Indian Markets Finish Strong

Indian equity markets snapped three-day losing streak as the indices gained further ground in the afternoon session and closed the day in the green. The BSE Sensex today closed higher by 291 points, while the NSE Nifty closed higher by 84 points. Midcaps and small caps too finished in positive as both the S&P BSE Mid Cap and S&P BSE Small Cap index closed the day higher by 1.75%. Gains were largely seen in capital goods and banking stocks.

Asian markets finished broadly higher today with shares in China leading the region. The Shanghai Composite is up 3.22%, while Hong Kong's Hang Seng is up 2.07%. Japanese stocks also rose for the first time in four days as Nikkei 225 was up by 0.55%. Meanwhile, European markets bounced back from 13-month lows, with mining and energy stocks leading the market higher after prices of major industrial metals and crude oil surged following the release of Chinese growth data. The CAC 40 is up 1.79%, while Germany's DAX is up 1.74% and London's FTSE 100 is up 1.54%. The rupee was trading at 67.56 against the US$ at the time of writing.

According to a leading financial daily, Larsen & Toubro's (L&T) construction arm L&T Constructions has won orders worth Rs 12.47 billion across various businesses. Under Buildings & Factories Business, the company has secured a prestigious turnkey order worth Rs 9.89 billion from a global major for the construction of its world class IT Park in Bengaluru. The scope of work 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.

Under Power Transmission & Distribution Business, it has bagged an international order worth Rs 2.58 billion. Larsen & Toubro (Oman) LLC, a subsidiary of the company, has bagged an order valued OMR 16.026 million from Oman Electricity Transmission Company (OETC) for the construction of new 132kV Grid Stations at Dil Abdusalam (DAS) and Suwaiq on an engineering, construction and procurement basis.

As of the September 2015 quarter, L&T had a total of Rs 983 billion of debt. Meanwhile, it had only about Rs 482 billion of equity financing. In our recent edition of The 5 Minute WrapUp Premium, we have talked about the equity and debt numbers of L&T's various business lines (Subscription Required) and whether the company is being too aggressive with leverage (Subscription Required).

Oil and Gas stocks were in demand today as the sector finished up by 1% at the closing bell. Reliance Industries and Cairn India were the top gainers. Oil and Natural Gas Corporation Limited (ONGC) has reportedly decided to put all its fresh capital expansion plans at the Krishna Godavari basin (KG D2 Block) on hold. This is likely to hit the company's 2018 production deadline.

Reportedly, the company will invest in new projects and the current investments are likely to go on. The development of holding back on investments is credited to low crude prices and lack of clarity on premium gas pricing. Earlier, ONGC's plan was to invest Rs 530 billion and start production by 2018. The company was to peak output of 77 barrels per day along with 16-17 mmsmcd of gas.

Meanwhile, ONGC Videsh Ltd has refinanced a US$1.775 billion loan at lower rates to save nearly US$37 million in interest payout, besides extending the repayment tenure. The company had raised Euro 525 million through a 7-year bond issue in July 2014. Alongside, it also raised US$750 million by selling dollar denominated bonds of 5-year tenure and another US$750 million selling 10-year bonds.

The oil price has been falling and is now below US$30 per barrel. Data from the Petroleum Planning and Analysis Cell (PPAC) shows that the price of the Indian basket of crude oil as on December 11, 2015, was at US$ 35.72 per barrel. In the last one month, the price of oil has fallen by around 16%. This has affected the merchandise exports in the country . During the first six months of the year, the total exports fell by 16.4% as compared to the same period in 2014. Between July and November 2015, exports have fallen by 19.7%, compared to July and November 2014.

Indian Markets Surge
01:30 pm

After opening the day in the green, the Indian indices continued to trade higher in the post noon session. Sectoral indices are trading on a positive note with stocks from the telecom, banking and capital goods sectors leading the gains.

The BSE Sensex is trading up 320 points (up 1.3%) and the NSE Nifty is trading up 99 points (up 1.3%). The BSE Mid Cap index and the BSE Small Cap index are also trading in the green, both up by 1.7%. Gold prices, per 10 grams, are trading at Rs 25,962 levels. Silver price, per kilogram is trading at Rs 34,138 levels. Crude oil, per barrel, is trading at Rs 2,103 levels. The rupee is trading at 67.58 to the US$.

Stocks in the paints sector are trading on a mixed note with Kansai Nerolac and Berger Paints leading the gains. As per a leading financial daily, Asian Paints has reported its results for the third quarter ending December, 2015 (Q3FY16). The company has posted 25.8% YoY increase in its net profit at Rs 4,630 million. However, exceptional expenses mitigated the profit growth during the period. The company bore an impairment loss of Rs 520 million taken on goodwill consolidation. Revenues during the period grew 13.9% YoY to Rs 41.6 billion. This was aided by the delay in festive season and pickup in the premium segment. Gross margins expanded 330 basis points (bps) to 47.1% YoY on back of better business-mix and benign input costs. Lastly, the company continued to gain market share against its peers during the period.

