Sensex & Nifty Finish Firm Led by Realty & Pharma Stocks
Closing

Stock markets in India continued to trade on a firm note in the afternoon session. At the closing bell, the BSE Sensex stood higher by 146 points, while the NSE Nifty finished up by 53 points. Meanwhile, the S&P BSE Mid Cap finished & the S&P BSE Small Cap finished up by 1.3% and 1.4% respectively. Gains were largely seen in pharma stocks and realty stocks.

Asian stock markets finished mixed and showed caution on account of weaker US$ despite a strong overnight lead from Wall Street. The Shanghai Composite gained 0.52% and the Hang Seng rose 0.47%. The Nikkei 225 lost 0.47%. European markets are lower today with shares in London off the most. The FTSE 100 is down 0.41% while France's CAC 40 is off 0.37% and Germany's DAX is lower by 0.21%.

The rupee was trading at Rs 67.05 against the US$ in the afternoon session. Oil prices were trading at US$ 52.89 at the time of writing.

Bharat Forge share price surged 6.2% in today's trade after it was reported that the company's subsidiary - Kalyani Strategic Systems (KSSL), the defense arm of Kalyani Group and Israel Aerospace Industries (IAI) have signed a Memorandum of Understanding (MoU) to incorporate a Joint Venture Company (JVC) in India.

As part of the MoU, IAI and KSSL are aiming to expand their presence in the Indian defense market and to Build, Market and Manufacture specific Air Defense Systems and Ground to Ground & Ground to Sea Munitions.

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The MoU is the first step of a process to establish a JVC between the two companies. The JVC will integrate strategic state-of-the-art defense systems for the Indian ministry of defense in accordance with the Indian Government's 'Make in India' policy.

India Among Top Defence Spenders in the World in 2015
India Among Top Defence Spenders in the World in 2015

Meanwhile, Bharat Forge is expecting accelerated revenue from non-auto segments like defense, railways, aerospace in the coming quarters aimed at becoming net debt free next year.

The company will set aside a sum of Rs 3 billion towards capital expenditure for FY18. The capital allocation will be used for setting up machining facility for aerospace and for passenger vehicle segment where the company is moving to machined products from forged products.

The company also announced its financial results for the quarter ended December 31, 2016, reporting a drop of 21.5% in net profit at Rs 1.28 billion compared to Rs 1.63 billion reported in the same quarter last year.

The company expects a strong pick-up in business in the current quarter, especially in the automotive space as there will expectedly be pre-buying of commercial vehicles due to the onset of Bharat Stage IV emission norms from 01 April 2017.

In other news, credit rating agency, India Ratings and Research (Ind-Ra) in its latest report has maintained stable outlook on large public sector banks and private sector banks supported by high levels of capital. At the same time, it retained its negative outlook on mid-sized and smaller state-run banks due to limited access to capital and large non-performing assets.

According to a leading financial daily, Ind-Ra in its report 'Indian Banks Outlook for FY18' said that there is an increasing divide between the large and smaller PSBs, with the former having some access to growth capital, better market valuation, and also some non-core assets to divest while the latter would only receive bailout capital if required and would need to ration their capital consumption over next two years.

It said that while the large public sector banks with better access to capital and private sector banks with their robust capitalization will navigate another year of low growth and high credit costs with a stable outlook, mid-sized and smaller state-run banks will find it increasingly difficult to grow given increasing capital requirements and large funding gaps impeding their ability to compete on spreads.

The rating agency however said that long term ratings of all public sector banks remain resilient on expectations of continued government support. The report also said that Indian banks will need Rs 910 billion in Tier-I capital until March 2019 to grow at a bare minimum pace of 8 to 9% compound annual growth rate including a residual Rs 200 billion from the government's bank recapitalization program 'Indradhanush'.

And here's a note from Profit Hunter...

The Nifty 50 Index rebounded strongly after yesterday's losses. The index is up 50 points today with a number of finance stocks seeing strong buying interest. One that caught our eye was India Infoline Holdings Ltd (IIFL).

It's is up 7.5% today and is trading at a lifetime high. Let's take a deeper look at the chart.

The stock has gone up almost vertically from Rs 253 after finding support from its 200-day exponential moving average (EMA).

Today, the stock developed a strong bullish candle on the daily chart, but we view this candle with caution. It has a long upper shadow, meaning the bulls couldn't hold the prices up. The RSI indicator is also trading at an extremely overbought level.

