Markets Crumble on Chinese Woes

Weakness across international markets took its toll on Indian stocks as benchmark indices remained weak throughout today's trading session after China accelerated the depreciation of the yuan (Subscription Required), sending currencies across the region reeling and domestic stock markets tumbling. China also suspended its stock markets for the rest of the day, less than half an hour after opening as a new circuit-breaking mechanism was tripped for the second time this week. While the BSE Sensex closed lower by around 555 points, the NSE Nifty ended down by around 173 points. S&P BSE Midcap and S&P BSE Smallcap indices fared worse, losing around 2.6% and 2.9% respectively. Losses were largely seen in realty, metal and auto stocks.

Asian markets finished sharply lower today with shares in China leading the region. The Shanghai Composite was down 7.04% while Hong Kong's Hang Seng was off 3.09% and Japan's Nikkei 225 down by 2.33%. European markets are sharply lower today with shares in Germany off the most. The DAX is down 3.67% while France's CAC 40 is off 3.08% and London's FTSE 100 is lower by 2.83%. The rupee was trading at 66.54 against the US$ in the afternoon session.

According to a leading financial daily, the government is considering a plan to sell part or all of its stake in Axis Bank Ltd. At the current market price, the government's stake of 11.6% is worth around US$ 1.8 billion. Reportedly, the government may trim the 11.6% stake it holds in Axis Bank through the Specified Undertaking of the Unit Trust of India as it seeks to meet an asset sale target of Rs 695 billion for the year ending 31st March. The sale will boost efforts of Finance Minister Arun Jaitley to narrow the country's budget deficit to 3.9% of the gross domestic product. So far, the government has managed to raise only Rs 127 billion from selling state assets, less than one-fifth of the target.

The bank recently reported 15.2% YoY and 18.9% YoY growth in net interest income and net profits respectively in 2QFY16 (Subscription Required). The script of Axis Bank finished the trading day down by 5% on the BSE amidst the broader sell off. The stock slumped 10.6% in full year 2015.

The Reserve Bank of India (RBI) recently released the Financial Stability Report. One of the key highlights of the report was corporates are essentially responsible for the rising bad loans of banks. As of September 30, 2015, loans to large borrowers made up 64.5% of total loans. On the other hand, bad loans held by large borrowers amounted to 87.4% of total bad loans. Five sectors have been responsible for a major part of the trouble. These are mining, iron & steel, textiles, infrastructure and aviation.

According to a leading economic daily, Jaiprakash Associates has signed an agreement with Shree Cement to divest its stake in the 2.1-million tonne Bhilai Jaypee Cement for an enterprise (BJCL) value of Rs 21-22 billion. Jaypee Cement has loans of Rs 6 billion and is expected to realize a net value of around Rs 16 billion, after adjusting the debt.

Of this, Jaiprakash Associates is expected to net around Rs 12 billion, which will be used for paring its loans from banks. Reportedly, banks are pushing the company to divest a substantial portion of its cement and power generation assets to reduce its debt. The company is the third largest cement manufacturer in the country with a capacity of around 33 million tonne. Shree Cement has a capacity of 23.6 million tonne.

2015 had been a rather poor year for stocks from the cement sector. Barring Shree Cement, the overall returns generated from the top companies from this sector have been quite lackluster (Subscription Required). The average cement prices have declined to levels of Rs 300 a 50 kg bag. This is largely on the back of weak demand from the rural markets (which forms about 40% of the market).

No Respite for Indian Indices
01:30 pm

Following a negative trend since the opening of the trading day, the Indian indices have continued to remain under pressure in the post noon trading session. Sectoral indices are trading on a negative note with stocks from the capital goods, realty and auto sectors bearing the maximum brunt.

The BSE Sensex is trading lower by 463 (down 1.8%) and the NSE Nifty is trading down by 144 points (down 1.8%). The BSE Mid Cap index is trading lower by 2.2% while the BSE Small Cap index is trading down by 2.7%. Gold prices, per 10 grams, are trading at Rs 25,895 levels. Silver price, per kilogram, is trading at Rs 33,936 levels. Crude oil is trading at Rs 2,190 per barrel. The rupee is trading at 66.72 to the US$.