While most of the earnings growth came through the fall in crude oil prices, consumer demand and depreciation of rupee (subscription required) are the key factors to watch out for in the coming quarters.

As for its business plans, Asian Paints shall be launching a comprehensive sanitary ware range by end of January, 2016 under the brand name 'Ess Ess by Asian Paints'. The launch is planned with a view to create complete bathroom solutions over time. This also marks a step further towards the company's vision to shift from a paints company to a provider of complete decor solutions.

Asian Paints is India's largest paint company and Asia's third largest paint company. The company along with its subsidiaries has operations in 20 countries across the world. It is servicing consumers in 65 countries through Berger International, SCIB Paints-Egypt, Asian Paints, Apco Coatings and Taubmans. Presently its stock is trading down by 0.4%.

Media stocks are also trading mixed with Balaji Telefilms and Dish TV witnessing maximum buying interest. As per an economic daily, Zee Entertainment Enterprises will expand operations to Germany to launch a free-to-air TV channel by mid - 2016. This new channel will be showing Bollywood movies, Indian series, entertainment and general interest programmes. The core target groups are women between 19 and 59 years of age. The 24-hour service aims for distribution on all major cable and satellite platforms.

Meanwhile, in its results for the quarter ended December, the company posted 17% YoY increase in income to Rs 15.9 billion. This rise was mainly driven by higher advertisement revenue, which grew 27% on a YoY basis. However, a sharp increase in tax expenses, which were up by 51% YoY, and a fall in other income weighed on profits. After four consecutive quarters of growth, the company's net profit fell 11% YoY to Rs 2,750 million in the December quarter.

Zee Entertainment Enterprises is one of India's leading television media and entertainment companies. It is amongst the largest producers and aggregators of Hindi programming in the world, with an extensive library housing over 120,000 hours of television content. Presently the company scrip is trading up by 1.1%.

Indian Markets Continue Their Rally
11:30 am

After opening the day on a positive note, the Indian Markets have added to their early gains. Sectoral indices are trading on a positive note with stocks from the banking, financial and industrial sectors leading the gains.

The BSE Sensex is trading up 176 points (up 0.7%) and the NSE Nifty is trading up 52 points (up 0.7%). The BSE Mid Cap index is trading up by 0.5% while the BSE Small Cap index is trading up 0.7%. The rupee is trading at 67.56 to the US$.

Telecom stocks are trading on a positive note with Himachal Futuristic and Tata Teleservices witnessing maximum buying interest. Cellular Operators Association of India (COAI), the GSM industry body, has asked the government not to levy Swachh Bharat Cess (SBC) on telecommunication services. The body has mentioned that there are multiple other levies applicable on the industry and the levy of SBC will further burden the telecom operators.

In its budget recommendations, COAI said with the levy of SBC, the effective rate of service tax has further increased to 14.5% and this would increase the overall cost of telecommunications services for customers. One shall remember the government had imposed SBC at a rate of 0.5% on provision of all taxable services w.e.f. November 15. Along with this, it was also clarified that the credit of SBC cannot be availed and the cess cannot be paid by utilising credit of any other duty or tax.

Further, regarding direct taxes, COAI said there is some uncertainty on the withholding tax obligation, if any, under section 194J of the Income Tax Act, 1961 on payments made in consideration for spectrum acquired through trading. The body for this has asked to clarify that that payments made in connection with the trading/sharing of spectrum are not in the nature of royalty and hence do not attract withholding tax obligations. Lastly, it also asked the government to issue a clarification that spectrum fees is an intangible asset eligible for depreciation under section 32 of the Act (subscription required).

Stocks in the software space are trading mixed with Zylog Systems and Megasoft leading the losses. As per an economic daily, IT firm Mindtree has said that it will acquire Salesforce consulting partner Magnet 360 in an all cash deal of US$ 50 million. The deal is expected to close in the next two months and will see about 150 people joining Mindtree. The consideration includes an upfront payment of US$ 37 million and earn out and additional payout of up to US$ 13 million over the next two years.

With this acquisition, the company is looking to up its play in the fast growing cloud computing services area. The company has Honeywell, Nike, Cargill among its clients. The management of Mindtree said that this acquisition positions us for leadership in the fast-growing cloud-based services markets.

One shall note that, Mindtree has been aggressively acquiring companies to expand its services. Last year, the company has made three purchases namely Discoverture Solutions for over Rs 920 million, UK-based Bluefin Solutions for about Rs 4,196 million and Relational Solutions for about Rs 635 million. Previously, it has acquired firms like 7Strata, Kyocera Wireless and Aztecsoft.

