Positive Start to the Week

Indian equity markets began the week on a firm note as indices continued to trade higher in the late afternoon session amid strong Asian markets. At the closing bell, the BSE Sensex closed higher by 134 points, the NSE Nifty finished higher by 42 points. The S&P BSE Midcap & the S&P BSE Small Cap also finished up by 0.6% and 1% respectively. Gains were largely seen in realty and PSU stocks.

Asian markets finished broadly higher today with shares in China leading the region. The Shanghai Composite is up 1.91% while Hong Kong's Hang Seng is up 1.27% and Japan's Nikkei 225 is up 0.60%. Meanwhile, European markets are lower today with shares in France off the most. The CAC 40 is down 0.35% while Germany's DAX is off 0.25% and London's FTSE 100 is lower by 0.07%.

The rupee was trading at 67.18 against the US$ in the afternoon session. Oil prices were trading at US$ 49.19 at the time of writing.

Shares of Indian Oil Corporation (IOC) finished the trading day on an optimistic note (up 0.7%) after it was reported that company will invest Rs 400 billion to expand its refining capacity to over 100 million tonnes by 2022. IOC will expand its refining capacity to 104.55 million tonnes (mt) by 2022 from the current 80.7 mt per annum.

International Energy Agency's World Energy Outlook projects 4% CAGR growth in India's fuel demand to 348 mt by 2030, from 184 mt in 2015-16. India has a refining capacity of 232.06 mt. As per the reports, the company is looking to scale up its Koyali refinery in Gujarat to 18 mt from 13.7 mt while capacity of the Panipat refinery in Haryana will be raised by a quarter to 20.2 mt from the current 15 mt. Other state refiners too have planned capacity addition to meet rising demand.

Bharat Petroleum Corp (BPCL) is looking to ramp up capacity to 53 mt, from 30.5 mt currently, by adding 1.6 mt to its Mumbai refinery and another 6 mt to the Kochi unit. Hindustan Petroleum Corp Ltd (HPCL) also plans to expand its Mumbai refinery to 8.2 mt from 6.5 mt and that of Vizag unit to 15 mt from 8.3 mt.

In another development, IOC, BPCL, HPCL and Engineers India Limited plan to set up India's biggest oil refinery on the west coast at an estimated cost of Rs 2 trillion. The 60 million tonnes a year refinery and a mega petrochemical complex will be set up in two phases. Phase-1 will be 40 million tonnes together with an aromatic complex, naphtha cracker and polymer complex. Phase-1 will cost Rs 1.2-1.5 trillion and will come up in five-six years from the date of land acquisition. The second phase will cost Rs 500-600 billion.

Moving on to news from auto sector. Shares of Bajaj Auto finished the day down by 0.9% after the company registered fall of 4% in total sales. The total sales stood at 316,969 units in June 2016 as against 331,317 units in June 2015. The sales of the motorcycles decreased by 5% and stood at 273,298 units in the month under review against 287,582 units in June 2015.

The company has reported 0.15% drop in Commercial Vehicles sales, which stood at 43,671 units as compared to 43,735 units in month of June 2015. Meanwhile, the company's total exports out of the above stood at 123,252 units as compared to 156,074 units sold in the corresponding month last year.

The company posted a healthy fourth quarter (Subscription Required) for the financial year 2015-16. The company posted a 14% YoY and 29% YoY growth in revenues and net profits respectively.

Automobile stocks finished the day on a positive note with Tata Motors DVR and Mahindra Scooters leading the charts.

Realty & PSU Stocks Trade in the Green
01:30 pm

The Indian Indices continue to remain firm in the post-noon trading session amid strong international markets. Sectoral indices witnessed healthy buying interest with stocks from the realty and PSU leading the gains.

The BSE Sensex is trading higher by 186 points (up 0.7%) and the NSE Nifty is trading up by 52 points (up 0.6%). The BSE Mid Cap index is trading higher by 0.7% while the BSE Small Cap index is trading higher by 1%. Gold prices, per 10 grams, are trading at Rs 31,761 levels. Silver price, per kilogram, is trading at Rs 47,383 levels. Crude oil is trading at Rs 3314 per barrel. The rupee is trading at 67.20 to the US$.

