Sensex Closes Down 184 Points, Tata Stocks Plunge
Closing

Share markets in India continued to trade weak in the afternoon session owing to heavy selling in realty stocks, automobile stocks and healthcare stocks.

At the closing bell, the BSE Sensex stood lower by 184 points, while the NSE Nifty finished down by 68 points. Meanwhile, the S&P BSE Mid Cap finished & the S&P BSE Small Cap finished down by 1.2% and 1.5% respectively.

Tata Motors share price plummeted 10%, its steepest fall in three months, after the company reported 96% decline in its net profit during the December quarter. Fall in net profit was due to fall in sales at its British luxury car unit Jaguar Land Rover Automotive Plc. and a wider loss in its domestic business. Sentiments remained weak in other Tata stocks as well with Tata Coffee, Tata Elxsi, Tayo Rolls and Titan Company all finishing down by 3%.

Most Asian stock markets rose in today's trade after U.S. markets hit new highs and Federal Reserve chair Janet Yellen said the U.S. central bank could raise interest rates as soon as next month. The Hang Seng gained 1.23% and the Nikkei 225 rose 1.03%. The Shanghai Composite lost 0.15%. European equity markets are higher today with shares in London leading the region. The FTSE 100 is up 0.49% while Germany's DAX is up 0.44% and France's CAC 40 is up 0.35%.

The rupee was trading at Rs 66.92 against the US$ in the afternoon session. Oil prices were trading at US$ 52.89 at the time of writing.

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According to a leading financial daily, the India's gross domestic product (GDP) is likely to grow by 7.4% year-on-year in FY18. This is on the upper end of the 6.75 to 7.5% band estimated in the Economic Survey.

The rating agency India Ratings and Research (Ind-Ra) however revised down GDP growth forecast for FY17 to 6.8% from 7.9% estimated earlier. This downgrade is even lower than Central Statistical Organisation's advanced estimate of 7.1%.

Ind-Ra has said that the gross value added (GVA) of the three production sectors including agriculture, industry and services would grow at 3%, 6.1% and 9.1% year-on-year respectively in 2017-18, backed by consumption demand and government spending.

However, private final consumption expenditure is expected to grow at 8.9%, the government final consumption expenditure is expected to clock 9% growth in the next financial year. For current account deficit it said that it is likely to come at 1% of GDP in FY18 as against 0.9%

Talking about the global scenario, the report said that imports will get hit because of rising protectionism, adding that US President Donald Trump's trade agenda and the current direction of European politics, both have the potential to 'create a global economic and market turmoil' in 2017.

Moving on to news from stocks in banking sector. According to an article in The Economic Times, Bank of Baroda (BoB) expects the rate of growth in bad loans to slow in the coming financial year. The Bank expects gross non-performing loans to total about Rs 450 billion ($6.7 billion) in the current year ending in March.

Reportedly, that would put the bank within the Rs 50 billion rise in bad loans that it had forecast for the current year and incremental bad loans in the next fiscal year are expected to fall further below these levels.

Altogether, Indian banks had a record US$133 billion of restructured debt and bad loans as of last September, according to Indian central bank data. The amount of soured loans surged last year after a clean-up order by the regulator brought more bad debt to light.

BoB also expects lending growth to gather pace going forward. BoB's investments include a stake in UTI Asset Management, which is preparing for an initial public offering. The bank is also selling a stake in India's National Stock Exchange, which is expected to list later this year.

Meanwhile, Bank of Baroda's share price has plunged 15% after most of the brokerages downgraded the stock as non-performing assets (NPAs) continued to mount amid fall in loan growth.

Slippages for the quarter stood at Rs 41.4 billion against Rs 26.9 billion a year ago. Loan growth continued to remain under pressure which fell 9% from a year ago. Due to the demonetisation drive, retail and small and medium enterprises loans fell 1% and 8%, respectively, year on year.

The Reserve Bank of India recently released its Financial Stability Report for 2016. The central bank has, as usual, raised the red flag on quality of loans in public sector banks. The latest NPA numbers show significant levels of stress.

Continuous Deterioration in Banks' Return on Equity

Bank of Baroda share price continued its downward momentum and finished the day down by 3.4% on the BSE.

