Indian Markets Extend Losses

Indian markets finished today's trading session in the red for the second consecutive trading day on account of persistent selling pressure across sectoral indices except the consumer durables sector. The BSE Sensex fell over 143 points, while the NSE Nifty fell over 54 points. The banking sector was the worst performing sector as it fell nearly 1.8%. S&P BSE MidCap and S&P BSE SmallCap, too suffered losses during today's session as both the indices finished lower by 1%.

Asian markets seesawed on Tuesday, with China stocks closing slightly higher after opening the week with huge losses as investors were wary about Beijing's economic policies and slowing economy. The Shanghai Composite was choppy before ending the day in the positive territory with a 0.2% gain. Meanwhile, Japanese stocks slipped 2.7% weighed down by plunging crude oil prices. European markets are broadly trading higher today with shares in Germany leading the region. The DAX is up 1.45%, while France's CAC 40 is up 1.08% and London's FTSE 100 is up 0.49%. The rupee was trading at 66.89 against the US$ in the afternoon session.

Software stocks languished in the red today with TCS and HCL Technologies bearing majority of the brunt. NIIT Technologies has reportedly been selected as a strategic partner by Ofcom, the UK's communications regulator. NIIT Technologies will help Ofcom manage its infrastructure and application systems and offer a customer focused service to improve the users' experience of ICT services. The value of the contract is GBP 23 million over a six-year period, which includes an initial term of 4 years and extensions.

As a strategic partner, NIIT Technologies will implement a dedicated service delivery model and new service management processes and tools. Key services will include the service desk, data centre services, application management and project management.

NIIT Technologies is a leading global IT solutions organization, servicing customers in Americas, Europe, Middle East, Asia and Australia. The script of NIIT Technologies finished the trading day on an encouraging note (up by 2.8%) on the BSE. The stock price of the company has increased (Subscription Required) by 17% in the last three months.

According to a leading financial daily, consumer inflation probably edged up for the fifth straight month in December driven by higher food prices. Retail inflation has been picking up since August, mainly due to a surge in prices of items like lentils. This complicates the central bank's task of steering monetary policy at a time of international deflation.

Reportedly, the government has revised its economic growth target to 7-7.5% for the fiscal year that ends on 31 March from an earlier estimate of 8.1-8.5%, due to weak farm output and declining exports. A drought in many parts of the country for the second year has hit production of rice, sugar, cotton and other crops, forcing the government to resort to imports to tame prices.

Consumer prices likely rose 5.6% in December from a year earlier. Industrial output, however, slowed to 2.3% in November compared with a year earlier and from a 9.8% rise in the previous month. Infrastructure output, which accounts for more than a third of factory activity, shrank 1.3% in the year in November, its first fall in seven months.

Banking Stocks Out of Favor
01:30 pm

After trading flat during the morning session, the Indian Indices went on to book losses and are presently trading on a negative note. Sectoral indices are trading on a negative note with stocks from the realty, telecom and banking sectors bearing the maximum brunt.

The BSE Sensex is trading lower by 227 (down 0.9%) and the NSE Nifty is trading down by 65 points (down 0.9%). The BSE Mid Cap index is trading down by 1% while the BSE Small Cap index is trading down by 0.8%. Gold prices, per 10 grams, are trading at Rs 25,883 levels. Silver price, per kilogram, is trading at Rs 33,544 levels. Crude oil is trading at Rs 2,061 per barrel. The rupee is trading at 66.96 to the US$.

Stocks in the pharma space are trading on a mixed note with Orchid Chemicals and Wockhardt leading the gainers. As per an economic daily, Cadila Healthcare has reported that it has received Establishment Inspection Report (EIR) for Baddi manufacturing plant from the US health regulator. The same was granted after a successful inspection closure.

Establishment Inspection Report is given to an establishment after the completion of the inspection by the FDA. The company has said that the approval will pave the way for further approval of products from the Baddi manufacturing facility.

