Sensex Finishes Firm; SAIL Surges 2.8%

Indian share markets continued to trade well above the dotted line in the afternoon session amid strong international markets. At the closing bell, the BSE Sensex stood higher by 245 points, while the NSE Nifty finished up by 83 points. The S&P BSE Mid Cap & the S&P BSE Small Cap finished up by 1.3% and 1% respectively. Gains were largely seen in energy, metal and auto stocks.

Most Asian markets finished higher tracking the overnight gains on Wall Street and as the U.S. dollar retreated from 14-year highs. The Hang Seng gained 1.46% and the Shanghai Composite rose 0.21%. The Nikkei 225 lost 0.37%. European markets are lower today with shares in France off the most. The CAC 40 is down 0.14% while Germany's DAX is off 0.05% and London's FTSE 100 is lower by 0.04%.

The rupee was trading at 67.79 against the US$ in the afternoon session. Oil prices were trading at US$ 53.22 at the time of writing.

According to a leading financial daily, Foreign Direct Investment (FDI) in India increased by 27% at US$27.82 billion during the April-October period of the current fiscal as against US$21.87 billion in the same period last fiscal. The FDI numbers indicates that the government has been able to create a suitable climate in which the foreign investors feel confident that interest is protected.

According to Department of Industrial Policy and Promotion (DIPP), manufacturing constituted around 41.5% of the equity inflows, while non-manufacturing were around 58.5% during April 2014 to Sept 2016. Total FDI in the country in the last financial year was US$55.6 billion, up by 23% over previous year. DIPP also stated that trademarks filing has increased by 10% and its examination grew by 250% so far this fiscal till November and added that trademark pendency has come down to 3 months and is expected to be 1 month by March 2017.

The main sectors including services, telecom, trading, computer hardware and software and automobile were the major areas which attracted FDI inflows. The country receives maximum FDI from Singapore, Mauritius, the Netherlands and Japan. FDI is considered crucial for country, which needs around US$1 trillion for overhauling its infrastructure sector such as ports, airports and highways to boost growth. Growth in foreign investments will also help improving the country's balance of payments situation and strengthen the rupee value against other global currencies, especially the US$.

Moving on to news from stocks in steel sector. Steel Authority of India's (SAIL) share price surged 2.8% in today's trade after the company reported a 16% sales growth during the April-December 2016 period over the corresponding period last year. The improved sales numbers was led by higher domestic sales as well as expanding exports, with the latter recording a remarkable rise of around more than double during this period. The company's exports rise is in keeping pace with a focus to expand its global foot prints.

On the production front, the company produced 10.18 Million Tonnes (MT) of saleable steel during Apr-Dec 16 period, of which 1.18 MT alone came in December 16, registering a 15% growth in saleable steel production over Apr-Dec 15. With enhanced performance from the modernized units, the techno-economic parameters also exhibited improvement during the first nine months of FY 16-17.

In another development, SAIL was reportedly in talks with Japan's Nippon Steel & Sumitomo Metal Corp and Kobe Steel Ltd for potential technical agreements to help the firm expand its global footprint. Separately, the company is in talks with two European steelmakers for similar partnerships.

SAIL is also ironing out details with the world's biggest steel producer, ArcelorMittal, for a proposed Rs 60 billion (US$884.36 million) joint venture.

SAIL reportedly plans to raise output of saleable steel in the year starting April 2017 by about 10% to 16.5 million tonnes. It is aiming for a 10% jump in 2017/18 exports, versus an estimated 700,000 tonnes shipped this year.

Steel Demand has Outpaced Supply Over the Last 5 Years

This comes at a time when the steel sector remains in the woods, accounting for 28% of the banking sector's stressed loans.

While government steps such as duties and quality controls on cheap imports from top producer China have helped Indian steelmakers raise prices.

Steel Stocks finished the trading day on a strong note with JSW Steel and Jindal Steel Ltd leading the gains.

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

The Nifty Auto index corrected sharply around 17% from its September 2016 high of 10,459 level. It found support near 8,680 level in November 2016. After that the index showed immense strength. In last week of December it rallied strongly towards 9,300 levels, which was its recent high. On Monday the index closed above this recent high. In the next two sessions it traded around the 9300 levels. Today the index opened with an upside gap and closed with a 2% gain. It seems that the index is aiming higher in coming sessions.

Nifty Auto Index Sustained Above its Recent High

Sensex Stays in the Green; IT Stocks Drag
01:30 pm

After opening the day on a positive note, the Indian share markets have continued to trade above the dotted line. All Sectoral indices with the exception of stocks in the IT sector are trading in the green. Stocks in the Metal sector are leading the gains.

