the Ujwal Discom Assurance Yojana (UDAY) will gradually improve the financial conditions of state-owned discoms, thereby alleviating off-taker risk, which is a key negative factor for the credit quality of power generators.

The report stated that India (rated Baa2 stable by Moody's) will see a change in its energy mix towards renewable, as the country adds more capacity and moves towards its commitments under the Paris Agreement on climate change.

Rupee Scales to Three Month High

From currency markets, rupee was seen hovering near its 3-month high yesterday. The domestic currency witnessed buying interest and built its momentum after the BJP's win in Gujarat and Himachal Pradesh (HP) Assembly polls.

The appreciation in the rupee comes as a welcome breather for importers in India. A softer rupee helps importers to buy goods and services at a cheaper rate that earlier. This is vital for a developing economy that relies heavily on imports. This bodes well for the Indian economy as higher imports normally mean increased economic activity.

But on the other hand, the rise in rupee can spell trouble for exporters. The exporters are at a disadvantage owing to the currency appreciation as this renders their produce expensive in the international markets as compared to other competing nations whose currencies haven't appreciated on a similar scale. This tends to take away a part of the advantage from Indian companies, which they enjoy due to their cost competitiveness.

Nonetheless, a stronger rupee will pull down commodity prices. This will help in keeping a tab on the rising inflation.

While there are advantages as well as disadvantages of a rising rupee, one needs to understand whether the rise in the rupee is sustainable to derive any reasonable conclusion at this stage.

Movers and Shakers During the Week
Top Gainers During the Week (BSE Group A)
Company14-Dec-1722-Dec-17Change52-wk High/Low
Reliance Communications11.9216.3036.7%41/10
63 Moons Tech91.90113.1523.1%166/54
Reliance Defence and Engineering35.2042.9021.9%71/34
Reliance Capital413.40483.2516.9%878/398
IFCI23.2527.1016.6%33/21
     
Top Losers During the Week (BSE A Group)
Tech Mahindra514.25492.40-4.2%517/358
Tata Communication702.20677.40-3.5%784/570
Multi Commodity978.95952.00-2.8%1,307/897
Apollo Hospitals1,205.151180.00-2.1%1,357/959
Bhushan Steel63.8562.55-2.0%103/39
Source: Equitymaster
Some of the 

key corporate developments in the week gone by

As per an article in leading financial daily, Aurbindo Pharma and Dr Reddy's Laboratories have expressed interest in buying out the bankrupt Orchid Pharma.

Orchid Pharma has presence in the injectables segment and active pharmaceutical ingredients segment. Orchid Pharma has two API manufacturing facilities in India and three formulations sites in India. Reportedly, these sites are all approved by the US Food & Drug Administration, UK's Medicines and Healthcare Products Regulatory Agency.

Mr Modi announced investments to the tune of Rs 900 billion to improve the roads and national highway in the northeast in the next two to three years. The government has already sanctioned around 4,000 kilometers of national highway across the north-east at a cost of Rs 320 billion. This would provide opportunities to road developers such as PNC Infratech, Larsen & Toubro, IRB Infrastructure, KNR Constructions.

In the news from crypto currency space, as per an article in the Economic Times, the Income Tax (IT) department in India is set to issue notices to 4 to 5 lakh high net worth individuals (HNIs) across the country who traded on the unregulated exchange of crypto currency.

The IT department had conducted surveys at nine such exchanges last week to check instances of tax evasion and found that out of the estimated 20 lakh entities registered on these exchanges, about 4 to 5 lakh were operational and indulging in transactions and investments.

The above developments are seen on the back of a surge in bitcoin prices this year. Time travel to 2013 and Bitcoin was trading at a mere US$100. In fact, even during August this year, the cryptocurrency traded at around US$4,000 levels. Fast forward to today, Bitcoin is seen trading at its all-time high levels of around US$19,000.

Note that Bitcoin and cryptocurrencies are a curious bunch. They have no central bank backing and have not yet been regulated. Yet, these seem to have found favour among a large number of people, with demand growing every day. There are over 800 cryptocurrencies in existence today, with new ones being added to the list every day.

While the world of digital currencies is intriguing, it can get very confusing for the layman. Our team member, Ankit Shah, Research Analyst, has decided to study cryptocurrencies and help our readers understand them.

Here's Ankit's take in a recent edition of Equitymaster Insider:

  • I've been studying and tracking bitcoin for a while, and though I still understand very little about it, I believe that it is a revolutionary technology that could transform a range of businesses and money itself. It would be naive to dismiss it as a passing fad.