Stocks in the telecom space are trading on a negative note with ITI and MTNL leading the losers. As per an article in Economic Times, Telecom Regulatory Authority of India (TRAI) has pointed out the lack of investment by telecom companies in network infrastructure as the main reason for the call drops in the company. In an affidavit, the regulator stated that major companies including Vodafone, Bharti Airtel and Reliance Com have failed to keep the investments commensurate with the pace of increase in usage and the growth in number of their subscribers.

Last week, TRAI had reminded telecom operators to comply with its order to pay consumers Rs 1 per call dropped on their networks, subject to a cap of Rs 3 a day from January 1. In response to that, the carriers maintained they would wait for court directions before paying up.

Telecom companies are contending that compensation for call drops may lead to an additional burden of around Rs 540 billion on their books annually. However, refuting their claim, TRAI said that the total financial implication on service providers was likely to be not more than Rs 8 billion per annum.

Already burdened with significant investments in the 3G and 4G spectrums, telecos may find it hard to bear the additional investments involved.

Meanwhile, Cipla has inked a pact with US-based BioQ Pharma for registration and commercialization of BioQ Pharma's Ropivacaine infusion system in India. Ropivacaine infusion system is used in treating post-operative pain.

The management of Cipla, regarding this strategic distribution, said that this innovative product represents a significant evolution in enhancing the delivery of infusions and managing post surgical pain.

On a separate note, the company had recently launched generic drug ledipasvir-sofosbuvir in India under the brand name Hepcvir-L. This was noted as the first once-a-day, fixed-dose oral combination therapy that has been approved for chronic hepatitis C genotype 1 patients.

Cipla focuses on development of new formulations and has a wide range of pharmaceutical products. It offers prescription drugs, bulk drugs, animal products and pesticides. The company has a healthy portfolio in the respiratory space, which stands as an important growth driver. Also, the company is gradually entering various global markets, and has launched some inhaler based drugs in Europe and emerging markets. Added to that, there are other opportunities and milestones for the company in the long term. To know them, you can read our analysis report on the company here (subscription required).

Presently the stock of Cipla is trading down by 1.5%.

China Fall Weighs Down Markets
11:30 am

After opening the day deep in the red, the Indian indices continued to trade negatively. Sectoral indices are trading on a discouraging note with stocks from the auto, realty, and capital goods sectors witnessing maximum selling pressure.

The BSE Sensex is trading down 404 points (down 1.6%) and the NSE Nifty is trading down 123 points (down 1.6%). The BSE Mid Cap index is trading lower by 1.9% and the BSE Small Cap index is trading down by 2.2%. The rupee is trading at 66.89 to the US$.

Stocks in the automobile space are trading on a discouraging note with Maruti Suzuki and Tata Motors bearing the maximum brunt. As per a leading financial daily, Mahindra & Mahindra (M&M) has launched a premium pickup Imperio that sports SUV looks and superior performance with car like comforts. It comes at a starting price of Rs 6.25 lakhs (ex showroom), and will be available across Mahindra dealerships throughout India.

The Imperio will be available in four variants of two single cabin options and two double cabin options. The company regarding this launch said that it will lay a strong foundation for the new generation of pickups and will consolidate the company's presence in the SCV (small commercial vehicle) segment.

This launch can said to be the company's efforts to ramp up its growth in utility vehicles (UV) space. As Radhika Pandit, Managing Editor, ValuePro had pointed out in our result analysis report of the company, "Although the growth of UVs has been slow, the company expects the scenario to improve going forward backed by new product launches." To know more, read the entire report here (subscription required). The scrip of M&M is trading down by around 3.4%.

Pharma stocks are also trading in the red with Panacea Biotech and Glenmark Pharma leading the losses. As per an economic daily, Glenmark Pharmaceuticals has received tentative approval by the United States Food & Drug Administration (USFDA) for its Dronedarone tablets, 400 mg. The tablets are the generic version of Multaq Tablets, 400 mg of Sanofi-Aventis US LLC. The same are used to treat certain heart rhythm disorders.

Glenmark said that it expects to be eligible for 180 days of generic drug exclusivity upon final FDA approval. Furthermore, the company remains involved in a patent litigation in the US District Court for the District of Delaware, wherein Sanofi and Sanofi-Aventis US LLC have asserted its patents.

Tentative approval means that FDA has concluded that a drug product has met all required quality, safety and efficacy standards, but is not eligible for marketing in the US because of existing patent protections or exclusivities.