Stocks in the energy sector are trading on a mixed note with ONGC and Oil India Ltd trading in the green. As per an article in a leading financial daily, GAIL India has agreed to extend financial support to Ratnagiri Gas and Power for building a breakwater.

Reportedly, this will allow the company to award the contract for the much-delayed project. One must note that GAIL India holds 25.5% stake in the project. Further, GAIL has invited bids for Dabhol LNG terminal as it cannot operate without a breakwater structure. A breakwater is a barrier built out into the sea to protect a coast or harbor from the force of waves.

Also, government of India eyes at doubling the LNG import terminal in order to meet the growing demand for refineries, fertilizer and power plants.

In another development, GAIL is reportedly going to inject around Rs 200 billion over the next five-six years to build a gas pipeline network in South India. GAIL is also building a 1,104km gas pipeline that will traverse across Kochi, Koottanad, Bangalore and Mangalore.

To know our view on GAIL, you can read our result analysis (subscription required).

GAIL India Ltd was trading down by 0.1% at the time of writing.

Moving on to the news from pharmaceuticals sector. According to a leading financial daily, the pharmaceutical market in India is expected to be worth US$ 55 billion by 2020 as against the current size of US$ 18 billion.

India is the largest provider of generic drugs globally with 20% of exports in terms of volume.

As per the report, India's cost of production is significantly lower than that of the US and that gives a competitive edge to India over others.

Moreover, pharmaceutical exports to the US are rising due to the increasing demand for high quality generic drugs in the market. However, the growth rate for exports of pharma is declining, due to increasing US Food and Drug Administration (FDA) scrutiny on the quality of pharma products manufactured in India.

Indian Markets Trade Firm
11:30 am

After opening the trading week on a firm note, Indian markets continue to trade strong amid positive international markets. Barring FMCG, all the sectoral indices are trading above the dotted line with oil & gas and PSU sector leading the gains.

The BSE Sensex is trading higher by 192 points and the NSE Nifty is trading higher by 56 points. The BSE Mid Cap index and the BSE Small Cap index are trading higher by 0.8% and 1.1% respectively. The rupee is trading at 67.17 to the US$.

Buying activity is witnessed across many of the food and tobacco stocks with Britannia and Godfrey Phillips leading the gains. According to a leading financial daily, ITC plans to add 6-7 boutiques of luxury chocolate brand Fabelle at its hotels over the next 15 months. The company at present sells Fabelle through a boutique at its hotel ITC Gardenia, Bengaluru.

The company is also looking at expanding offering in the instant noodles category. ITC consolidated its presence in instant noodles category with brand Yippee, post the Maggi controversy last year.

Last week, ITC had announced that it would be investing Rs 40 billion over the next 2-3 years to set up 8-9 factories across the country for manufacturing of food products.

ITC's branded packaged foods division (Subscription Required) grew by around 11% to clock a turnover of Rs 70.97 billion in 2015-16. It is to be noted that food is the second largest business for ITC after cigarettes. ITC is presently trading down by 2.3%.

Moving on to news from steel sector. According to an article in The Livemint, Tata Steel is set to 'pause' the auction of its UK steelworks amid uncertainty over the impact of Britain's decision to leave the European Union (EU). The board is yet to make a formal decision but is under less pressure to sell after a jump in steel prices, which has cut losses at the south Wales site.

As per the reports, the company will reportedly stall the auction to await the outcome of a UK government deal to cut its £14 billion pension liabilities as well as talks on EU trade deals. The UK steel industry has been hit by high energy costs, inefficient output and a flood of cheap Chinese exports.

Tata Steel reported a 12.4% decline in the topline while the bottom line was in red in 4QFY16 (Subscription Required). Tata Steel is trading up by 1.4%.

Indian Indices Open Firm
09:30 am

Major Asian stock markets have opened the day on a positive note. Stock markets in China and Hong Kong are trading higher by 1.7% and 1.5% respectively.

Benchmark indices in Europe and US ended their previous session on an encouraging note with stock markets in UK ending the day higher by 1.1%. The rupee is trading at 67.44 per US$.

Indian stock markets have opened the day on a strong note. The BSE Sensex is trading higher by 193 points (up 0.7%) and the NSE Nifty is trading higher by 56 points (up 0.7%). While, BSE Mid Cap and BSE Small Cap are trading higher by 0.8% and 0.7% respectively.

