Strong Start to the Week

Buying activity intensified as the day progressed with Indian equity markets finishing well above the dotted line. At the closing bell, the BSE Sensex closed higher by 190 points, the NSE Nifty finished higher by 64 points. The S&P BSE Midcap and the S&P BSE Small Cap finished up by 1.3% and 1.1% respectively. Gains were largely seen in realty and IT stocks.

Asian markets finished broadly lower today as oil tumbled after top oil producers failed to reach an agreement to freeze production. The Nikkei 225 is down 3.40% while China's Shanghai Composite is off 1.44% and Hong Kong's Hang Seng is lower by 0.73%. European markets are lower today with shares in France off the most. The CAC 40 is down 0.52% while Germany's DAX is off 0.22% and London's FTSE 100 is lower by 0.17%.

The rupee was trading at 66.67 against the US$ in the afternoon session. Oil prices were trading at US$ 40.52 at the time of writing.

Energy stocks finished mixed with Petronet LNG leading the gains. According to an article in The Economic Times, ONGC has taken over a part of the abandoned assets of the western offshore Tapti gas field from its joint venture partners Reliance Industries and BG Group and will use it to produce gas from its Daman fields. The move will help save the company Rs 30-40 billion needed to build offshore infrastructure to produce gas from the Daman gas field as well as C-26 Cluster projects. The company plans to start producing gas from Daman using the abandoned Tapti facilities by August/September at the rate of 2 million standard cubic meters per day.

ONGC finished the trading day on a negative note (down 2.5%) on the BSE. Since the higher of June 2014, oil prices have crashed 70%. Meanwhile, ONGC's stock price has crashed 53% (Subscription Required).

In other news, Indian Oil Corporation (IOC) reduced petrol prices by 74 paise per litre and diesel prices by 1.30 paise per litre. The current level of international product prices of petrol & diesel and INR-USD exchange rate warrant a decrease in prices, the impact of which is being passed on to consumers with this price revision. Even as prices have been falling rapidly, not all of this has been passed on to the Indian consumer. The government has been quick to repeatedly hike excise taxes on petroleum products. Reportedly, the government is likely to garner Rs 2.1 trillion as revenue from the oil sector in FY16.

Further, IOC has entered into a joint venture with Bangladesh Petroleum Company to build a hydrocarbon infrastructure in Bangladesh, including a liquefied petroleum gas (LPG) import terminal at Chittagong. Bangladesh's Eastern Refineries Ltd will also hire India's Engineers India Ltd (EIL) as a management consultant for a three million tonne refinery expansion project. IOC finished up by 2.6%.

Selling pressure was witnessed across majority of the banking stocks with SBI and Bank of Baroda bearing the majority of the brunt. ICICI Bank has reportedly increased its holding in the debt-laden IVRCL to 11.43% by acquiring a fresh 39.91 million shares amounting to 7.3% of the equity share capital of the company. Prior to the fresh acquisition, the bank held 22.57 million equity shares or 5.03% of the total equity capital at that point of time.

The bank has acquired the shares on a cumulative basis under the terms of the Strategic Debt Restructuring (SDR) between June 25, 2015 to April 13, 2016. ICICI Bank was a part of the lenders consortium that had approved SDR for the company in November last year. Under the SDR terms the lenders will buy 50% or more of the company's shares in preparation to find a buyer for the debt-laden company.

In another development, ratings agency Moody's reportedly expects the asset quality of the 11 rated PSU banks may face further stress as 40% of standard restructured loans may eventually turn into NPAs. Banks have started classifying non-viable loans as bad assets as per RBI norms, which has started impacting their balance sheet.

Other PSU banks rated by Moody's are State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Canara Bank, Syndicate Bank, Union Bank of India and EXIM Bank. Moody's said private sector banks can absorb a fair degree of asset quality stress because of their relatively strong core operating earnings capacity and capitalization levels.

IT Stocks Lead the Gains
01:30 pm

The Indian indices have continued their uptrend in the post-noon trading session. Sectoral indices are trading on a positive note with stocks from the IT, telecom and consumer durables sectors leading the gains.

The BSE Sensex is trading up 168 points (up 0.7%) and the NSE Nifty is trading up 50 points (up 0.6%). The BSE Mid Cap index is trading up 1% while the BSE Small Cap index is trading up by 0.9%. Gold prices, per 10 grams, are trading at Rs 29,083 levels. Silver price, per kilogram is trading at Rs 38,247 levels. The rupee is trading at 66.59 to the US$.

Crude oil is trading down by around 5.2% at Rs 2,559 per barrel.

The plunge in crude oil is witnessed as 16 major petroleum producers meeting in Doha, Qatar failed to reach an agreement over output freeze. The failure has set the stage for further weakness in crude oil prices.

It was noted that Saudi Arabia, the world's largest exporter of crude oil, refused to go along with the plan that would have capped crude oil production at January levels up through October this year.

Note that crude oil prices have hit their lowest levels in recent years. And the root cause for this turmoil has been the global supply glut. Major oil producers have refused to cut their output levels and that has meant the world producing more oil than actually required. For this reason, the prices of crude oil have tanked.

