Sensex Finishes Firm; Bank Stocks Rally
Closing

Indian share markets trimmed some of their early gains in the afternoon session but still finished the trading session on a firm note. At the closing bell, the BSE Sensex stood higher by 124 points, while the NSE Nifty finished up by 37 points. Meanwhile, the S&P BSE Mid Cap & the S&P BSE Small Cap finished up by 0.3% respectively. Gains were largely seen in realty stocks, PSU stocks, auto stocks and FMCG stocks.

PSU bank stocks rallied in today's trade with Indian Bank share price and Central Bank share price leading the gains. SBI share price surged 2.1% in today's trade.

Asian stock markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 0.17%, while the Nikkei 225 & the Hang Seng fell 0.44% and 0.22% respectively. European markets are lower today with shares in France off the most. The CAC 40 is down 0.87% while Germany's DAX is off 0.66% and London's FTSE 100 is lower by 0.56%.

The rupee was trading at Rs 64.77 against the US$ in the afternoon session. Oil prices were trading at US$ 45.77 at the time of writing.

In news from economic sector, International Monetary Fund (IMF) has said that India's economic growth outlook has improved as the impact of government's demonetisation drive to curb black money seems to be fading and recent key structural reforms are paying off. Though, it also noted that concerns are growing on corporate debt and banking system vulnerabilities.

IMF has stated that there is 'cautious optimism' about the global economy but policy efforts are still required to reinforce the recovery. It pointed out that the global recovery continues, even as the composition of growth is shifting among the large economies. It also expects that global growth to be around 3.5% this year and next.

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Even though global growth momentum remains on track, the IMF has said that some of the forces driving the recovery are adding to already high vulnerabilities and external imbalances. At the same time, it also noted that, weak productivity growth and a lack of inclusiveness limit the growth outlook going forward.

Noting that there is scope for improving productivity and widening economic opportunities for all, the IMF said that in many emerging and advanced economies, higher investment in education, including through better use of public funds, would support long term growth. It also explained that such investments would also help in opening up opportunities and enabling both social mobility and adjustment to structural economic shifts, including those arising from technology and trade.

Moving on to news from telecom stocks. As per an article in The Economic Times, Bharti Airtel may revive a plan to sell a controlling stake in tower arm Bharti Infratel in an effort to pare over US$14 billion of debt and release funds for network expansion.

The possible change of plan comes at a time when there has been a 26% surge in Infratel's stock price over the past three months.

Recently, Livemint reported that Bharti Airtel Ltd sold a 10.3% stake in its tower unit to a consortium of investors including KKR & CPPIB to raise Rs 61.93 billion, funds that India's largest telecom operator plans to use to pare debt and counter intensifying competition.

Airtel had talked about selling a controlling stake in Infratel in October but shelved the plan in March. Instead, it transferred a 21.63% holding to a wholly owned arm, Nettle Infrastructure Investments, as share price declined amid industry consolidation that threatened tenancies and revenue.

Airtel plans capital expenditure of US$2.5 billion in the current financial year in India, where it is expanding 4G network and deepening 3G network. Airtel spent about US$2.3 billion in the previous year.

Bharti Airtel share price finished the trading day up by 1.4%

In news from pharma sector, Jubilant Life sciences has received final approval from the US health regulator for Bupropion Hydrochloride extended- release tablets, used for the treatment of major depressive disorder and prevention of seasonal affective disorder.

This is the fourth approval received by the company from the USFDA during the current financial year. As on March 31, 2017, Jubilant Life Sciences had a total of 81 ANDAs for oral solids filed in the US, of which 51 have been approved.

Jubilant Life Sciences share price finished the trading day up by 0.2% on the BSE.

Lupin also launched generic version of Moxifloxacin Hydrochloride Ophthalmic solution used for treating bacterial conjunctivitis in the US market.

The launch follows receipt of approval from the US Food and Drug Administration (USFDA) earlier for Moxifloxacin Hydrochloride Ophthalmic solution 0.5%. The medicine is the generic equivalent of Novartis Pharma Corp's Vigamox Ophthalmic solution.

Lupin share price finished the day down by 0.3%

Speaking of valuations, the BSE Healthcare Index is down 16.5% in two years. This is a mighty fall compared to the benchmark index, which is up 11% during the same period. A downgrade in the earnings estimates has led to a selloff in the pharma space, which has led to a contraction in the price to earnings ratio (PE) of the pharma index.