Mindtree is a global information technology consulting firm specializing in corporate IT services and solutions. The company delivered a superb performance in 2QFY16. Total sales came in at US$ 180.3 million. This was largely driven by digital services, which grew 23% QoQ and 35.4% YoY (9.6% QoQ & 20.6% YoY excluding the recent acquisitions). Digital contributed to 35% of 2QFY16 sales and currently stands at 36.6% of the total consolidated sales of the company. If you are interested in the stock, here is our detailed result analysis report of the company (subscription required).

Presently the stock of Mindtree is trading down by nearly 1.8%.

Positive Start to the Day
09:30 am

Major Asian stock markets have opened the day on a positive note with stock markets in China and Hong Kong trading up by 1.6% and 0.7% respectively. Major indices in Europe ended their previous session in red. The rupee is trading at 67.67 per US$.

Indian stock markets have opened the day on a strong note. The BSE Sensex is trading higher by 105 points (up 0.4%) and NSE Nifty is trading higher by 19 points (up 0.3%). Both BSE Mid Cap and BSE Small Cap are trading higher by 0.2% and 0.4% respectively. Major sectoral indices have opened the day on a mixed note with stocks from telecommunication and consumer non-durables sectors witnessing buying interest. However, stocks in metal space are witnessing selling pressure.

As per an article in leading financial daily, exports contracted for the 13th month in a row during the month of December. Tepid global demand coupled with volatile global currency dragged the exports down. However, exports from China contracted just by 1.4% in the same month. Depreciating yuan have partially supported the exports in China.

Further, exports of drugs & pharmaceutical, chemicals and readymade garments reported a growth of 8.2%, 1.1% and 5% respectively for the month of December. However, petroleum products and engineering goods witnessed a contraction of 47.7% and 15.7% respectively.

Non-Oil imports picked up 7.6% in December. On the other hand, machinery equipment, transport equipment and project goods witnessed a contraction of 1.1%, 38.8%, 29.1% respectively indicating poor signs of pick up in the investment demand.

Kotak Mahindra Bank Ltd declared its results for the quarter ended December 2015. The company's net profit grew by 36.5% YoY on account of higher interest income and increased commissions and fees. However, figures are not comparable on a YoY basis as the December quarter figures also represent the financials of the acquired ING Vyasya Bank Ltd.

Net Interest Income increased by two-third led by growth in advances and deposits boosted from the acquisition of ING Vyasya Bank Ltd. Reportedly, banks's corporate loan and retail loans witnessed a jump of 84% each, largely helped by the merger. Further, loan portfolio was dominated by disbursements to small and medium enterprise.

Gross Non-Performing Assets for the quarter stood at 2.3% as compared to 1.87% in the year ago period. Asset quality came under pressure after merger with ING Vysasya Bank. Provisions for the quarter stood at Rs 2.35 billion as compared to 0.30 billion in the year ago period. Provisioning too witnessed a sharp surge, owing to the merger.

Kotak Mahindra is trading up by 0.4%.

Will Rupee Touch Its All-Time Low?

The last few days have seen the rupee sliding considerably against the US dollar. And the way it is heading can perhaps be the focal talking point in the coming days. It now takes more than 67.50 rupees to buy one dollar. At the time of writing, the rupee stood at 67.70 to the US dollar. This level isn't that far from the all-time lows witnessed in August 2013, when it stood at 68.80.

Will the rupee depreciate further? What will be the repercussions of the same? Let's answer this by jotting a few points that are closely related to the rise and fall of the rupee.

Indian Exports

Indian exports have fallen dramatically. One can note that the performance on the export front has been much worse during the second half of 2015.

A stagnant rupee is making Indian goods less competitive. In order to boost Indian exports, the rupee needs to be further depreciated. And this can mean the rupee sliding further to touch its lowest levels.

Foreign Investments

Trade flows can safely be called as the fundamentals on which exchange rates rest over the long-term. Unfortunately, India does not have a good track record of foreign investments flows. The reasons can be slow pace of economic reforms and political logjam. Owing to this sluggish environment, foreign institutional investors (FIIs) have continued to be net sellers this year. They have sold equity shares exceeding US$ 797 million. These low levels of foreign investments are likely to weigh on India's foreign exchange reserves.

US Rate Hike

With the US Fed raising interest rates, funds are seen fleeing from emerging markets to the US. India has also witnessed capital outflows post this development. This has led to an appreciation in the US dollar and in turn depreciated the other currencies, including the rupee.

External Debt

India's external debt in September 2015 stood at US$ 483.2 billion. This was on the back of increase in long term liabilities and commercial borrowings. The recent decline in rupee has made the situation even worse. This is because the amount of rupees required to pay back the debt goes up due to the currency depreciation. This debt burden makes India exceedingly vulnerable to any external sector shocks.

So, a fall in the rupee can be tumultuous for the economy. While the Reserve Bank of India and the government may take immediate steps to curb sharp drops in the currency. However, India needs to improve its global competitiveness, clear political logjams, ease the business scenario to attract investments and rein over the deficit problems to strengthen the Indian currency's long-term fundamentals.

However, as things stand today, the rupee may continue to be volatility in the near term.