Markets Finish Weak

Selling activity intensified as the day progressed as Indian markets finished well below the dotted line. Sentiments also remained weak after data showed that foreign institutional investors sold shares worth Rs 4.93 billion on Wednesday. At the closing bell, the BSE Sensex closed lower by 215 points, the NSE Nifty finished lower by 68 points. The S&P BSE Midcap and the S&P BSE Small Cap finished down by 0.5% and 0.4% respectively. Losses were largely seen in consumer durables and capital goods stocks.

Most Asian markets rose today, with Japanese markets snapping a seven-day losing streak. The Hang Seng gained 0.29% and the Nikkei 225 rose 0.22%. The Shanghai Composite, however, lost 1.38%. European markets are trading lower today with shares in Germany off the most. The DAX is down 0.24%, while France's CAC 40 is off 0.18% and London's FTSE 100 is lower by 0.05%.

The rupee was trading at 66.47 against the US$ in the afternoon session. Oil prices were trading at US$ 37.61 at the time of writing.

According to a leading financial daily, ITC Limited and Starwood Hotels & Resorts have signed an agreement to extend their existing partnership for 11 ITC Luxury Collection hotels and 1 hotel under the Sheraton brand. Further strengthening their partnership, the two companies also announced three upcoming ITC hotels under The Luxury Collection brand in India. This will take the inventory up to 15 hotels over the next four years.

Starwood is experiencing strong growth momentum in the country with signing of new hotels in the past 12 months representing nearly 30% of current operating trail in India (Subscription Required).

In another development, according to an article in The Economic Times, ITC will have to increase focus on tobacco free nicotine products to reduce the regulatory risk on its main business as the all tobacco products, including cigarettes, bidis and non-smoking tobacco were required to contain pictorial health warnings covering 85% of the space on both sides of the packet. ITC earns over 80% of its profits from the tobacco products. The company shut its manufacturing plant in the wake of government's new rule. ITC has already introduced e-cigarette 'Eon', nicotine chewing gum KwikNic in the market.

It is to be noted that the government holds 11.19% stake in the company, while LIC holds 14.41%. The script of ITC finished the trading day down by 2% on the BSE.

Automobile stocks languished in the red today with Eicher Motors and Maruti Suzuki bearing majority of the brunt. According to a leading financial daily, Bajaj Auto expects to export 10,000 units of its quadricycle car 'Qute' in the ongoing financial year. Reportedly, the company expects a strong positive reception in markets and with an increase in production in the Waluj plant, the company plans to export 500 Qute in April 2016 alone.

The car still awaits clearance for sale in india. The company had introduced Qute in October and exported a total of 334 units to 19 markets including Turkey, Russia, Indonesia and Peru in 2015-16. Meanwhile, the company released a video showing a glimpse of its new range of V bikes made from the 'invincible metal of the INS Vikrant' on the eve of India's 67th Republic Day. In our recent edition of The 5 Minute WrapUp Premium, we have discussed how patriotism will help Bajaj Auto sell motorcycles (Subscription Required).

In another news, Tata Motors is reducing the size of its diesel engines to skirt a temporary ban on the sale of large diesel-powered cars in New Delhi as the government seeks to reduce toxic (Subscription Required) smog in the capital city. The New Delhi ban on the sale of cars with diesel engine capacity higher than 2 litres was imposed in December and has hurt carmakers. The re-engineered engines are only for Tata vehicles and not those made by its luxury carmaker Jaguar Land Rover. Bajaj Auto and Tata Motors finished the day down by 0.5% and 1% respectively.

IT Stocks Lead the Losses
01:30 pm

Following a negative trend since the opening of the trading day, the Indian indices have continued to remain under pressure in the post noon trading session. Sectoral indices are trading in the red with stocks from the capital goods, consumer durables and IT sectors bearing the maximum brunt.

The BSE Sensex is trading lower by 136 points (down 0.5%) and the NSE Nifty is trading down by 34 points (down 0.5%). Both BSE Mid Cap and the BSE Small Cap indices are trading in the green, up by 0.2% each. Gold prices, per 10 grams, are trading at Rs 28,705 levels. Silver price, per kilogram, is trading at Rs 36,020 levels. Crude oil is trading at Rs 2,526 per barrel. The rupee is trading at 66.51 to the US$.

Media stocks are trading on a mixed note with Balaji Telefilms leading the gains and Compact Disc leading the losses. As per a leading financial daily, Zee Entertainment Enterprises (ZEEL) has launched its Bollywood channel - 'Zee Sine' in the Philippines market.

This makes ZEEL the first Indian company to foray into the Philippines with a third dedicated Bollywood channel. The channel is a Bollywood movie channel for the local Filipino audience. It is a 24X7 channel customised and packaged for the local audience and will feature Hindi film from ZEEL's library.

It shall be noted that the company had earlier launched two Bollywood channels Zee Bioskop in Indonesia and Zee Nung in Thailand in APAC region.

Also, the company has announced that it will expand its 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.