Cadila Healthcare has recently been in news after the company received a warning letter from US regulators. The announcement dragged the stock of the company down by almost 15% in a single day. However, to what extent can this warning impact Cadila's future growth? One of our premium editions of The 5 Minute WrapUp answers this question. You can read it here (subscription required).

On a separate note, Zydus Cadila has introduced a breast cancer drug in India under the brand Vivitra. The drug is a copy of Swiss giant Roche's product Herceptin. Moreover, the company also recently expanded its animal health business with the acquisition of some select brands and a Haridwar-based manufacturing facility of Zoetis, a global animal health company, for an undisclosed amount. Presently the stock of the company is trading up by nearly 2%.

Stocks in the engineering space are trading on a mixed note with ABB India leading the gains and Voltas leading the losses. As per a leading financial daily, Larsen & Toubro's (L&T) construction arm- L&T Constructions has won orders worth Rs 12.5 billion across various businesses. Under buildings & factories business, the company has secured a turnkey order worth Rs 9.8 billion. The same is from a global information technology major for the construction of IT Park in Bengaluru. The scope of work for this includes civil, structural, mechanical, electrical, plumbing, high-end finishes, data center and other associated works. The project is scheduled to be completed in 30 months.

Furthermore, under power transmission & distribution business, the company has bagged an international order worth Rs 2.5 billion. Larsen & Toubro (Oman) LLC, a subsidiary of the company, has bagged an order valued at OMR 16.03 million from Oman Electricity Transmission Company (OETC) for the construction of new 132kV grid stations on an engineering, construction and procurement basis.

Presently the stock of L&T is trading up by 0.5%.

Indian Markets Trade in the Red
11:30 am

After opening flat, the Indian indices booked some losses and went on to trade in the red. Sectoral indices are trading on a mixed note with stocks from the IT, banking and telecom sector witnessing maximum selling pressure.

The BSE Sensex is trading down 110 points (down 0.4%) and the NSE Nifty is trading down 37 points (down 0.5%). The BSE Mid Cap index is trading down by 0.2% and the BSE Small Cap index is trading up 0.1%. The rupee is trading at 66.88 to the US$.

Stocks in the automobile space are trading mixed with TVS Motors and Force Motors leading the gains. As per a leading financial daily, Tata Motors has reported 7% increase in its global sales during the month of December 2015 on a year on year (YoY) basis. During the month, sales came in at 91,762 units and include sales from Jaguar Land Rover.

In the passenger vehicles category, global sales stood at 59,287 units in December as against 55,145 units in the corresponding period a year ago. Sales of the company's luxury brand Jaguar Land Rover rose 18.6% YoY to 50,972 units during the concerned period. The company's sales of commercial vehicles in December were recorded up by 6% on a YoY basis at 32,475 units.

Tata Motors is India's leading automobile company. The company has operations in the UK, South Korea, Thailand, South Africa and Indonesia. While net sales of the company during the second quarter grew 1% YoY, there was seen a net loss of Rs 4.4 billion. Most of this brunt came in due to a port explosion at Tianjin which destroyed around 5,800 vehicles stored there. However, the future prospects of the company seem bright with new product launches among other things. As Radhika Pandit, Managing Editor, ValuePro states in the result analysis report for the company (subscription required), "Near term pressures persist in the form of pressure on margins on account of launch costs of new products and the mixed economic conditions in China. However, from a longer term perspective, the company intends to pursue its growth strategy and investing more in new products, power trains and technologies." Presently the stock of Tata Motors is trading down by 1.2% on the BSE.

Banking stocks are trading in the red with Axis Bank and Yes Bank bearing most of the brunt. As per an article in Economic Times, IDFC Bank has bought a 10% stake in ASA International (ASAI) India Microfinance for about Rs 85 million. This is recorded as the first investment by a lender in a microfinance institution.

Through this, IDFC Bank will get a board seat in ASAI India and access to unbanked areas through its branches in the east and northeast. Furthermore, ASAI India will also give the bank access to its customers and in turn aid IDFC in expanding its lending operations.

One must note that ASAI India has 104 branches covering 22 districts in West Bengal, Assam, Tripura, Bihar and Uttar Pradesh. It had over 1.3 lakh borrowers at the end of December and a total loan portfolio of over Rs 600 million.