And here's a note from Profit Hunter:

Tata Motors Ltd. is the most buzzing stock in the market today. It is the top loser in the Nifty-50 Index, down by 10%. Yesterday, it closed with a loss of 5% after it announced its quarterly results.

Let us have a look what the charts have to say.

The stock is approaching towards its strong support zone of Rs 423 to 431. This has proved to be an important zone for the stock in the past. It acted as a support in June 2014, August 2014, June 2016 and December 2016. It also acted as a resistance in November 2015 and April 2016.

As Tata motors is coming close to this important zone one can expect some volatility in coming sessions. If the stock decides to find support from this zone yet again it will be a big relief for the bulls. But if it falls below this zone then, one can expect some more pain in the near future.

Tata Motors Some More Pain Left?
 Cutting Losses Short in Bosch 


Sensex Trades on a Negative Note; Auto Stocks Drag
01:30 pm

After opening the day on a flat note, share markets in India witnessed selling and are currently trading below the dotted line. Sectoral indices are trading on a negative note. with stocks in the realty sector and the auto sector witnessing maximum selling pressure.

The BSE Sensex is trading down by 188 points (down 0.7%) and the NSE Nifty is trading down by 66 points (down 0.8%). Meanwhile, the BSE Mid Cap index is trading down by 1.2%, while the BSE Small Cap index is trading down by 1.5%. The rupee is trading at 66.93 to the US$.

Sun Pharmaceutical Industries Ltd's shares were in focus today, as the company announced its December quarter results. Sun Pharma share price fell by as much as 3.5% in intra-day trade today as the company reported 4.7% fall in its consolidated net profit in Q3 FY 2017 on a year on year (YoY) basis owing to muted revenue growth in the US and higher tax outgo.

Sun Pharma is the country's largest drug maker and earns about 45% of its revenues from the US drug market. The company's total revenue rose 8% to Rs 76.8 billion in the quarter under review but its US business grew a modest 4% largely due to weak performance by its US subsidiary Taro.

Sales for the quarter included the benefit of authorised generic sales of blood pressure tablets Olmesartan. In the third quarter the company earned $507 million from its US business.

The India business growth at 5% YoY, too was lower than expected. While demonetization was expected to hit sales growth, its portfolio tilt towards chronic categories (ones requiring long-term medication such as cardiology or neurology) would have protected it to an extent. Normalcy has still not returned and the trade's inability to hold inventory (due to the cash shortage) appears to have affected sales growth.

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Net profit for the period was Rs 14.7 billion as against Rs 15.4 billion in same quarter last year. The fall in profit was largely due to tax expense which quadrupled to Rs 3.72 billion on a YoY basis.

Sun Pharma share price seems to be hit by a multitude of factors currently plaguing the Indian pharma sector. The pharma sector has faced high amounts of volatility over the years.

Volatility in The Pharma Sector

Bhavita Nagrani, our pharma sector analyst has explained the current predicament of Indian pharma companies in one of the premium editions of the 5 Minute WrapUp:

  • Over the past few years, risk in the US markets has increased. The US Food and Drug Administration (FDA) has become stricter on products entering US borders. Surprise inspections have increased and companies are being issued warning letters. This has impacted the business and earnings of Indian pharma players, causing major volatility for the sector.

Give it a read to form a better understanding of the current scenario in the Indian pharma sector.

Moving on to news from the banking sector. With a view of financial inclusion, the government has allocated Rs 5 billion to India Post Payments Bank (IPPB) for financial year 2017-18.

The government has allocated Rs 1.25 billion as "capital infusion into corporate entity for India Post Payments Bank" and Rs 3.75 billion as "grant in aid to India Post Payments Bank (IPPB)", as per Output-Outcome Framework for Schemes 2017-18 for the Department of Posts released today.

The IPPB, which began operations on a pilot basis in late January this year is currently gearing up to set up 650 branches across country by September 2017. It had kicked off its operations by rolling out pilot services in Raipur and Ranchi.

The IPPB is the second entity to roll out payments bank - though on a pilot basis - after Bharti Airtel that has earmarked Rs 30 billion as initial investment for pan-India operations with an interest rate of 7.25% on deposits.