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. The company, in its results for the quarter ended December, 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. To know our view on the stock of the company, you can read the entire result analysis report here (subscription required).

Presently the stock of Zee Entertainment Enterprises is trading flat on the BSE.

Stocks in the engineering space are also trading mixed with Praj Industries and Suzlon Energy leading the gains.

In another news update, Larsen & Toubro's (L&T) construction arm - L&T Constructions has won orders worth Rs 21 billion across its various businesses.

It was reported that under transportation infrastructure business, the company has bagged a new engineering, procurement and construction (EPC) order worth Rs 8 billion from the National Highways Authority of India (NHAI).

Further, under smart world & communication business, the company has received orders worth Rs 7.6 billion which involve design and implementation of safe cities using integrated security systems and intelligent Et integrated traffic management systems.

Under other business, the company has won additional orders worth Rs 5 billion from various ongoing jobs of power transmission & distribution and buildings & factories businesses.

Larsen & Toubro is a major technology, engineering, construction, manufacturing and financial services conglomerate, with global operations. The company addresses critical needs in key sectors - Hydrocarbon, Infrastructure, Power, Process Industries and Defense - for customers in over 30 countries around the world. To get more idea on the business and financials of the company, you can read our issue of ValuePro Contenders here (subscription required).

Presently the stock of L&T is trading down by 1.5%.

By the way, April 2016 is a very special month for us at Equitymaster. We complete 20 years of service to millions of readers and subscribers.

And that's why we're in a celebratory mood.

Not only are we celebrating the success of The Equitymaster Way but also our success in earning the trust of subscribers who've been with us throughout this two-decade journey. And as the countdown to our anniversary begins, we would like to invite you to share some of your experiences with us over the years. You can do the same by posting your experiences here.

Indian Markets Continue Downtrend
11:30 am

After opening the day on a weak note, the Indian indices continued to trade in the red. Sectoral indices are trading on a discouraging note with stocks from the telecom, consumer durables and power sector witnessing maximum selling pressure.

The BSE Sensex is trading down 90 points (down 0.4%) and the NSE Nifty is trading down 26 points (down 0.3%). The BSE Mid Cap index is trading marginally higher and the BSE Small Cap index is trading up 0.2%. The rupee is trading at 66.45 to the US$.

Stocks in the steel space are trading on a mixed note with Jindal Steel & Power and Maharashtra Seamless leading the losses. As per an article in Economic Times, India's consumption of total finished steel saw a growth of 4.3% in 2015-16 as against 2014-15. The growth was mostly led by imports, which accounted for 14% of the country's total consumption.

Data by Steel Ministry's Joint Plant Committee (JPC) pointed that India remained a net importer of steel in FY 16. The inbound shipments grew by 20.2% to 11.21 million tonnes (MT) as against 9.32 MT in 2014-15.

Further, it was reported that after registering four consecutive months of decline, steel imports rose by over 18% in March on a YoY basis. Also, domestic steel consumption in March stood at 7.31 MT, a growth of 3.7% compared with February and 1.4% compared to March last year.

The above development does not bode well for the domestic steel producers. One shall note that the steel industry is facing tough times. Weak global demand, cheap imports and falling prices have dented the financials of the domestic steel producers.

And to address these alarming imports, the government has taken some steps such as imposing safeguard taxes in September 2015 and setting a minimum import price (MIP) in February 2016. This move has been labeled as a 'game changer' for steel companies. Reportedly, MIP has led to improvement in the prices of steel and improvement in the financials of the industry players.

However, do these initiatives by the government make economic sense in the long term? One of our editions of The 5 Minute WrapUp titled 'Govt Fixing Steel Prices: Is Make in India Just a Slogan?' answers why a MIP can hurt the Indian economy. You can read the same here.

Pharmaceutical stocks are also trading on a mixed note with Elder Pharma and Panacea Biotech leading the losses. As per a leading financial daily, Dr Reddy's Laboratories has entered into active pharmaceutical ingredient (API) supply and joint development agreements with the US-based Cutis Pharma.

The company has entered into these agreements to advance several programs in Cutis Pharma's R&D portfolio, including RM-02, RM-03, and RM-06, toward FDA approval.

The partnership is said to have significant strategic benefits for both the entities. Dr Reddy's breadth of expertise and international infrastructure will provide great synergy to Cutis Pharma's own R&D and commercial organisations.

Dr. Reddy's Laboratories Limited is an integrated global pharmaceutical company that is engaged in providing medicines. The company operates in three segments viz. global generics, pharmaceutical services and active ingredients (PSAI), and proprietary products. The company has established quite a strong portfolio in US and various other markets. The company continues to work towards varied niche products, which will be important growth drivers going forward. To know our view on the stock of the company, you can read the entire result analysis report here (subscription required).

Presently the stock of Dr Reddy's Laboratories is trading up by 2.2%.

By the way, April 2016 is a very special month for us at Equitymaster. We complete 20 years of service to millions of readers and subscribers.

And that's why we're in a celebratory mood.