The BSE Sensex is trading up by 216 points (up 0.8%) and the NSE Nifty is trading up 74 points (up 0.9%). Meanwhile, the BSE Mid Cap index is trading up by 1%, while the BSE Small Cap index is trading up by 0.9%. The rupee is trading at 67.84 to the US$.

The 8th meeting of the Goods and Sales tax (GST) council held over a two-day period remained inconclusive, effectively ruling out the implementation of GST from 1 April.

The centre on Wednesday said that it will wait for consensus to emerge on GST laws and will not push for a decision by vote despite the threat of a delay in rolling out the new tax regime from April.

However, both the centre and the states made headway on the integrated GST bill at the two-day meeting, though the contentious issue of sharing of administrative powers was not taken up.

Two major issues -the proposed levy of tax on sale in the high-seas and dual control over entities with annual turnover of less than Rs 15 million-have held up the finalisation of the draft laws. The laws need to be cleared by the state legislatures and Parliament before GST can be rolled out.

Agreement on the crucial issue of 'dual control', which envisages a division of control over tax assessees between the states and the centre under the proposed GST and is at the heart of the wrangling between the two sides.

Some states have now raised a new issue of the rate split under GST. And are advocating a split in the rates between the states and the centre should be in the ratio of 60:40 rather than the previously proposed equal split.

With the deadlock between the centre and the states continuing over multiple issues, it is unlikely the GST will be rolled out on its initial deadline of 1 April. The GST council is set to meet again on 16 January.

GST, when implemented will bring in a host of regulations to enable transparency in the tax regime. This will no doubt lead to added costs for implementation of regulations. Unorganized players may bear the brunt of added costs of compliance and may find it difficult to comply with the GST norms and compete with the well-established organised players.

Sectors that can benefit from GST

The implementation of GST is bound to bring more companies under the new tax regime, thus providing a level playing field to organized players forming part of sectors having a high proportion of the unorganized segment.

GST will subsume a host of indirect taxes levied by the center and the states, including excise duty, service tax, value-added tax, entry tax, luxury tax and entertainment tax. A transparent tax regime may very well be beneficial to the investors, individuals and businesses.

It all paints a rosy picture, but in the long term it may not be the case. Vivek Kaul has a special report ready, which will help you understand how GST actually affects you. You can download this special report - GST & You, for free right here.

Moving on to news about the economy. According to an article in a leading financial daily, Foreign Portfolio Investors (FPIs) have proposed to the government that the threshold limit for triggering indirect taxation provisions be raised from 5% to 26%.

The Central Board of Direct Taxes (CBDT) on December 21 clarified that even FPIs, private equity and venture capital funds would fall under the ambit of indirect transfer provisions, the law which became contentious between telecom major Vodafone and government.

To put it simply, the law as it stands states that all FPIs having more than 50% of assets under custody in India and owning over 5% stake in any listed entity would incur tax under indirect transfer provisions. This is in addition to the securities transaction tax and short term capital gains tax.

As per this, overseas investors putting money into large offshore funds would have to forego a slice of their gains while selling or redeeming the units they hold. Most FPIs invest through special purpose vehicles that are India focused with more than 50 per cent assets invested here.

FPIs propose that the threshold limit of 5% to be raised to at least 26%, as it would keep most of the FPI transactions beyond the gambit of the law. The FPIs further proposed that there should be no Tax deducted at source (TDS) obligations levied on them, and that corporate restructuring should not trigger indirect transfer provisions.

Sensex Registers Marginal Gains; Metal Stocks Witness Buying Interest
11:30 am

After opening the day on a marginally positive note, the Indian share markets have continued the trend and are trading in the green. All the sectoral indices are trading on a positive note with stocks in the metal sector and the oil & gas sector witnessing maximum buying interest.

The BSE Sensex is trading up 214 points (up 0.8%) and the NSE Nifty is trading up 68 points (up 0.8%). Meanwhile, the BSE Mid Cap index is trading up by 1%, while the BSE Small Cap index is trading up by 1%. The rupee is trading at 67.84 to the US$.

According to a report in The Economic Times, over 97% of the banned Rs 500 and Rs 1000 notes have been deposited into banks as on 30 December.

Banks have received Rs 14.97 trillion worth of old notes as of 30 December, the deadline for handing in the demonetised currency. This figure amounts to about 97% of Rs 15.4 trillion rendered worthless by the demonetisation move on 8 November.

