Week Rupee slumps market

Indian equity markets opened the day's proceeding on a weak note after the Rupee hit an all time low of 61.19 to the dollar. Markets continued to trade lower in the afternoon session as overseas investors sold away shares in the emerging markets and shifted stance to US after robust jobs data. Risk appetite was also hurt amid lingering fear over tapering of US Federal Reserve's bond-buying plans on back of growth recovery in world's biggest economy. While the BSE Sensex closed lower by 171 points, the NSE-Nifty closed lower by 56 points. Both the BSE Mid Cap and the BSE Small Cap closed on a negative note. Oil and Gas and Realty stocks were the biggest losers.

As regards global markets, Asian stock markets closed in the red. European indices have opened in the green. The rupee was trading at Rs 60.9 to the dollar at the time of writing.

According to a leading financial daily, Novartis has entered into a development and licensing agreement with Biological E (BioE) for two vaccines against typhoid and paratyphoid fevers. Under the license, Novartis Vaccines Institute for Global Health (NVGH) will transfer technology to Hyderabad-based BioE, which will have financial and operational responsibility for manufacturing, further clinical development, approval and distribution in the developing world. A combined typhoid-paratyphoid vaccine will be transferred once proof of concept is completed through early, small-scale studies in humans to determine safety and immunogenicity.

Bharti Airtel has cleared debt of Rs 67.96 bn out of a total debt of Rs 638 bn. The debt reduction will result in an improvement in the capital structure and balance sheet leverage for the company. This money was raised by the company through preferential allotment of 5% equity shares in Bharti Airtel at Rs 340 per share to Qatar Foundation Endowment.

The Zambia Information and Communication Technology Authority instituted criminal proceedings against the local units of Bharti Airtel accusing it of failing to meet minimum standards. The deteriorating levels of quality of service has made communication difficult and resulted in increased public outcry and negative impact on ease of doing business in Zambia. South Africa's MTN and the Zambia's Zamtel are the two companies along with Airtel who are taken to court.

No respite for Indian indices
01:30 pm

Backed by persistent selling activity across index heavyweights, Indian equity markets continued to trade weak during the post noon trading session. Most of the sectoral indices are trading in the negative territory. Stocks from the PSU and realty sectors are witnessing maximum selling pressure. However IT, healthcare and FMCG stocks are in favour today.

BSE-Sensex is down by 192 points and NSE-Nifty is trading down by 63 points. While BSE Mid Cap is trading down by 0.2%, BSE Small Cap index is trading down by 0.4%. The rupee is trading at 60.94 to the US dollar.

Majority of the PSU banking stocks are trading in the red with UCO Bank and Corporation Bank being the leading losers. As per a leading financial daily, State Bank of India (SBI), may launch a new home loan product. This would help various home loan borrowers to avail higher credit with a lower rate of interest. Reportedly, the proposal is submitted and the final nod is awaited from an internal policy making body, CCPPC (Credit Pricing and Processing Committee). The said committee will finalize the same in the next few weeks. Currently, the bank is offering loans in two slabs viz., upto Rs 30 lakhs and above Rs 30 lakhs. As per the new proposal, these slabs will be raised to Rs 40-50 lakhs. Both the Reserve Bank of India (RBI) and the government have been insisting that banks pass on the rate cut benefits to borrowers. Moreover, the regulators want banks to facilitate the housing sector especially those who fall under the low cost bracket. SBI was trading down by 1.3%.

Indian pharma stocks are trading mixed. While Panacea Biotech and Torrent Pharma are trading firm, Strides Arcolab and Elder Pharma are at the receiving end. As per a financial daily, Wockhardt Ltd, has received an import alert from the UK (United Kingdom) drug regulator MHRA (Medicines and Healthcare products Regulatory Agency)on its Waluj facility located at Aurangabad. This is the same facility where some time back the USFDA (United States Food and Drug Authority) had issued import alert. As per the company, this alert accounts for approximately Rs 1 bn of the sales of the company. However, the company is looking for alternative site transfers immediately and thus expects very negligible impact due to this ban. Wockhardt was trading up by 0.6%.

Indian share markets remain weak
11:30 am

Indian share markets have remained weak in the last two hours of trade. IT and healthcare are leading the pack of winners while auto and realty are facing the maximum selling pressures.

The BSE-Sensex is down by 245 points and NSE-Nifty is down by 77 points. BSE Mid Cap and BSE Small Cap indces are down by 0.5%. The rupee is trading at 60.99 to the US dollar.

All except four auto shares, Eicher Motor, Ashok Leyland, Hero Motocorp and Tube Investments are trading in red. According to a leading financial news medium, Bajaj Auto, India's second largest motorcycle manufacturer is planning to launch its four- wheeled passenger carrier: RE60 by end of this fiscal (The Company first unveiled the prototype of RE60 at the Auto Expo in New Delhi in January 2012). RE60, which is basically a quadricycle is a low-speed, lightweight four-wheeler, meant for intra-city commutes. Recently in June, the company launched KTM Duke 390 for Rs 180,000 (ex-showroom Delhi). This is the second offering of the Company from the KTM stable. Bajaj Auto's share is trading down by 1.7%.