But on the flip side, we see heavy volumes and the stock at its life high, indicating strong buying interest.

Whether the bulls will be able to maintain the buying interest or we we'll see selling based on the indicators above remains to be seen in coming sessions.

India Infoline at its Lifetime High
IIFL at its Lifetime High 


Sensex Trades Positively; IT Stocks Outperform
01:30 pm

After opening the day on a flat note, share markets in India witnessed buying activity and are currently trading marginally higher. Sectoral indices are trading positive note. With the exception of stocks in the FMCG sector all sectoral indices are trading in the green. Stocks in the IT sector and the realty sector are leading the gains.

The BSE Sensex is trading up by 108 points (up 0.4%) and the NSE Nifty is trading up by 38 points (up 0.4%). Meanwhile, the BSE Mid Cap index is trading up by 0.6%, while the BSE Small Cap index is trading down by 0.9%. The rupee is trading at 66.93 to the US$.

Tata Consultancy Services (TCS) share price surged by 2.8% in intraday trade today as the company informed exchanges that its board would consider a proposal for buyback of equity shares of the company at its meeting to be held on February 20, 2017.

The buyback, if approved in the board meeting, would be the company's first since its listing in 2004. In past one year, the stock of the country's largest software company has underperformed the market by gaining 6% as compared to 19.5% surge in the S&P BSE Sensex.

The news comes at a time when Indian IT companies are under pressure to address shareholders' concerns. Investors have been expecting Indian IT firms to offer buybacks or dividends for a long time as the companies sit over billions in cash.

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TCS has Rs 431 billion cash on its books at the end of the December quarter, which is nearly 9% of its market capitalisation. TCS can do buyback of maximum of Rs 209 billion or 25% of its net worth.

Indian IT companies are facing multiple headwinds in recent times, including concerns over corporate governance issues in Infosys. Regulatory changes over visa processes in USA - which remains a major market for IT firms - have added to the woes.

Along with the above, the IT sector is changing significantly with the arrival of automation. The number of jobs available in the IT sector are likely to shrink by as much as 14% by 2021.

Shrinking Jobs in the IT Services Sector

Shrinking Jobs in the IT Services Sector

As it stands, the current scenario poses a challenging environment for Indian IT companies. However, with strong fundamentals and a proactive management, most if not all of Indian IT majors should be able to see the current crisis through.

Moving on to news from stocks in the paints sector. One of India's largest paint companies, Asian Paints announced its subsidiary Berger International will fully acquire Sri Lanka's Causeway Paints.

Berger International Pvt Ltd, which is based in Singapore is an indirect subsidiary of Asian Paints. It reached an agreement with Causeway Paints Lanka Pvt Ltd (CPLPL) based in Sri Lanka, for acquisition of 100% stake in CPLPL in an all cash deal.

The transaction is aimed at enhancing the group's presence in the Sri Lankan market, where Asian Paints through its subsidiary, Asian Paints (Lanka) Limited, already has operations.

Asian Paints did not disclose the deal size. However, it said, CPLPL reported revenue of Sri Lankan rupee 5,630 million (approx. Rs. 2.53 billion) in the previous fiscal.

Asian Paints had reported a 1.5% increase in consolidated net profit at Rs 4983 million for the December quarter results of the current fiscal. It had posted net profit of Rs 4820 million in the same period last year.

At the time of writing, Asian Paints share price was trading down by 0.8%.


Sensex Trades Marginally Higher; Realty Stocks Witness Buying
11:30 am

After opening the day on a flat note, the Indian share markets witnessed choppy trades and have continued to trade near the dotted line. Sectoral indices are trading on a positive note with stocks in the realty sector and IT sector witnessing maximum buying interest.

The BSE Sensex is trading up 121 points (up 0.4%) and the NSE Nifty is trading up 51 points (up 0.5%). The BSE Mid Cap index is trading up by 0.8%, while the BSE Small Cap index is trading up by 0.9%. The rupee is trading at 66.93 to the US$.

In the news from global financial markets, US retail sales rose more than expected in January and consumer prices recorded their biggest gain in nearly four years.

Data released by the Commerce Department said retail sales increased 0.4% in January. On a year-on-year basis, retail sales were up 5.6%.