Glenmark's current portfolio consists of 104 products authorized for distribution in the US marketplace and 62 ANDA's pending approval with the USFDA. The stock of Glenmark Pharma is trading down by 3.5% on the BSE.

Indian Indices Open in Deep Red
09:30 am

Major Asian stock markets have opened the day on a dismal note. Trading in China is halted after the index tanked more than 7%, triggering a circuit breaker. Other Asian Markets have also taken a beating. Stock markets in Hong Kong and Japan are trading down by 2.4% and 2% respectively. Stock indices in Europe and US too ended their previous session on a negative note. The rupee is trading at 66.71 per US$.

Indian stock markets too have opened the day on negative note owing to weak global cues. The BSE Sensex is trading lower by 329 points (down 1.3%) and NSE Nifty is trading lower by 100 points (down 1.3%). Both BSE Mid Cap and BSE Small Cap are trading lower by 1.2% and 1.5% respectively. Sectoral indices have opened the day on a negative note with stocks from automobile,metal and banking sector witnessing maximum selling pressure.

As per an article in leading financial daily, government would prepone the implementation of Bharat Stage-VI emission standards by a year to April 2020. The decision comes a day after Supreme Court refused to lift the ban on diesel vehicles above 2,000cc capacity. Currently, India is implementing BS-IV emission standard. Government has decided to skip the BS-V emission standard and move on directly to the BS-VI. Upgradation to BS-VI will lead to reduction of particulate matter by 80% in addition to reduction of nitrogen oxide level by 83%.This will help significantly to reduce the pollution levels.

Reportedly, adoption of new emission standard will also lead to increases in the prices of vehicles. An estimated increase of Rs 1 lakh for diesel vehicles and Rs 20,000 for petrol vehicles is expected with the switch to BS-VI standard. Appropriate modifications in the engine will have to be carried out by the automobile companies to make them suitable for the BS-VI emission standard. Auto firms, part makers and oil refiners will have to spend anything between Rs 700 to Rs 900 billion in order to be compliant with the BS-VI standard.

Auto majors have raised apprehensions regarding this government order and stated that it would neither be technically possible nor advisable to skip BS-V or advance the onset of BS-VI, before the earlier schedule of 2023.

As per an article in leading financial daily, iron-ore prices rebounded 13% to US$ 43.11 per tonne as compared to US$ 38.3 per tonne on 11 December 2015. The iron-ore prices had depreciated to seven year lows in December 2015. However, prices surged upwards on account of bargain hunting by traders and small steel mills.

Iron-ore producers have cut output globally. However, impact of the same is yet to be witnessed in the prices. Further, iron-ore producers are sitting on a huge pile of stock. States like Odisha and Jharkhand are sitting on an inventory of 128 million tonnes of iron-ore stock.

It is likely that huge piles of stocks coupled with subdued demand from steel manufacturers will not allow iron prices to move up for long.

The challenge of getting the economy on track

Flow of investments in the infrastructure space is one of the first signs of a pickup in economic activity. Recently, the Finance Minister, Mr Jaitley stated that the government will continue to invest in the infrastructure space through increased allocations in the upcoming budget in February. The government had recently announced the 'Seventh Pay Commission' and 'One Rank One Pension'. Both the schemes will lead to an outflow of around one trillion. However, in spite of such huge outflows government is firm on stepping up public spending.

Private capital expenditure in the country has slowed down considerably due to high indebtedness and weak balance sheets of India Inc. The Mid-Year Economic Review released by the Finance Ministry shows that private capital expenditure contributed only 1% to gross domestic product (GDP) growth in April-September 2015, compared with an average 3.2% contribution in the 2004-11 period. Therefore, capital spending was raised by 31% to Rs 1.6 trillion during the April-November 2015 period in order to rejuvenate the economy.

With an aim to acquire funds for public spending, the government is in talks with a large number of international sovereign and pension funds to become partners in the newly set up 'National Investment and Infrastructure Fund'.

However, additional expenses on account of 'Seventh Pay Commission' coupled with increased expenses on public investments will force the government to re-assess its fiscal deficit targets.

While it is true that one of the key factors that dominated the election campaign agenda was to give infrastructure a big push; however, the government has not been successful in doing so, so far. The need of the hour is to strike the right balance and ensure that there are no more hurdles in ramping up infrastructure. This would be critical in ensuring a sustained high GDP growth for the country in the longer term.