Indian Pharma shares are trading on a mixed note with Panacea Biotech and Indoco Remedies leading the gains while Dishman Pharma and Elder Pharma are facing the maximum selling pressures. According to a leading financial news medium, Lupin, the Indian drug major is planning to acquire companies and brands globally, including companies in US, Japan and China, in order to increase its global footprint. It is taking a three-pronged approach in its acquisition strategy, which also includes the domestic market. With this initiative, the Mumbai-based firm aims to take over companies which can provide it new technology and market access. Lupin is the 5th largest and fastest growing generics player in the US (5.1% market share by prescriptions, IMS Health) and the 3rd largest Indian pharmaceutical company by sales. The company is also the fastest growing top 10 generic pharmaceutical players in Japan and South Africa (IMS). Lupin's share is trading down by 0.6%.

Indian share markets open weak
09:30 am

Barring Japan (up 0.7%), the major Asian stock markets have opened the day on a weak note with Hong Kong (down 1.9%) and Indonesia (down 2.2%) leading the losses. The Indian share market indices have also opened the day in the red. Barring software, all sectoral indices have trading in the red with the stocks in the realty and banking sector leading the losses.

The Sensex today is down by around 230 points (1.2%), while the NSE-Nifty is down by around 77 points (1.3%). Mid and small cap stocks have also opened in the red with the BSE Mid Cap and BSE Small Cap indices down by around 0.9% and 0.4% respectively. The rupee is trading at Rs 61.13 to the US dollar.

Energy stocks have opened the day mainly in the red with Indian Oil Corporation Ltd (IOCL) and Hindustan Petroleum Corporation Ltd (HPCL) leading the losses. As per a leading financial daily, GAIL (India) Ltd may acquire 5% to 10% stake in Rashtriya Chemicals and Fertilizer Ltd's (RCF) urea and ammonium nitrate plant at Talcher in Odisha. Originally, RCF, GAIL (India) Ltd and Coal India Ltd had come together for a Rs 100 bn project to convert coal in Talcher mines into gas and then use it as feedstock for manufacturing urea and power. However, since fertliser manufacturing is not GAIL's core business, it just wants to restrict to upstream element of the project, i.e. coal gasification. As per the RCF management, it is discussing the matter with GAIL and would like the latter to be a part of the project. However, GAIL wants to take a minimum 50% stake in Rs 30 bn upstream coal-gasification project that will produce enough natural gas to fire the fertiliser plant and to run a captive power plant.

Engineering stocks have opened the day on a mixed note with Bharat Earth Movers Ltd (BEML) and Sanghvi Movers Ltd leading the losses. However, Elecon Engineering and Blue Star Ltd have opened in the green. As per a leading financial daily, Thermax Limited has received an order worth Rs 17 bn from a leading petrochemical company against a stiff global competition. The order is for the design, manufacture and commissioning of 9 CFBC (circulating fluidized bed combustion) high pressure boilers of 500 TPH each for two of its plants. The boilers are expected to be commissioned at client sites within a time frame of 25-29 months. The order is the single largest one from a client for use of CFBC boilers.

The questionable logic behind gas price hike

The stock markets this week have opened on weak note with rupee slipping past the psychological barrier of 61 against the dollar. As rupee touches new low of 61.1 versus dollar, the Sensex today is down by around 230 points (1.2%), while the NSE-Nifty is down by around 77 points (1.3%). One of the worst hit victim of this development will be the oil and gas sector. This is because India is mostly reliant on imports to meet its energy needs.

Last week too was eventful for India's energy sector as the Government approved a twofold hike in gas prices, to be effective from April 2014. While a gas price revision was due, what is surprising here is the quantum of hike. The suggested price at US$ 8.4 per mmbtu is much higher than US$ 6.7 per mmbtu as proposed by the oil ministry. So what is the logic behind this number?

As per Cabinet Committee on Economic Affairs (CCEA), the new price is based on the formula that includes the cost of imported LNG in the country and average of international benchmarks. But what we are finally looking at is not a formula approved by the Cabinet, but a final price tag with little regard to transparency.

While the current average is estimated at around US$ 6.7 per million metric British Thermal unit (mmbtu), the price at US$ 8.4 per mmbtu (to be applied from April 2014) takes into account expensive Australian LNG imports and lifting on the price cap of Qatar LNG next year. As per the Government, the hike in prices will boost the investment in domestic gas sector. However, we wonder what this noble intention has got to do with international prices. Why did not the Government consider long term return on investment criteria over the life of the project for coming up with the viable price for the gas? Further, why is the price quoted in dollars, and that too without any consideration for exchange rates? While it can increase the acceptability of imported gas, the new price ignores exploration costs and return on investment- the key factors that should be borne in mind while deciding the viability and ways to incentivize the sector.

Also, it is worth noting here that few years back, the gas prices were increased from US$ 1.79 per mmbtu. Interestingly, the revised level of US$ 4.2 per mmbtu was arrived at by Reliance Industries (RIL), a private gas producer. It is ironical that RIL itself has been crying foul over the unviability of business at current prices and has stalled a major share of domestic gas production. Far from getting penalized for blocking a national resource, the company seems to be getting its own way. In short, hiking prices in the past has not helped India in improving the gas production profile. It will be naive to assume that future will be any different.

As far as impact on fiscal health is concerned, the increase in prices will increase royalty income for the Government. However, it will lead to even higher subsidy burden to compensate priority sectors like fertilizer and power sector (that are the key consumers of natural gas). And it is quite likely that the burden will finally be passed to state run gas exploration companies like Oil and Natural Gas Corporation (ONGC), thus defeating the entire logic of incentivization. On the other hand, the private gas producers like RIL will just enjoy the upside of the move, that too if they find it good enough to resume production. To conclude, the new price levels seems to be serving corporate interests under the pretext of reforms.