    I want my readers to be on top of the biggest megatrends in the global economy. So, you can expect to hear about bitcoin whenever there is an important update or insight.

Ankit has also released a premium guide for Equitymaster Insider subscribers, titled Bitcoin 101 which contains everything you need to know about bitcoins and other digital currencies.

If you haven't been receiving Ankit's insights, get on the Insider's list now.

ABB India has won an order worth Rs 1.34 billion to supply state-of-the-art traction equipment for electric locomotives, manufactured by Chittaranjan Locomotive works (CLW).

The company will deliver traction converters, standalone auxiliary converters and vehicle control units for 64 electric locomotives which will be used for passenger and freight operations.

This order further strengthens ABB's position in the Indian market where the government wants to equip electric locomotives with the next generation of propulsion system, with the state-of-the-art traction converters. It also supports the larger government initiative of energy efficiency and electrification of railways.

As per an article in The Livemint, the 10-year bond yield hit fresh 17-month high as traders' view minutes of the Reserve Bank of India's (RBI) latest policy as hawkish.

The 10-year bond yield was at 7.276%-a level last seen on 21 July 2016, compared to its previous close of 7.219%. Bond yields and prices move in opposite directions.

Most members of RBI's rate setting committee are increasingly worried about fresh risks to inflation, with their hawkish tone suggesting that the rate cutting cycle has come to an end.

The share price of Reliance Communications surged during the week. The surge in the stock came amid reports that the National Company Law Tribunal (NCLT) adjourned the hearing of insolvency petitions filed against Reliance Communications to early next month.

Meanwhile, the sentiment also remained optimistic ahead of the joint lenders' forum meeting scheduled due later on Thursday. The forum is expected to discuss the bids it has received for sale of the company's assets. According to a Business Standard report, Reliance Jio has been one of the key bidders and has shown interest in both fibre (they are one of the main bulk users) as well as spectrum.

RCom is reeling under a total debt of Rs 450 billion. Of this, Rs 250 billion is domestic debt and remaining Rs 200 billion is in the form of foreign loans and bonds.

Biocon is likely to take its group entity Biocon Biologics public and is expected to raise about US$ 500 million.

Reportedly, the new entity will need huge investments to fund clinical development and it could go up to US$ 500 million.

Biocon recently received shareholders' approval to the resolution for transfer of biosimilar business by slump sale to Biocon Biologics India.

One shall note that, the biologic assets consists of monoclonal antibodies and recombinant insulins and novel biologics and will be a wholly-owned subsidiary.

Given the complexity of biologics, will Indian companies be able to break some ground in this space? (Subscription Required).

As per an article in a leading financial daily, Sun Pharmaceutical Industries has started recalling two batches of Riomet (metformin hydrochloride) Oral Solution voluntarily from the US market due to microbial contamination.

According to a notification put up by the US Food and Drug Administration in its website, the recall was initiated by the firm under 'Class-II' classification.

Riomet (metformin oral solution) is an oral diabetes medicine that helps control blood sugar level. According to the USA health regulator, Class II recall is a situation in which use of or exposure to a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote.

Reportedly, the drug was manufactured for Ranbaxy Laboratories Inc Jacksonville in USA by a contract manufacturer and distributed by Sun Pharmaceutical Industries' subsidiary in Cranbury, New Jersey.

And here's a note from Profit Hunter

The Nifty 50 Index traded on positive note during the week. On Monday, it opened 70 points gap down and plunged to a low of 10,075. However, it swiftly recovered to end the session 55 points up.

The volatility was seen on back of Gujarat and Himachal Pradesh election results. The index continued the bullish momentum, and it surprised investors with a new life-time high of 10,494 mid-week. It witnessed minor profit booking towards the end of the week.

Finally, on Friday, the index up move continued till it touched a fresh life-time high of 10,501 and ended the weekly session 1.55% up.

For past few week, we have mentioned that 10,000 - 10,100 level is a strong support level for the stock. Despite the index sliding more than 250 points on Monday, it did not go below the 10,000 level. And showed strong resilience when it bounced back to a tough a new life high mark. Now the 10,500 level, November 2017 high, could prove to be an important resistance for the stock.

So, will the stock break above the resistance point and continue with its upside momentum or will it have to see the 10,000 level once again?

Nifty Index Hits a New Life-time High
Nifty Index Hits a New Life-time High 

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