According to the International Energy Agency's (IEA) latest report, the world produces about 96.4 million barrels per day of oil. This is as against the demand of just 94.8 million barrel per day, as of the first quarter of 2016.

To add to the above woes is the OPEC's prediction of less than expected crude oil demand in 2016. Organisation of the Petroleum Exporting Countries (OPEC) recently said that world oil demand will grow by 1.20 million barrels per day (bpd) in 2016. This is 50,000 bpd less than expected previously. The estimates were lowered because of a slowdown in Latin America and China. OPEC further said that weakness in Brazil's economy, the removal of fuel subsidies in the Middle East and milder winter temperatures in the northern hemisphere could prompt further cutbacks in oil demand this year.

This all signals a larger supply glut this year ahead. Also, OPEC's above estimates could complicate producers' efforts to bolster prices going ahead.

Asad Dossani, editor of Daily Profit Hunter, recently wrote that OPEC has lost control of oil prices...and the resultant volatility is great for traders. You can read the entire article here.

Also, the opportunities for trading are not limited to commodities. As Apurva Seth, our lead chartist, just put out a must-read piece highlighting four reasons why this might be the best time to trade equities.

As for India, the above over-production has meant increased oil imports in recent times. Oil production levels in India are decreasing. Also, the country has resumed its unrestricted import of oil from Iran with international nuclear sanctions on Iran being lifted in the last financial year. All of these developments have meant India being more dependent on imports of oil.

What one shall keep in mind is that increasing import dependence does not bode well for India in the longer term. This is because the increasing oil imports will add constant pressure on the Indian rupee and could have major implications in terms of managing trade balances. Having said that, we believe that India now needs to focus on becoming self-reliant as far as its energy needs are concerned.

To keep a regular tab on the movements in crude oil prices, you can read weekly updates from the Daily Profit Hunter team here. Their roundup tracks the developments in the global economy as well as currency and commodity markets.

Automobile stocks are trading on a mixed note with Maharashtra Scooters and TVS Motors leading the gains.

As per a leading financial daily, Maruti Suzuki has firmed up plans to post yet another year of double-digit growth. It was reported that the company is budgeting for a total output of 1.55 million to 1.57 million units, with it planning for a 9% increase in production and about 10-11% growth in domestic sales in this fiscal year (FY17).

The company currently has an optimum installed capacity of 1.5 million units. To meet the new target, which exceeds this, it is likely to generate additional volumes through capacity enhancement at the existing plants. Furthermore, the company is factoring in fresh volumes coming out of the Gujarat factory which is expected to go on stream in January next year.

On a separate note, it was reported that six of Maruti Suzukiís models have featured in the top-10 selling cars list for the FY16.

It was noted that the company, which had five models in top-10 selling cars in FY15, saw compact model Celerio enter the list at the seventh position in FY16.

Also, volume share of the company in top-10 models shot up to 73% with six of its models accounting for 10,29,639 units out of a total of 14,19,768 units sold in the FY16. The company's volume share in top 10 stood at 68% in 2014-15 with sales of 9,12,415 units.

One shall also note that the company sold 1.29 lakh units in March, witnessing a YoY growth of 15.9%. This was aided by domestic sales growth of 14.6% and exports growth of 33.4% during the month.

Maruti Suzuki is India's largest passenger car company. The company offers full range of cars from entry level Maruti 800 & Alto to stylish hatchback Ritz, A-star, Swift, Wagon R, Estillo and sedans DZire, SX4 and Sports Utility vehicle Grand Vitara. In its results for the third quarter ended December 2015, the company reported a 20% YoY and 27% YoY growth in sales and net profits, respectively. Here is our analysis of the results (subscription required).

Presently the stock of Maruti Suzuki is trading down by 0.3%.

Indian Markets Extend Their Gains
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 IT, telecom, and consumer durables sectors leading the gains.

The BSE Sensex is trading up 112 points (up 0.4%) and the NSE Nifty is trading up 34 points (up 0.4%). The BSE Mid Cap index is trading up by 0.8% while the BSE Small Cap index is trading up 0.9%. The rupee is trading at 66.64 to the US$.

The upbeat monsoon forecasts by the Indian Metrological Department (IMD) has sparked optimism in Indian markets. The announcement made last week helped Indian markets clock around 3.8% weekly gains (from 8th April to 13th April).

In a poll of leading fund managers, research heads and brokers conducted by ET (Economic Times), most said that the Sensex would gains at least 13% by December. The optimism for this uptrend was backed by expectations of further monetary policy easing in the event of strong rain in the June-September season. Also, overseas investors regaining their appetite for emerging markets could keep the Indian markets in an uptrend.

As stated in the Economic Times article, a majority of the 35 people polled were of the opinion that the Sensex may rise to 29,000 - 35,000 points by year-end. About 26% said the index could hit 30,000-32,000 points by December while 22% said the benchmark could even touch 32,000-35,000 points. About 13% predicted the Sensex at 29,000-30,000 points by year-end.