USFDA alerts on Indian pharma companies have increased over the past few years. Regulators used to visit the plants every two years. Now they come every eight months. Increasing inspections has led to a total of 41 import alerts in the past eight years - 33 of them (80%) in just the last four years (2013-16). This clearly signifies increased USFDA scrutiny on Indian pharma firms. If that wasn't enough, increasing pricing pressure in the generics segment has dented realizations.

Expediting Drug Approval Process to be a Positive for Industry

In this dull scenario, there appears to be some respite as the USFDA has expedited the drug approval process. Drug approvals for Indian companies have gone up 50% in the period from January to June 2017 compared to the same period last year.

And here's a note from Profit Hunter:

Public sector banks (PSB) bottomed out in February 2016 with the broader market. The PSU Bank Index then rallied strongly to double from its bottom. But in the past two months, the index is 14% off its high.

Today, all PSU banks stocks rallied. But Bank of Baroda (BOB) rallied the least.

The stock has been trading in a rising channel since May 2016. Recently, it found resistance at the channel's resistance line at the 200 level and collapsed 24% to break below the channel's support line. This indicates weakness in the price action. Last week, the stock hit a low of Rs 152 before bouncing up a bit.

Today, it's trading near the channel's broken support line. This support has now turned into resistance. If the stock finds resistance here, it will mark the end of the uptrend. On the flipside, if it manages to get back into the channel, the bulls could be back in action.

End of BOB's Uptrend?
End of BOB's Uptrend? 


Sensex Continues Momentum; Realty Stocks Witness Buying
01:30 pm

After opening the day marginally higher, stock markets in India have continued their momentum. Sectoral indices are trading on a positive note with stocks in the FMCG sector, realty sector and banking sector witnessing maximum buying interest.

The BSE Sensex is trading up 152 points (up 0.5%) and the NSE Nifty is trading up 43 points (up 0.4%). The BSE Mid Cap index is trading up by 0.5%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 64.75 to the US$.

As per an article in the Economic Times, the government has set its eyes on cleaning up political funding in the country and is soon going to announce some measures to root out this problem.

Finance Minister Arun Jaitley told businessman and bankers that the government is looking at some major steps to be announced by which it wants to clean the entire political funding in India.

One shall note that there remain many loopholes that allow political parties in India to spend black money in their campaigning. And if the government is serious about cracking down on black money, it should be addressing these loopholes with utmost seriousness.

One of the measures to do the same is to bring political parties under the Right to Information Act.

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As Vivek Kaul states in one the editions of the Vivek Kaul's Diary:

  • If the political parties are brought under the ambit of RTI, they will have to function in a much more transparent way in comparison to what they do now. This would mean keeping proper records of where the funds to finance them are coming from. Also, cash donations to political parties need to stop. Payments need to be made through cheques or the various digital alternatives that are available.

If executed properly, the above measures will mean a big attack on the black economy and will slow down the generation of black money in the Indian economy.

Also, the above move can be much more fruitful than the recently conducted demonetisation exercise by the Modi government. This we say as the decision to demonetise high-denomination bank notes only attacked the stock of black money that was present during the exercise. It didn't do anything about its flow or future generation.

So, the execution of above proposals could prove a real victory over black money.

In the news from commodity markets, crude oil is witnessing buying interest today. Gains were seen after data from the American Petroleum Institute (API) showed US crude inventories fell 5.8 million barrels in the week to June 30.

However, concerns regarding the rising output from OPEC despite the planned cut capped the above gains.

Note that crude oil output is still increasing in the US, and the US is not a part of the OPEC production agreement.

Apart from the above losses, crude oil has also been witnessing volatility recently over Donald Trump's proposal to sell half of the country's strategic oil reserves.

Owing to the supply glut, crude oil prices have been remarkably silent over the last two years. Prices have remained within a tight range, rarely dropping below US$40 or rising above US$60. Volatility has crashed. And if you are trading crude oil, it's critical to understand why this has occurred.

One of the issues of Vivek Kaul's Inner Circle (requires subscription) explains what has triggered the above taming in crude oil prices.

To keep a tab on the movements in crude oil and other commodities, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency and commodity markets.

One shall note that rising oil prices do not bode well for the Indian economy. This we say is because India is hugely dependent on petroleum imports. In fact, the share of petroleum imports for India has only increased over the years, as can be seen from the chart below:

India's Growing Dependence on Petroleum Imports

India is the world's third-largest oil consumer. And energy consumption in India is set to grow as our economy remains one of the few 'bright spots' in a slowing, aging world economy. And India could face a potent risk with a rise in crude oil prices. The only way out of this for India is to reduce its dependence on oil imports and achieve fuel-sufficiency.