On the inflation front, the US Consumer Price Index (CPI) jumped 0.6% in January. This was recorded as the largest increase since February 2013 and followed a 0.3% gain in December.

In the 12 months through January, the CPI increased 2.5%. This too was the biggest year-on-year gain since March 2012. The so-called core CPI, which excludes food and energy costs, rose 0.3% in January after increasing 0.2% in December. That lifted the YoY core CPI increase to 2.3% in January from December's 2.2% rise.

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The above data has boosted prospects of an interest rate hike from the Federal Reserve next month.

The Fed has a 2% inflation target and tracks an inflation measure which is currently at 1.7%. Strengthening domestic demand coupled with firming inflation and a favorable labor market could allow the Fed to raise interest rates at least twice this year.

All eyes are now set on the upcoming Federal Open Market Committee (FOMC) meet which is scheduled on March 14-15. The meeting will decide Fed's 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 doubt the strength and durability of the US economic recovery since it has been driven mainly by massive doses of money printing and artificial suppression of interest rates. Hence, we also doubt the Fed's capability to further raise interest rates.

Either way, there is going to be trouble. 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 that traders can profit from.

Speaking of trading, our colleague Apurva Sheth of the Profit Hunter team released a detailed report on trading stocks. The special report talks about what he believes could be extremely effective stock trading strategy. Importantly, the strategy could be implemented in four easy steps. Get your hands on this report right now.

In other news, exports from India rose for the fifth month in a row in January. Data released showed that Indian exports went up 4.3% in January from a year ago to US$ 22.1 billion. The rise in exports was seen on the back of improved demand from the US, the European Union, and Japan.

The above improvement comes as a welcome breather for Indian exports that had nosedived in the months following demonetisation.

Impact of Demonetisation on India's Exports

Impact of Demonetisation on India's Exports

We believe that India must be a part of global supply chains to improve its competitiveness on the export front. It also needs world class export-related infrastructure. At a time when the world is progressing more towards protectionism, India needs holistic reforms rather than jingoistic rhetoric to become the factory of the world.


Sensex Opens Flat; SBI Gains After Cabinet Approves Merger
09:30 am

Asian equity markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.62%, while the Hang Seng is up 0.32%. The Shanghai Composite is trading up by 0.18%. Stock markets in the US & Europe ended their previous session on a firm note.

Meanwhile, share markets in India have opened the trading day on a flat note. The BSE Sensex is trading higher by 31 points while the NSE Nifty is trading higher by 14 points. The BSE Mid Cap index and BSE Small Cap index both have opened the day up by 0.1% & 0.2% respectively.

Sectoral indices have opened the day on a mixed note with FMCG stocks and metal stocks witnessing selling pressure. While information technology stocks and consumer durable stocks are among the top gainers on the BSE. The rupee is trading at 66.92 to the US$.

Pharma stocks have opened the day on a mixed note with Elder Pharma and Sun Pharma being the most active stocks in this space. According to an article in a leading financial daily, Dr Reddy's Laboratories Limited and Aurobindo Pharma Limited have separately started recalling few quantities of two different drugs from the US market as they are found to be not up to the mark.

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As per the US Food and Drug Administration (USFDA), Both the recalls are voluntarily initiated by respective companies. Dr Reddy's is recalling Olanzapine tablets USP of 2.5 mg while Aurobindo is recalling Pantoprazole Sodium for Injection, 40mg per vial from the market.

Olanzapine tablets are used for treating schizophrenia or bipolar disorder and Pantoprazole sodium for injection is indicated for short-term treatment of gastroesophageal reflux disease (GERD).

The move comes on the back of failed impurities/degradation specifications, due to out-of-specification result for the Related Substance Compound C and discoloration.

Speaking about distresses in the pharma sector, Bhavita Nagrani, our pharma sector analyst has pointed out that pricing pressures in the domestic market and the slowdown in the semi-regulated markets have led to a sharp plunge in the stock prices of many pharma companies (Subscription required).

BSE Healthcare Index 2001-16

BSE Healthcare Index 2001-16

Here's an excerpt of what she wrote:

  • "Over the past few years, risk in the US markets has increased. The USFDA 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."

However, she is of the opinion that pharma companies that are upgrading and keeping facilities compliant, and have niche product pipelines in place will see sustained revenue growth.

Aurobindo Pharma share price & Dr Reddy's Lab share price both opened the day up by 0.6%.