Rahul Shah, co-head of research at Equitymaster, has predicted a rise in the Sensex over the next few years. His rationale is that if profit margins of Sensex companies, which are currently at 12.2%, revert to their ten-year mean of 13.5%, and if EPS grows at its long-term average of 15%, the Sensex could go up 70% in the next two to three years.Apurva Seth, editor at the Daily Profit Hunter, also dug deep into his charts to see if they confirmed the 70% Sensex upside Rahul predicted. Click here to know whether his analysis based on the charts support a 70% surge in Sensex.

The above optimism comes as a relief for Indian markets that witnessed losses in the first two months of 2016. Also, the surge during last week came in after a 2.4% decline during the last week when the RBI cut its repo rate by 0.25% to 6.5%.

As for the monsoon forecasts, a normal monsoon will lead to higher disposable income in the hands of farmers, which in-turn will boost the rural consumption. To add to this, a normal monsoon will also help to keep the inflation at low levels, by bring down food prices. The possibility of a good monsoon would also increase the chances of the country's central bank retaining its accommodative monetary policy. However, there have been many instances in the past where forecasts have gone wrong. Provided they are accurate, a good monsoon will help to revive the rural sentiments.

In another important news update, it was reported that the amount of foreign exchange reserves that the Reserve Bank of India (RBI) keeps with overseas banks has more than tripled since April 2015. The total funds parked with the overseas branches of foreign banks rose to US$ 13.9 billion in February from US$ 3.5 billion in April last year.

However, the RBI stated that the country's total foreign currency assets in the same period dipped from US$ 351.9 billion to US$ 348.4 billion.

The uptick in the foreign deposit component in India's reserves suggests that the RBI is waiting for the right time to put its cash in overseas assets and to counter the any currency volatility that could arise.

Positive Start to the Day
09:30 am

Major Asian stock markets have opened the day on a negative note. Stock markets in Japan and China are trading lower by 2.8% and 1.3% respectively. Benchmark indices in Europe and US ended their previous session in red. The rupee is trading at 66.42 per US$.

Indian stock markets have opened the day on a positive note. The BSE Sensex is trading higher by 58 points (up 0.2%) and NSE Nifty is trading higher by 14 points (up 0.2%). 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 information technology and telecommunication sectors witnessing buying interest. However, stock from banking sector are facing selling pressure.

Infosys reported its results for the quarter ended March 2016. The results were above the street expectations. The company posted a revenue growth of 13.3% YoY to US$ 2.4 billion during the quarter. On Quarter on Quarter (QoQ) basis revenues were up by 1.6%. Further, net profits witnessed a growth of 7% YoY and 1.7% QoQ . The operating margins too improved by 0.6% YoY to 25.5%.

The attrition rate too improved to 12.6% from 13.4% at the end of the December quarter. However, the big takeaway from the results was the solid guidance the management forecasted. The management expects its dollar revenue to expand between 11.8% and 13.8% in the year ended March 2017.

Further, the company added 89 clients during the quarter, taking the total number of customers to 1,092. Reportedly, company won large deals during the quarter. These deals are pegged at US$ 757 million, registering a 45% growth over the previous year. The stock is trading up by 7%.

In another news update, Maruti Suzuki tightened its grip in terms of its best-selling cars. The company's six models featured in the list of the top-10 selling cars in the fiscal year ended March 2016.

As per the data, the company's Alto, Dzire, Swift and WagonR were the first, second, third and fourth biggest selling models during the fiscal. Further, its compact model Celerio too made it to the list for the first time. The model stood at the 7th position. To add to this, the company's van Omni retained its ninth position.

Traction from newly launched models such as Vitara Breeza, Baleno, S-Cross will be the key trigger for the company moving forward.

Asset Sale on the Rise!

The data published by Centre for Monitoring Indian Economy (CMIE) suggests that asset sales are slowly gaining traction. Go back three-four years and we would find that the prime object behind asset sales was to restructure operations through mergers and acquisition.

However, in recent years assets have been sold to pare the debt on the balance sheet. In technical terms it is called distressed asset sales. This is evident as the majority of asset sales has taken place in the electricity and steel sector in the preceding year. These sectors have faced maximum stress as the utilization levels have fallen to record lows.

The excess capacities built by China over the years have hurt their utilisation levels. This in turn led to dumping of goods at throwaway prices in India, thereby affecting domestic manufacturers. The heavy losses incurred by domestic manufacturers on account of poor demand have forced them to sell their assets in order to repay debt. The most recent example has been Tata Steel. The company has decided to sell its entire long product division operation in the United Kingdom (UK).

A combination of low profits and high interest costs has led to a substantial fall in the interest coverage ratios for many companies. This is one of the prime reasons behind companies either restructuring their debt or selling off non-core assets to pare the debt. Recently, Jaiprakash Associates sold its cement business to UltraTech Cement to reduce its debt levels.

Sale of non-core assets will not only help companies reduce debt but also concentrate on their core businesses. Further, the performance of the public sector banks (PSU) will also improve once companies start paying up from the sale of non-core assets.