The IPPB will offer an interest rate of 4.5% on deposits up to Rs 25,000; 5% on deposits of Rs 25,000-50,000 and 5.5% on deposits of Rs 50,000-1,00,000.

The total paid up equity of the new bank IPPB is Rs 8 billion, of which the government has already infused Rs 2.75 billion.

With the objective of deepening financial inclusion, RBI, in 2015 kicked off an era of differentiated banking by allowing SFBs (small finance banks) and PBs (payments banks) to start services. A total of 21 entities were given in-principle nod last year, including 11 for payments banks. Payments banks can accept deposits from individuals and small businesses up to a maximum of Rs 1 lakh per account.

The new model of banking allows mobile firms, super market chains and others to cater to banking requirements of individuals and small businesses.


Sensex Trades Marginally Lower; Realty Stocks Witness Selling
11:30 am

After opening the day on a flat note, the Indian share markets witnessed choppy trades and are presently trading marginally lower. Sectoral indices are trading on a negative note with stocks in the realty sector, auto sector, and healthcare sector witnessing maximum selling pressure.

The BSE Sensex is trading down 90 points (down 0.3%) and the NSE Nifty is trading down 24 points (down 0.3%). The BSE Mid Cap index is trading down by 0.6%, while the BSE Small Cap index is trading down by 0.8%. The rupee is trading at 66.91 to the US$.

After the outcome of retail inflation data, it's wholesale price index (WPI)-based inflation now. However, unlike retail inflation data, it is not comforting.

Data released yesterday showed the WPI rose to a two-and-a-half-year high of 5.2% in January. This compared with 3.39% in December. The rise was seen on the back of costlier fuel and adverse base effect.

Furthermore, core wholesale inflation (which excludes food and fuel items) firmed up to a 28-month high of 2.67%.

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The above WPI inflation data depicts the widening divergence with the consumer price index (CPI) inflation. CPI inflation (retail inflation) fell to a five-year low at 3.17% in January. The decline was led by a marked fall in food inflation.

CPI Inflation at Five Year Low

CPI Inflation at Five Year Low

While this came as a welcome breather, the same is expected to rise as the cash crunch led by demonetisation turns normal. So when consumer spending normalizes, we should all be on our guard for rising inflation.

In the news from global financial markets, US Fed Chair Janet Yellen yesterday said the US central bank may need to hike interest rates at the next meeting. This, she said, will be the case even as there is considerable uncertainty over economic policy under the Trump administration.

The next Federal Open Market Committee (FOMC) meet is scheduled on March 14-15, where the Fed will decide its stance on interest rates.

The Fed last hiked interest rates in December by 25 basis points, just the second hike in more than ten years.

We believe that a quick succession of rate hikes would create a massive storm in the global financial markets. However, any pause to the rate hikes 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 in global financial markets.

But as usual, we recommend that you, the intelligent investor, avert your eyes from this drama and keep them focused on the value and comfort of the safest stocks.


Sensex Opens Flat; Tata Motors Skids 8.8% on Poor Q3 Results
09:30 am

Asian equity markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 1.22% while the Hang Seng is up 1.27%. The Shanghai Composite is trading up by 0.29%. Stock markets in the US ended their previous session on a positive note.

Meanwhile, share markets in India have opened the trading day on a flattish note. The BSE Sensex is trading higher by 36 points while the NSE Nifty is trading lower by 2 points. The BSE Mid Cap index and BSE Small Cap index both have opened the day flat.

Sectoral indices have opened the day on a mixed note with automobile stocks and realty stocks trading in red. While, information technology and FMCG stocks are among the top gainers on the BSE. The rupee is trading at 66.94 to the US$.

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Automobile stocks have opened the day on a mixed note with Ashok Leyland and Escorts being the leading gainers in this space. According to an article in a leading financial daily, Tata Motors share price plunged by 7% as the company announced its financial results for the quarter ended 31 December 2016 yesterday.

Tata Motors Stock Performance

Tata Motors reported a 96.2% decline in consolidated net profit to Rs 1.1 billion for the December quarter, dragged down by losses in domestic operations and lower profit of its British arm Jauguar Land Rover (JLR). It had posted net profit of Rs 29.5 billion in the same quarter of last fiscal.