Moving on to the news from bank stocks. As per an article in a leading financial daily, the Union Cabinet has approved the merger of five of State Bank of India's (SBI) subsidiaries, including State Bank of Bikaner and Jaipur (SBBJ), State Bank of Hyderabad (SBH), State Bank of Mysore (SBM), State Bank of Patiala (SBP), and State Bank of Travancore (SBT) with the SBI.

Reportedly, SBI will offer 28 of its shares (face value of Rs 1 each) for every 10 shares (Rs 10 each) held of SBBJ. It will offer 22 of its shares each for every 10 shares held of SBM and SBT. The other two are wholly owned subsidiaries of SBI.

With the merger of all the five associates, SBI is expected to become a global-sized bank with an asset base of Rs 37 trillion, 22,500 branches and 58,000 ATMs. It will have over 50 crore customers, the reports noted.

According to Finance Minister Arun Jaitley, the merger would lead to a saving of more than Rs 10 billion in the first year through operational efficiency and reduced cost of funds. Further, this will minimise vulnerability to any geographic concentration risks faced by associate banks. This merger is an important step towards strengthening the banking sector through consolidation of public sector banks.

One must note that the merger proposal was announced in May 2016 and was scheduled for March 2017. The merger of SBI's subsidiaries is the first and probably the easiest phase in the government's consolidation process. Going ahead, the government will be faced with the daunting task of finding the right matches between banks to ensure a smooth merger, the reports noted.

Reacting sharply to the news, SBI share price began trading up by 1.8%, State Bank of Bikaner & Jaipur share price opened up by 4.6%, State Bank of Mysore share price and State Bank of Travancore share price rallied by 5.2% & 5.4% respectively.


Demonetisation and Its Impact on Job Market
Pre-Open

A few months ago we were plunged into a chaotic world of queues and no cash. The well-intended move ended up handicapping the economy and generally inconveniencing the multitudes.

Demonetisation disrupted various sectors, and threw a spanner in the already limping Indian economy. Normal monsoons - after two consecutive years of bad monsoon, the seventh pay commission, and low interest rates seem to be early signs of economic revival.

However, if first advanced estimates for Gross Value Added (GVA) are to be believed, the industry is going to suffer a huge setback in terms of growth. The demonetisation has impacted almost all sectors.

And given the fact that around 100,000 new job seekers enter the job market every month - that makes 1,200,000 a year - demonetisation has added fuel to India's unemployment problems. The unorganised and rural sector - labour which generally works on daily wages - will bear a brutal shock.

Now, after three months of demonetisation if one goes to see the effect on unemployment (especially in the rural economy), there are two sets of data leading to two different opinions.

An article in Mint holds that sowing of rabi crops shows improvement on YoY basis which paints good picture for the rural economy. On the other hand, the decline in two-wheeler sales gives the opposite impression.

The discrepancy lies in the job situation between the non-farm and farm segment. If we look at the year on year rural wages growth, the non-farm segment has fared much worse than the farm segment. In fact, agricultural wage data shows an improvement over the previous year's performance.

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The improvement clearly indicates that demand for farm labour due to normal monsoon was not affected by the demonetisation. However, the same is not true for non-farm labour.

For both the urban and rural labour non-farm markets, things look bad. As per the survey conducted by Reserve Bank of India in the major cities of the country, negative perception on the employment scenario is at its highest since May 2014.

Our colleague Vivek Kaul, has often talked about the biggest problem of India i.e. unemployment. He puts it perfectly:

  • India needs to create jobs and that too at a very rapid rate for the huge number of people that is entering the workforce every year. And that does not seem to be happening. As the latest Economic Survey points out: "The power of growth to lift all boats will depend critically on its employment creation potential...

    In an Indian case given the semi-skilled nature of the workforce, the construction sector could have been a huge creator of jobs. But one reason that doesn't seem to be happening is because the construction activity in the real estate sector has come to a standstill. This is primarily because real estate prices continue to remain high and hence, unaffordable to a large section of the population.

Needless to say, one of the worst hit sectors after demonetisation has been real estate. This amplifies Vivek's point of lack of job creation in both urban and rural economy.

We believe the farm labour in the country got a tailwind on the back of a normal monsoon, but it is quite clear that if the Indian economy is to do good the government should focus on all-round job creation.