Markets Finish on a Weak Note

At the closing bell, the BSE Sensex closed lower by 371 points, while the NSE Nifty finished lower by 101 points. S&P BSE Midcap and S&P BSE Small Cap also ended the day lower by 1.4% and 1.7% respectively.

Asian markets finished on a negative note. Stock markets in Indonesia and China ended the day lower by 1.1% and 0.7% respectively. Oil prices were trading at US$ 39.82 a barrel at the time of writing. The rupee was trading at 66.66 against the US$.

Sectoral indices finished the day on a weak note with stocks from metal & mining, telecommunication and pharmaceutical sector witnessing maximum selling pressure.

As per an article in a leading financial daily, Tata Motors has signed a follow on contract with the Indian Army. The contract is to supply 619 units of its 6X6 HMV (high-mobility vehicle) multi-axle truck. The truck is meant for loading-unloading and transportation of ammunition pallets, spares and other operational equipment.

Reportedly, the truck has been designed to cope with extreme on or off-road loads. Developed indigenously, the truck has gone through various trials including deep water-fording on cross country terrains and plains.

The order placed comes on the back of an earlier order of 1,239 units of the 6X6 HMV by the Indian Army. This was the single largest order awarded to an Indian private original equipment manufacturer in land systems by the Indian Army under the Defence ministry's defence procurement procedure. The stock finished the day on a weak note (down 3.8%)on the BSE.

In another news update, Shree Cement is looking to expand capacity by another 10 million tonnes (mt) in the coming three years. This will take the company's overall capacity to 33.6 mt from the present 23.6 mt.

The company has lined up a capital expenditure (capex) of Rs 60 billion to construct three new clinker plants. The company will fund the expansion through internal accruals. While other companies have relied on the acquisition route to expand their capacity, Shree Cements has opted for the organic route to expand its business and portfolio. The stock finished the day on a weak note (down 1.5%) on the BSE.

Markets Continue to Trade Lower
01:30 pm

Following a negative trend since the opening of the trading day, the Indian indices continued to remain under pressure in the post noon trading session. All the sectoral indices are trading below the dotted line with realty, consumer durables and metal stocks leading the losses.

The BSE Sensex is trading lower by 183 points and the NSE Nifty is trading lower by 44 points. The BSE Mid Cap index and the BSE Small Cap index are trading lower by 0.7% and 0.8% respectively. The rupee is trading at 66.86 to the US$.

Selling activity is witnessed across majority of the FMCG stocks with Pidilite Industries and Emami Ltd leading the losses. According to a leading financial daily, ITC has acquired the entire equity share capital of Technico Agri Sciences, India, from Technico, Australia, for Rs 1.21 billion. Prior to acquisition, Technico Agri Sciences was a wholly owned subsidiary of Technico, which in turn is a wholly owned subsidiary of the company. Consequently, Technico Agri Sciences has become a direct subsidiary of the company with effect from March 22, 2016.

Technico Agri Sciences is in the Agricultural Bio-Technology business primarily of growing and selling TECHNITUBER seed potatoes and field generated seed potatoes.

ITC has business interests in cigarettes, hotels, paperboards and specialty papers, packaging, agri-business, packaged foods and confectionery, information technology, branded apparel, personal care, stationery, safety matches and other FMCG products. The scrip of ITC is currently trading down by 0.2% on the BSE. In our recent edition of Vivek Kaul's Diary, we have explained why the government should focus on selling its stake in ITC.

Shares of NTPC are trading on an optimistic note (up 0.5%) after it was reported that the company has commissioned the Unit - 4 of 195 MW of Muzaffarpur Thermal Power Station of Kanti Bijlee Utpadan Nigam (A subsidiary Company of NTPC) on March 24, 2016. With this, the total installed capacity of Muzzafarpur Thermal Power Station has become 610 MW and the total installed capacity of NTPC group has become 45,993 MW. The plant is owned by Kanti Bijlee Utpadan Nigam Ltd, a joint venture between NTPC and Bihar State Power Generation Company Ltd, in which the two companies have 64.57% and 35.43% shares, respectively.

In another development, NTPC also commissioned Unit I of 250 MW capacity of the Nabinagar Thermal Power Station in Bihar. The power plant is owned by a subsidiary of NTPC called the Bhartiya Rail Bijlee Company Ltd. NTPC now has a total installed capacity of 45,798 MW. During the fiscal 2015-16, NTPC's generation capacity has increased by 1,200 MW. The company recently reported an 8% YoY decline in revenues for the quarter ended December 2015, while profits declined by 19% YoY (Subscription Required).

Power stocks are trading in the red with JSW energy and Neyveli Lignite bearing majority of the brunt.

Oil & Gas Stocks Under Pressure
11:30 am

After opening the day on a flattish note, the Indian Markets have slipped downwards. The BSE Sensex is trading lower by 119 points (down 0.5%) and the NSE Nifty is trading lower by 27 points (down 0.3%). The BSE Mid Cap and BSE Small Cap indices are trading lower by 0.4% and 0.5% respectively. The rupee is trading at 66.67 to the US$.

Sectoral indices are trading on a mixed note with stocks from the capital goods and oil & gas sector witnessing selling pressure. However, stocks from IT sector are witnessing buying interest.

As per an article in NewsRise, government is examining the possibility of selling up to 49% stake in the loss making national carrier Air India. Reportedly, the government plans to form a four to five member panel to consider the stake sale.