IDFC, the newly launched private sector bank, started its operations on October 1, 2015 with shareholders' funds of Rs 133 billion. Regarding its expansion plans, the management of the company stated that the bank intends to grow inorganically and will continue to look at further investments.

Indian Stock Markets Open Flat
09:30 am

Major Asian stock markets have opened the day on a mixed note with stock markets in Japan trading down by 2.2%. However, stock markets in Indonesia and China are trading higher by 1.3% and 0.4% respectively. Stock indices in Europe and US ended their previous session on a negative note. The rupee is trading at 66.78 per US$.

Indian stock markets have opened the day on flattish note. The BSE Sensex is trading higher by 23 points (up 0.09%) and NSE Nifty is trading higher by 12 points (up 0.1%). Both BSE Mid Cap and BSE Small Cap are trading higher by 0.4% and 0.6% respectively. Barring stocks from information technology and oil & gas space, major sectoral indices have opened the day on a positive note. Stocks from pharmaceutical and capital goods sector are witnessing maximum buying interest.

As per an article in leading financial daily, IDBI Bank has put off its infrastructure bonds sale worth Rs 10 billion after investors demanded higher yields on the bond.

These bonds were green bonds, wherein proceeds were scheduled to be used to fund the existing and new renewable energy projects. Given these bonds were infrastructure bonds, investors expected higher yields on the same.

Majority of the investors had bid at 8.65% or more. However, company stated that they were not comfortable with providing higher yields on the bonds and thus postponed the issue of the same. Recently, company had raised Rs 9 billion by issue of Basel-III compliant Tier-II bonds at a yield of 8.62%.

IDBI Bank is trading up by 0.5%.

As per an article in leading financial daily, government plans to enact a law which allows companies that received mining licenses without having gone through the auction procedure to transfer their mining leases.

This is expected to spurt activities in the mergers & acquisition space in the steel, cement and metal sectors. Reportedly, this law is likely to help companies such as UltraTech Cement to close the acquisition of two Jaypee Group cement units in Madhya Pradesh.

Additionally, acquirers will get raw material security on transferring of the mining lease. This will in turn help in optimal utilization of their plants.

As per Kalpana Jain, Senior Director of Deloitte, this development will help a lot of mines to come into production. Earlier these mines were held up because the original lease holder had difficulties in developing them and could not transfer to others.

Implication of China's Crash on India

The recent slowdown in China created a ripple effect and disturbed many global economies. India was no exception. The news inspired a steep sell-off on Indian bourses.

China has been one of the running candidates for a crash in Indian markets. This is because India is exposed to Chinese economy. Take the case of merchandise trade. As per an article in Business Today, China accounts for approximately one-tenth of India's merchandise trade. Majority of this trade comes from imports of goods to India.

Going by data, Chinese imports accounted for 13.5% of India's total merchandise import bill of US$ 448 billion in 2014-15. In comparison, the value of goods exported from India to China was just 3.9% of India's total merchandise exports earnings that financial year.

The above exposure can weigh on Indian economy. The devaluation of Yuan can affect Indian imports. The lower currency will ultimately lead to cheaper imports. This, in turn, will make the domestic products more expensive.

Furthermore, concerns also remain for Indian exports. Demand in China has been slowing down. That has led to a fall in its raw material requirement. And with low raw material requirement, India's exports to China may decrease.

On the contrarian side, there are many things that can work in favour for India as well. China's slowdown can prove beneficial for infrastructure development in India. With many domestic infrastructure companies laden with debt, investments from China can boost the development in this space.

Moreover, the co-operation from China in development of various sectors such as renewable energy, rail network, manufacturing sector etc. can also work out well in the case of a Chinese slowdown.

Only time will tell how the above things will pan out.

Coming to the investment sphere, many participants are worried that China and its slowing economy will bring more concerns for Indian markets. However, we believe that a crash can be an ideal time for Indian investors to make investments in solid Indian companies that are well-shielded from any adverse developments in China.