Major sectoral indices have opened the day in green. Stocks from capital goods and oil & gas sector are witnessing buying interest.

As per an article in Livemint, National Thermal Power Corporation (NTPC) received a setback for its 2,660 megawatt super thermal power plant in Madhya Pradesh.

The Union environmental ministry's expert panel has deferred giving clearance to this project. This is the second instance wherein the environment ministry has deferred this decision.

The Expert Appraisal Committee (EAC) stated that it wasn't satisfied with the company's replies with regards to matters pertaining to Khajuraho Temple and Panna Tiger Reserve which is situated at a close proximity to the proposed site.

Though, NTPC has a huge pipeline of projects in the coming 3-4 years, any delays pertaining to environmental clearances can dampen the fundamentals of the company in the long-run.

In another news update, sales growth of medium and heavy commercial vehicles has hit a roadblock in the month of June.

Tata Motors Ltd reported, 11% YoY drop in the sales of commercial vehicles for the month of June. However, this was better off as compared to a 23% YoY decline in the month of May.

Further, the rentals commanded by truck operators too dipped for the first time in 21 months on key routes. Reportedly, freight rates on busy routes such as Delhi-Mumbai-Delhi fell by 1.5% on 1 July 2016. This is in-spite of two rounds of hikes in diesel prices.

Weak rentals could possibly fade truck operator's enthusiasm to purchase new trucks. Post monsoon trends in sales coupled with freight rates will be the key things to watch out for going forward.

Is the Black Money Issue Getting Tackled?

Recently, Revenue Secretary Mr Adhia stated that there are only 0.15 million individuals whose total income would be above Rs 5 million. This means, in a country of close to 1.25 bn people, only 0.012% of the population has an income of over Rs 5 million. But this number is way behind than the government's estimates.

Mr Jaitley, tried to address this issue in the Union Budget 2016. He proposed a limited period Compliance Window for domestic taxpayers to declare undisclosed income by paying tax at 30%, and surcharge at 7.5% and penalty at 7.5%, This adds up to payment of around 45% to government for the undisclosed income.

So, if one has black money, and is willing to pay 15% extra to the government, over and above the top tax rate, the laws of the land won't apply on such a person. Meaning, there will be no scrutiny or enquiry regarding the income declared in these declarations under the Income Tax Act or the Wealth Tax Act and the declarants will have immunity from prosecution. The compliance window is from 1 June to 30 September 2016. Looking at the lower penalty provisions, there is a high probability that a considerable chunk of black money lands in the hands of the government.

However, previous efforts by the government to recover black money from undisclosed foreign assets had failed miserably. In May 2015, the Parliament had passed the Undisclosed Foreign Income and Assets (Imposition of New Tax) Act.

This window allowed those with undisclosed foreign assets and income (or foreign black money) to declare them and pay a tax of 30% and a penalty of 30%. The window was closed on 30 September 2015.

Taking advantage of this compliance window, only 638 declarants confirmed assets and income of Rs 41.5 billion was collected in total. The money recovered was not even enough to buy a scoop of ice-cream for every Indian as compared to the claims of buying everyone a new car. Maybe, the scheme failed on the back of high penal provisions of 30% over and above the normal tax rate.

Having said that, Switzerland has begun sharing foreign client details on evidence of wrongdoings. Further, it has agreed to expand its cooperation on India's fight against black money and expects to sign a new pact for automatic information exchange 2018 onwards. Further, a team of Indian officials too are expected to visit Switzerland soon to expedite the pending information requests about suspected illicit accounts of Indians in Swiss banks.

Moreover, money held by Indians in Swiss banks has nearly fallen by one-third to a record low of Rs 83.9 billion at the end of 2015. This figure authenticates that there has been a considerable success to bring back black money from the Swiss banks. Recently, the taxmen have detected Rs 81.8 billion of undisclosed income against those whose names figured in the HSBC Geneva list. Out of the total 628 cases under this list, the department got "actionable" evidence in 415 cases. Hence, lately there has been a positive development on the black money issue.

The recently introduced scheme in the Union Budget coupled with increased sharing of wrongdoings from the Swiss authorities will help to bring a clampdown on the black money issue which has been one of the prime focus of the Modi government.