Air India has last made profit in the year 2007. The company has seen its market share shrink in the recent years to the low cost airlines such as Interglobe Aviation ltd, GoAir and SpiceJet. The stake sale will help the company to achieve its divestment target and maintain the fiscal deficit at the projected level. However, the government denied the report considering the stake sale in the loss making firm.

Recently, in his interview to The Inner Circle newsletter of Bonner & Partners, Vivek Kaul talked about how the government continues to run an extensive network of loss making businesses. According to him, the biggest reason for the sad state of the PSUs is that the government wants them to survive. And whenever there are decisions to let go of the PSUs, there are protests.

In another news update, US Food and Drug Administration (USFDA) have made certain adverse observations after inspecting Natco Pharma Ltd facilities at two locations. The facilities are located near Chennai and Hyderabad. The observations have been made by USFDA in Form 483.

However, the company states that the observations are minor in nature. The company has already sent responses and compliance report for these observations. Further, the management believes that there would be no adverse impact to its current or future pipeline products coming from these facilities.

The US drug regulator conveys its concerns on manufacturing practices in Form 483. Companies receiving Form 483 observations must respond to the USFDA in writing with their corrective action plan and implement the plan expeditiously. If the company fails to satisfy USFDA about corrective actions, a warning letter may be issued. The stock is trading down by 12.2%.

Indian Indices Open Flat
09:30 am

Barring Japan, major Asian stock markets have opened the day on a mixed note with stock market in Hong Kong and Indonesia trading lower by 1.4% and 1.3% respectively. However, stock market in China is trading higher by 0.5%. Major indices in Europe ended their previous session deep in red. The rupee is trading at 66.86 per US$.

Indian stock markets have opened the day on a flattish note. The BSE Sensex is trading higher by 17 points (up 0.1%) and NSE Nifty is trading higher by 9 point (up 0.1%). Both, BSE Mid Cap and BSE Small Cap are trading higher by 0.1% and 0.2% respectively. Major sectoral indices have opened the day on a mixed note with stocks from metal and pharmaceutical sectors witnessing selling pressure. However, stocks from information technology sector is witnessing buying interest.

An article on Livemint states, the value of mobile-banking transaction rose more than fourfold from a year ago period in the month of December 2015.

Bankers attribute this surge to an increase in the number of corporate customer transacting on their phone. Few banks are also conducting sessions with its corporate clients to convey the advantages of moving from web to mobile. Mobile banking leads to cost effective as well as timely transactions.

Reportedly, one of the main challenges in bringing corporate clients to mobile banking services is the two-person approval system that companies have for financial transactions. However, banks are trying to address this problem by coming up with better technologies which allows more coordinated transactions among different users from the same company.

Further, growth from retail mobile banking has also boosted the mobile banking transactions. Retail mobile banking includes mobile recharges, bill payments, money transfers, purchases on e-commerce websites. With the sale of smartphones expected to rise sharply in India, there will a resultant increase in the mobile banking transactions.

Increasing usage of mobile banking will force banking companies to possibly alter their business models. It turns out that the top five banks comprising of State Bank of India, ICICI, HDFC Bank, Axis and Kotak accounted for 92% of the total mobile banking transactions in December 2015.

In another news update, Tata Steel will be taking decision on its two loss making plants located in United Kingdom (UK) in the upcoming board meeting. The board will discuss as to whether to retain or sell the plants in Scunthorpe and Port Talbot in UK.

Company's European business has remained under pressures, owing to the UK steel crisis. Cheap imports from China and some other countries such as Russia and South Korea is putting intense pressure on the company's margins. Provided the company sells the plants, it will affect 18,000 direct and indirect jobs in the region.

Reportedly, according to the Times, a 400 million pound rescue deal to sell the plant to Greybull Capital is "on track".

Will this resurrect debt-ridden Infra cos?

Infrastructure companies continue to be saddled with high debt on account of delays in project completion. Infrastructure Investment Trusts (InvIT) seems to have come as a big relief for the them. InvITs enables infrastructure companies to exit or dilute their stake in the completed projects. Take the instance of a road project. A company named 'X' had been awarded the project to build the Mumbai-Pune expressway. Now, once the roads were built, the company had to wait for significant period of time to recover the costs in the form of tolls. However, with InvITs, the parent company can easily exit the project and cash in on his stake. The cash generated can be utilized by the infrastructure company to invest in new projects as well as to repay debt.

The stretched balance sheets of infra companies have led to a sharp rise in stressed advances for the banking industry.

As stated in the RBI Financial Stability Report released in December 2015:

Five sub-sectors viz. mining, iron & steel, textiles, infrastructure and aviation, which together constituted 24.2 per cent of the total advances of scheduled commercial banks as of June 2015, contributed to 53.0 per cent of the total stressed advances.

What this means that one-fourth of the advances accounted for more than a majority of total stressed assets of the banks. But with Invits, infra companies will be able to repay debt and free up resources for future projects. This in-turn will boost their profitability on the back of lower finance costs. Further, it will also help bring down the bad loans of the banking industry.

IRB Infrastructure Developers will be the first company to get the regulatory approval to tap investors fund through the InvIT route. However, not just IRB but others in the infra sector such as GMR Infrastructure Ltd, IL&FS Transportation Networks Ltd and engineering giant Larsen and Toubro Ltd (L&T) have also lined up for monetizing their projects.