Any eventual one-time windfall gain accrued to the Reserve bank of India (RBI) will be closer to Rs 500 billion as on date, much less than the RBI and the Centre's initial estimates of as much as Rs 3 trillion.

This may put a huge burden on the exchequer as the demonetisation drive has proven to be a costly affair. The transaction cost involved in replacing the currency notes is worth considering. Now, this whole exercise would involve some transaction cost. As per CMIE, the total transaction cost during 50-day window till 30th December, 2016 would be ~Rs1.28 trillion.

Demonetisation may prove to be costly

The amount of demonetised currency returned has turned out to be much more than the estimates of the government and RBI, and might come as a blow to the government's drive to clean out black money. As most of the demonetised money has been returned into the banking channels, it has been legitimatized and accounted for, it cannot be treated as black money.

Speaking of black money, it's no secret that political parties are a kind of black hole to black money. Much of these donations to political parties, being below the limit of Rs 20,000, happen in cash and remain unaccountable (one must note that political parties are currently not required to publicly disclose contributions of up to Rs 20,000). So while you and I need to show an identity proof while depositing our old Rs 500 and Rs 1,000 notes into a bank account, political parties can continue to receive donations of up to Rs 20,000 in cash. And they need not declare where those donations came from.

There is a scope that we as citizens of India can put an end to this discrimination. My colleague Vivek Kaul is on a mission to get us EQUAL RIGHTS. Vivek has initiated a petition to the President of India to request him to set things right. Thousands have already signed the petition. He needs 25,000 signatures before 6th of January to kick this off. In case you haven't, it's time to do your bit now. Sign the petition, and become an agent of change.

Moving on to news from the global economy. The US Federal Reserve released the minutes of the December 13-14 policy review on Wednesday, which hinted at a higher probability of rate hikes in the coming months.

The minutes of the Fed policy review revealed that policymakers saw the looming uncertainty associated with fiscal, trade, immigration or regulatory policies, probably after President-elect Donald Trump takes oath on January 20. They sounded unsure of the size, composition and timing of the policy changes.

The policymakers also predicted the GDP growth to be slightly higher, and estimated the US GDP to grow by 1.3-4.7% in 2017.

The Federal Reserve had announced an interest rate hike of 0.25% during the latest policy review. The rate hike was the first since last December and only the second since the 2008 crisis, when the Fed cut rates to near zero and deployed other tools such as massive bond purchases to stabilise the economy.

But there's more. The Fed's outlook is now for three more 0.25% hikes in the coming year. And then three more increases in both 2018 and 2019. This would mean nine rates hikes over the next three years before the rate levels off at a long-term 'normal' of 3%.

A quick succession of rate hikes would create a massive storm in the global financial markets. But no rate hike would lay the ground for much bigger financial storms later. Sooner or later, there will be an end to easy money policies. And that will lead to some big trends. Here's Asad Dossani, editor at Profit Hunter:

Regardless how many more times interest rates go up, one thing is clear. This is the beginning of the end of easy money. At least, the end of easy dollars (easy euros, pounds, and yen will stay with us for a while).

As per Asad, the Fed's promise of more interest rate increases will lead to the end of easy money and will create big trends next year that traders can profit from.

Sensex Opens Marginally higher; Sun Pharma Up 1.2% on Successful Clinical Trial
09:30 am

Asian markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.25% while the Hang Seng is up 1.21%. The Shanghai Composite is trading up by 0.05%. Stock markets in the US and Europe ended their previous session on a firm note.

Meanwhile, Indian share markets have opened the trading day marginally higher amid firm Asian markets. The BSE Sensex is trading higher by 130 points while the NSE Nifty is trading higher by 36 points. The BSE Mid Cap index and BSE Small Cap index both have opened the day up by 0.5%. The rupee is trading at 68.18 to the US$. All sectoral indices have opened the day in green with metal, auto and realty stocks witnessing maximum buying interest.

Cement stocks opened the day on a mixed note with Ambuja Cement and Birla Corporation leading the gains. According to an article in The Financial Express, demonetisation is likely to pull down growth of the cement sector this fiscal to 4% and may impact the debt level of small and medium firms.

The impact of demonetisation will flow to the economy mainly through the real estate and construction sector, which has strong linkages with cement and steel and they will turn credit negative in the short-run.

According to a report by India Ratings and Research, small and medium cement producers may come under stress in the next two quarters as their debt level would go up. The lower cement output for 2016-17 is expected due to the fall in production in the sector in November-December 2016. Cement production grew 4.3% in April-November and recorded a growth of 0.5% in November 2016.