Sensex Trades on a Positive Note; Realty Stocks Witness Buying
11:30 am

After opening the day on a positive note, stock markets in India have continued their momentum. Sectoral indices are trading on a positive note with stocks in the realty sector and FMCG sector witnessing maximum buying interest.

The BSE Sensex is trading up 164 points (up 0.5%) and the NSE Nifty is trading up 41 points (up 0.4%). The BSE Mid Cap index is trading up by 0.6%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 64.78 to the US$.

Minutes from the Federal Reserve's last meeting released showed a lack of consensus on the future pace of US interest rate increases.

This came as Fed policymakers were increasingly split on the outlook for inflation and how it might affect the future pace of interest rates hikes.

According to the minutes, several officials wanted to announce a start to the process of reducing the Fed's large portfolio of Treasury bonds and mortgage-backed securities by the end of August.

The Fed, in its last meeting held on June 13-14, raised its benchmark interest rate by 25 basis points to 1.25%. This was the third such increase in six months - and a message of confidence from the Fed in the strengthening of the US economy.

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US Federal Reserve rate hikes generally have a negative impact on emerging economies. But India is currently seen as better equipped than other emerging markets to ride the impact of higher US interest rates. That's largely because of its stronger economic growth and impressive foreign exchange reserves of more than US$300 billion.

Foreign portfolio investors may not drain funds from India in a knee-jerk reaction to the Fed rate hike, as that would mean missing out on the enormous growth opportunities Indian markets offer.

One shall also note that most Fed policymakers now think that the central bank should take steps to trim its balance sheet later this year as long as the economic data holds up.

However, trimming the balance sheet could tighten financial conditions.

Since 2008, the Fed's swelling balance sheet has propped up the US economy. And it has aided the rally in emerging markets all these years. So any change to the Fed's balance sheet will have an immediate impact on emerging stock markets.

Only time will tell how this all pan out. Meanwhile, we'll keep you posted on the latest developments.

For domestic markets, the Fed's decision may bring some concerns for Indian share markets in the short run. However, a crash can be an ideal time to bet on solid Indian companies that are well-shielded from adverse developments in global markets. As these companies can turn into bargain buying opportunities.

In other news, Lupin share price continued to rise after the company announced the launch of generic version of a conjunctivitis drug in the US market.

Speaking of pharmaceuticals sector, one shall note that a downgrade in the earnings estimates has led to a sell-off in pharma stocks. And this, in turn, has led to a contraction in the price to earnings ratio (PE ratio) of pharma index.

One other reason for the above sell-off is increasing USFDA alerts on Indian pharma companies during the past few years. As we stated in yesterday's edition of The 5 Minute WrapUp:

  • USFDA alerts on Indian pharma companies have increased over the past few years. Regulators used to visit the plants every two years. Now they come every eight months. Increasing inspections has led to a total of 41 import alerts in the past eight years - 33 of them (80%) in just the last four years (2013-16). This clearly signifies increased USFDA scrutiny on Indian pharma firms. If that wasn't enough, increasing pricing pressure in the generics segment has dented realizations.

However, the recent development of USFDA expediting the drug approval process can bring some respite for Indian pharma companies. This comes as drug approvals for Indian companies have gone up 50% in the period from January to June 2017 compared to the same period last year, as can be seen from the chart below:

Expediting Drug Approval Process to be a Positive for Industry

With the above developments, we believe, companies with strong R&D capabilities and compliant plants (subscription required) will do well over the long term.

In the latest issue of The India Letter (subscription required), we have identified a pharma stock which we believe will outlast others in the long run.


Share Markets in India Open Flat; Lupin Top Gainer
09:30 am

Asian equity markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.08%, while the Hang Seng is down 0.03%. The Nikkei 225 is trading down by 0.27%. Most of the European markets ended Wednesday's session with nominal gains.

Meanwhile, share markets in India have opened the day on a flattish note. The BSE Sensex is trading higher by 29 points, while the NSE Nifty is trading higher by 7 points. The BSE Mid Cap Index and BSE Small Cap index opened the day up by 0.3% & 0.4% respectively.

Barring power stock, metal stocks and information technology stocks, all sectoral indices have opened the day in the green with realty stocks and healthcare stocks leading the pack of gainers. The rupee is trading at 64.72 to the US$.

Lupin share price continued to rise after the company announced the launch of generic version of a conjunctivitis drug in the US market.

In the news from the economy. According to the Nikkei India Services Purchasing Managers' Index (PMI), services sector activity in India rose to an eight-month high of 53.1 in June. The growth was mainly driven by a sharp jump in new work orders, suggesting an economic rebound going forward.