The company's consolidated sales during the October-December quarter were down 2.2% at Rs 678.6 billion against Rs. 694 billion in the year-ago period.

On a standalone basis, Tata Motors' losses after tax widened to Rs. 10.5 billion in the third quarter of 2016-17 from Rs 1.4 billiona year ago.

Domestic performance remained muted as commercial volumes hit by demonetisation. Domestic total volume growth slowed down to 5.3% YoY at 1.15 lakh units, commercial vehicle volumes down 3.3% at 75,705 units and passenger vehicle volumes up 27.2% at 39,874 units.

To know more about the company's financial performance, subscribers can access to Tata Motor's latest result analysis (subscription required) and Tata Motors stock analysis on our website.

Moving on to the news from stocks in oil & gas sector. As per an article in a leading financial daily, Gas Authority of India Ltd. (GAIL) has awarded contract for pipeline-laying work for the 105-km Perole-Kodalamuguru-Mangaluru section to transport natural gas from Kochi in Kerala.

With this, the project will progress simultaneously from both ends, Kochi and Mangaluru. GAIL is targeting to complete the 440-km pipeline by December 2018 thereby bringing succour to industries and other users of natural gas in the region.

One must note that, the work on the 91-km Kochi-Koottanad section, which was awarded in September 2016, would serve as a green energy corridor and enable city gas distribution companies and gas-based industries to come up in the state. As a result, environment-friendly piped natural gas and compressed natural gas (CNG) would be supplied to households and vehicles.

Further, the primary objective of the project is to supply LNG from Petronet LNG's plant at Puthuvype near Kochi to industries in south India.

In the meanwhile, it was reported that, Petronet LNG Ltd has bought a 26% stake in the shipping consortium that built its biggest LNG ship to transport gas form from Australia.

Notably, Petronet had in 2013 contracted Shipping Corp of India (SCI) and its Japanese partners to build and operate a 173,000 cubic meters' capacity LNG ship. Total consideration of the deal is about US$ 15 million.

In December, the vessel was fixed on a 19-year charter contract to Petronet. It is the fourth LNG vessel Petronet has chartered from the consortium. The previous three have all been deployed for carrying LNG from Qatar.

GAIL share price opened the day up by 0.1% while Petronet LNG share price opened down by 0.6%.


Are We Done with the Demonetisation Blues?
Pre-Open

It has been four months since demonetisation was announced. The government has not offered any mathematics or hard proof to show how and why it was good for the economy. One still wonders if it was ever a move against black money or a political ploy before some crucial state assembly elections. But there's enough data reflecting the damage done by the move.

The index of industrial production (IIP) for December 2016 contracted to a four-month low. Most of the brunt came as consumer durables output fell by over 10% YoY. The main reason for this fall was cash crunch led by demonetisation.

Also, the manufacturing sector witnessed a contraction of 2% YoY. As per an article in the Economic Times, as many as 17 out of 22 manufacturing sub-sectors reported contraction in December 2016. The slowdown here was also seen on the back subdued demand led by demonetisation.

Moving on to inflation...

The recent data retail inflation moderated to 3.17% in January. The decline was led by a marked fall in food inflation. While this came as a welcome breather, the same can be expected to rise as the cash situation turn normal. So when consumer spending normalises post demonetisation, we should all be on our guard for rising inflation.

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Furthermore, as per the Assocham's Bizcon Survey, demonetisation is said to leave quite a negative impact on SMEs, rural consumption, and job creation in the short-term.

So the above data points suggest that demonetisation shocks are playing out. As things stand at present, there aren't many signs of growth recovery happening. We may have to wait for more clues in the approaching months to assess the full effect of demonetisation.

Nevertheless, it's evident that the government has messed up big time in this endeavor. Demonetisation was a poorly executed policy.

But this is only part of the story.

In his latest book, India's Big Government-The Intrusive State and How It is Hurting Us, Vivek Kaul has exposed the big government's lies. And I'm sure you would want to know the full story as this affects your money and wealth.

Equitymaster readers can get an autographed hardback copy of the book. This will not be available anywhere else. We will post the details of this offer and how you can go about getting an exclusive hardback copy of India's Big Government, in the days to come.

Watch this space!