On the other hand, a near 75% jump in the prices of petroleum coke, coupled with a similar rise in diesel costs, is likely to affect the margins of cement sector companies in the current financial year. Pet coke is a key raw material for the cement sector.

Valuations Stretched for Indian Cement Companies?

The higher input cost and lower demand are expected to limit the ability of cement manufacturers to pass on the higher prices to the end consumers, thus potentially squeezing margins, the reports noted. Recently, the Rajya Sabha approved the amended Mines and Minerals Development and Regulation (MMDR) Bill, 2016. Rahul Shah, Co-head of Research explains how the amended law will be a big positive for cement companies (subscription required). Here is some of the excerpt from the article:

  • "Amended law will surely be a big positive for mining, cement, and metal companies. It will enable quicker and smoother transfer of assets among resource-based firms. It will greatly help distressed metal and cement producers sell their production units to companies with stronger balance sheets. And it will be a relief to banks with large exposure to such companies"

Moving on to the news from stocks in pharma sector. According to an article in the Livemint, Sun Pharmaceutical Industries Ltd's drug Seciera has displayed positive results in a 12-week multicentre phase-3 clinical trial conducted on 744 patients. Seciera is indicated for the treatment of dry eye disease, developed by Ocular Technologies.

One must note that, Ocular Technologies is recently acquired by Sun Pharma (Subscripton Required). Following this acquisition, Sun Pharma owns exclusive, worldwide rights to Seciera and is developing it to commercialize for global markets including the US, Europe, and Japan, as well as several emerging markets.

Moreover, Seciera would further help to strengthen the company's emerging ophthalmics pipeline, which includes the recent launch of BromSite and late stage development programmes for Xelpros and DexaSite. Going ahead, this product if approved by USFDA would give the company a share in the dry eye drug market which is expected to touch US$5 billion by 2020, the reports noted.

Sun Pharma's share price opened the day up by 1.2%

2017 - A Golden Year for Infrastructure?

One of the important yardsticks of economic development is the Infrastructure development. All the sectors in the economy are directly or indirectly related to the infrastructure sector.

The government of India in last two years has passed some landmark bills and has undertaken some good initiatives to propel growth in this sector. The three primary focus areas has been road, airports and railway projects.

In August 2016, India jumped 19 places in World Bank's Logistics Performance Index (LPI) 2016, to rank 35th amongst 160 countries. The LPI is a benchmarking tool which helps identify challenges and opportunities related to a country's logistics infrastructure.

However, the last two year focused more on the policy and procedural part. It is now when actual implementation is to be made. 2017 can be a make or break year for Infrastructure.

The government aims to push road, rail, airports and other infrastructural projects. Further, the government plans to speed up expansion of major ports. It recently got passed 'The Major Port Authorities Bill, 2016'.

2017 has many other things in store for the infrastructure sector. Here are some of the important trends and events to watch out for:

  1. Airports Infrastructure
  2. The Government of India plans to boost regional air connectivity by setting up 50 new airports over the next 3 years. At least 10 are slated to be operational in 2017. Further, subsidized flights and airports in remote locations would do well to boost connectivity. The Airports Authority of India also plans to develop city-side infrastructure at 13 regional airports.

  3. Energy & Power Projects
  4. The dynamics in the power generation are poised for a change as the prices of renewable power are falling at a rapid pace. This coupled with rising oil prices could bring in a change in how India generates power. The government too has made a strong push for renewable energy. India is home to the world's largest solar power plant in Tamil Nadu. This is a testament to its potential in tapping renewable energy.

  5. Real Estate Sector
  6. Implementation of the Real Estate Regulatory Authority Act (RERA)

    The implementation of the RERA act which has potential to transform the real estate sector will be the most awaited event for the sector. The RERA imposes various restrictions and stipulations on developers and aims to bring about transparency in the real estate sector.

Consolidation among real estate players

Consolidation may be the name of the game in 2017 as small developers find it increasingly difficult to continue with projects amid a liquidity crunch and look towards asset monetization; cash-rich developers and private equity funds are bound to grow faster. Large developers could buy out projects of smaller realty firms closing down operations.

Commercial Real Estate

The commercial real estate sector will look to continue its positive run even as prospects for the residential market remain gloom over the implementation of the RERA act. The outlook for commercial real estate for 2017 is likely to be robust with demand from manufacturing, logistics and consumer goods besides IT and outsourcing sectors.

The Government of India made a record allocation of Rs 2,212 billion in the union budget last year. The same is expected this year. However, implementation matters more than the allocation.

Given all the major policies and bills in place, it would be interesting to see how things turn out in 2017 for Infrastructure.