PMI, which tracks services output on a monthly basis, increased to 53.1 in June, from 52.2 in May, signalling a solid and accelerated upturn in output across the sector.

Surging Ahead

Reportedly, June's figure contributed to the highest quarterly average for the composite PMI (52.2) since Q2 (FY) 2016. This suggests that GDP growth is likely to rebound from the sharp slowdown noted in the first three months of 2017.

Though input prices rose significantly, firms did not fully pass that on to customers, suggesting overall inflation in coming months could remain below the Reserve Bank of India's medium-term target of 4%.

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Further, India's annual consumer price inflation eased to 2.18% in May, driven down by cooling food prices, and further falls could pressure the central bank to cut interest rates by the end of this year.

Moving on to the news from the . As per an article in a leading financial daily, ONGC's subsidiary, ONGC Videsh has signed a definitive binding agreement with Tullow Namibia Limited for the purchase of 30% participating interest in three blocks, offshore Namibia.

The company will acquire 30% participating interests under Namibia Petroleum Exploration License 0037 for Blocks 2112A, 2012B and 2113B and related agreements out of Tullow's existing participating interest of 65% in the license.

Tullow is the licensed operator and will continue to remain so even after the purchase by ONGC Videsh.

The completion of the present transaction would mark ONGC Videsh entry in Namibian offshore and is consistent with its strategic objective of adding high impact exploration and production assets to its existing E&P portfolio.

ONGC share price opened the day down by 0.3%.


Of GST, Fed Minutes, and Top Cues to Watch Out Today
Pre-Open

Indian stock markets finished their day with marginal gains on Wednesday. The BSE Sensex stood higher by 36 points, while the NSE Nifty stood higher by 24 points at the closing bell yesterday.

On the sectoral front, realty stocks, metal stocks, and energy stocks witnessed maximum buying interest. However, these gains were wiped off by losses seen in IT stocks and FMCG stocks.

GST and Its Impact on Broader Markets...

The above volatility in broader markets as well as specific sectors was seen on the back of rollout of Goods and Services Tax (GST).

In the latest news on GST, Fitch ratings stated that GST is likely to remove domestic trade barriers and boost revenue indirectly in the long term. This, as per the ratings agency, is because the tax regime will support the GDP growth and encourage tax compliance.

One shall note that with the changes in GST, the unorganised sector is forced to report and pay taxes on everything they sell. And this development is set to give a big boost to the organized sector.

As we wrote in a recent edition of The 5 Minute WrapUp:

  • And if the unorganised sector will be forced to report and pay taxes on everything they sell, the price differential with the organised sector is really going to narrow, giving a big boost to the latter.

    This is perhaps why - when most of us are nervous about the roll out of this big-bang reform - stock markets are surging.

We believe that the above shift towards formalization bodes well for the government, consumers, and the economy at large.

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In the News from the Global Financial Markets...

Stock market participants will be taking cues from the Fed minutes of the June 13-14 policy meeting.

The Fed, in its meeting held last month, raised its benchmark interest rate by 25 basis points to 1.25%. This was the third such increase in six months - and a message of confidence from the Fed in the strengthening of the US economy.

The Fed now sees another three-quarter-point rate hike in 2018, in line with the projections from March.

US Federal Reserve rate hikes generally have a negative impact on emerging economies. But India is currently seen as better equipped than other emerging markets to ride the impact of higher US interest rates. That's largely because of its stronger economic growth and impressive foreign exchange reserves of more than US$300 billion.

Foreign portfolio investors may not drain funds from India in a knee-jerk reaction to the Fed rate hike, as that would mean missing out on the enormous growth opportunities Indian markets offer.

Top Cues to Watch Out Today

The Metropolitan Stock Exchange of India (MSEI) stated it will extend the closing time of trading hours on its equity capital market segment to 5:00 pm from the current 3:30 pm.

The above change is proposed to be implemented form tomorrow and market participants are watching for further cues from the MSEI on this front.

Investors are also tracking the launch of the much awaited 4G VoLTE featured phone from Reliance Jio - the subsidiary of Reliance Industries. Many expect the above launch would usher in another wave of disruption in the telecom market.

On the commodity front, market participants will keep an eye out for the latest data on crude oil inventories.

Reports during the start of this week showed drilling activity in the US falling for the first time in months. The news aided crude oil prices, which have been on the rise since past few days.

To keep a tab on the movements in crude oil and other commodities, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency and commodity markets.