Not only are we celebrating the success of The Equitymaster Way but also our success in earning the trust of subscribers who've been with us throughout this two-decade journey. And as the countdown to our anniversary begins, we would like to invite you to share some of your experiences with us over the years. You can do the same by posting your experiences here.

Indian Indices Open Weak
09:30 am

Barring Taiwan, major Asian stock markets have opened the day on a mixed note. Stock markets in China and Taiwan are trading lower by 0.8% and 0.6% respectively. Whereas, stock market in Indonesia is trading higher by 0.5%. Benchmark indices in Europe and US ended their previous session on an encouraging note with stock markets in UK and US ending the day higher by 1.1% and 0.6% respectively. The rupee is trading at 66.58 per US$.

Indian stock markets have opened the day on a negative note. The BSE Sensex is trading lower by 52 points (down 0.2%) and NSE Nifty is trading lower by 14 points (down 0.2%). BSE Mid Cap and BSE Small Cap are trading higher by 0.4% and 0.3% respectively. Major sectoral indices have opened the day on a mixed note with stocks from automobile and telecommunication sectors witnessing selling pressure. However, stocks in the pharmaceutical and metal sector are the top gainers in the pack.

As per an article in Livemint, Tata Motor's launched its compact hatchback named 'Tiago' yesterday. This model could set off a price war in the small car segment. The base model starts at Rs 3.2 lakh for petrol version and Rs 3.94 lakh for the diesel variant (ex-showroom, Delhi). The base models is around Rs 80,000 cheaper than Maruti Suzuki's Celerio, Rs 90,000 less than the Wagon R and Rs 1.68 lakh less than Grand i10 Era in Delhi.

Reportedly, this disruptive pricing is expected to shake up the small-car market, which has so far been the dominated by companies like Maruti and Hyundai Motor India Ltd.

Tiago has a 1.2-litre Revotron petrol engine and a one-litre turbocharged Revotorq diesel motor. Tata Motors is producing the Tiago at its Sanand factory in Gujarat.

One in every two cars sold in India is a small car. Hence, this launch holds a significant importance to the company as it aims to move up on the priority list of individual buyers in this segment. Tata motors had recently launched two brands in the passenger vehicle category, Bolt and Zest. However both these brands have not seen enough traction. Tata motors business in India has come under pressures owing to the increasing competition. Thus, it will be interesting to see whether the company is able to gain better market share with this new launch.

In another news update, brewing competition from companies like Patanjali Ayurveda Ltd and rising raw material prices could possibly hurt the margins of Hindustan Unilever Ltd.

Reportedly, nearly 45% of the company's portfolio is under competitive threat from Patanjali. Further, rising crude oil prices too could affect the margins. Prices for key raw material such as linear alkyl benzene (LAB), liquid paraffin and packaging material prices are on an upward trend. Further, increased competition may lead to higher expenditure on promotion and advertisements which may in-turn dampen the margins.

Going forward, threat from ayurvedic companies such as Patanjali and Sri Sri will be closely tracked to assess its impact on the companies such as HUL, Colgate, Dabur etc.

RBI's 'QE Lite' To Boost Credit Growth?

The monetary policy announced by Raghuram Rajan, the governor of the Reserve Bank of India (RBI) saw the repo rate cut by 0.25% to 6.5%.

More importantly the measures were announced to ensure the banks are able to pass on the benefits to its borrowers.

Transmission of rate cuts has been an issue which the RBI has looked to address in their policy this time around.

Here is what the RBI has done to ease liquidity concerns amongst the banks.

  1. Reduced the cash proportion of banks' reserve requirements that must be kept with the central bank (from 95% to 90%).
  2. Raised the Reverse repo rate by 0.25% - the rates lenders charge to the central bank.
  3. Announced open market operation to buy bonds to inject Rs 150 bn into the system this week.

The first measure will help the banks have more free cash at its disposal. A cut in the repo rate while increasing the reverse repo rate implies that banks will pay less when they borrow from the RBI and get paid more when they park their excess funds with the RBI.

One of the major issues the central bank addressed yesterday was about liquidity deficit. Put it simply the banks are currently facing cash shortage to the tune of greater than 1% of net demand and time liabilities. This could be about Rs 1.5 trillion. Thus the central bank will look to infuse cash in the system by conducting open market operations. In this process the RBI looks to buy the bonds from the banks and in turn provide the banks much needed cash.

The policy was more focused on addressing liquidity shortage and easing the transmission mechanism. It will be important to watch out how the banks react to these measures and whether they would now be in a position to pass on the benefits to its customers. Whether or not the banks are able to lend more will depend on whether the banks reduce their lending rates commensurately.

Interestingly, Vivek Kaul dubbed the RBI's liquidity expansion measures as 'QE Lite'. Never heard of that?

Well, Vivek Kaul claimed in his Diary that the RBI made this brand new offering in the Monetary Policy yesterday. Vivek as you know, has the skill to make the most complex regulatory nitty gritties sound amazingly simple. And his latest view comparing RBI's liquidity infusion measures to the US Fed's QE makes for a very interesting read!