Indian Indices Pare Most Gains, End Marginally Higher
Closing

Indian share markets lost some steam towards the end of the day to end today's session only marginally higher. Losses were largely seen in the telecom sector and realty sector.

At the closing bell, the BSE Sensex stood higher by 31 points (up 0.1%) and the NSE Nifty closed higher by 15 points (up 0.2%). The BSE Mid Cap index ended the day down by 0.8%, while the BSE Small Cap index ended the day down by 0.6%.

Asian stock markets finished mixed as of the most recent closing prices. The Hang Seng gained 1.48% and the Nikkei gained 0.57%. The Shanghai Composite lost 0.29%. European markets are also trading mixed today. The FTSE 100 is down 0.77% while Germany's DAX is up 0.19% and France's CAC 40 is down 0.11%. The rupee was trading at 64.56 to the US$ at the time of writing.

As per a leading financial daily, the Union Tourism ministry has proposed to accord infrastructure status to hotel projects costing in excess of Rs 500 million.

The development is aimed at promoting small players to invest in the hotel industry.

The above proposal, if approved, would lower the threshold limit from the current Rs 2 billion for hotel projects to qualify for priority lending.

The above measure will also aid the tourism industry as well as infrastructure industry in India.

Speaking of infrastructure status, over the past decade and more, India has been grappling with the twin problems of project delays and cost overruns.

However, there has been some good news of late as the share of projects facing implementation delays has almost halved since 2013. This can be seen from the chart below:

Infrastructure Project Delays Witness a Significant Decline

Historically, the reasons for cost escalation were driven by high land acquisition costs and time overruns. However, the Modi government has tackled these issues, among others, to revive the infrastructure activity in India. From The 5 Minute WrapUp:

  • The Modi led government has implemented various policies since 2014 to tackle these issues and expedited removal of bottlenecks and approval delays. And this is showing results. Increased focus on public spending on projects and completion of stalled projects has resulted in a steady rate of improvement in ongoing projects. Increased efficiency in project implementation augurs well for the economy and will help India reign in the twin problems of project delays and cost overruns.

In other news, as per an article in the Times of India, the central region saw the maximum sale of sovereign gold bonds in the country during the period of Akshaya Tritiya.

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The region recorded a sale of 19.3 kilograms of gold worth Rs 56 million in just seven days under the 'sale of sovereign gold bonds' scheme.

On the subject of gold bonds, the latest issue for Sovereign Gold Bonds (SGBs) 2017-18 - Series II opened yesterday. The issue is open until 14th of July and the date of issue is 28th July. Under the scheme, SGBs will be denominated in one-gram units. Minimum investment is one gram. The limit per person per fiscal year (April-March) is five hundred grams.

The SGBs will bear a 2.5% fixed rate of interest per annum on the initial investment. Interest will be paid half-yearly and the last interest will be payable on maturity along with the principal.

SGBs are an alternative to owning physical gold. These government bonds mimic the price of physical gold and are tradable on the stock exchanges. And to entice gold-crazed Indians to buy paper gold instead of the shiny, yellow thing, the government offers some interest on the otherwise non-yielding asset.

The latest premium edition of The 5 Minute WrapUp discusses the above SGB issue in detail. You can read the same here.

And here's a note from Profit Hunter:

Hindalco is among the top gainer in the Nifty 50 Index today - up 2.3%. Let's have a look at its chart.

In our earlier note, we mentioned Rs 200 as strong resistance for the stock. In July 2014, the stock topped out at this level and has resisted here several times in the past five months. In fact, every time the stock approached the 200 level, it fell 6-10% in a week's time.

In the past one month, the stock broke out above this level thrice but immediately slipped below it in a session or two, reinforcing the importance of the level.

Today, the stock again broke above the 200 level with healthy volumes.

So it will be interesting to see if Hindalco can sustain above 200 this time or if it will again slip back below this important level.

Hindalco Near a Crucial Level
Hindalco Near a Crucial Level 


Sensex Continues Uptrend; IT 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 auto sector and IT sector witnessing maximum buying interest.

The BSE Sensex is trading up 135 points (up 0.4%) and the NSE Nifty is trading up 51 points (up 0.5%). The BSE Mid Cap index is trading flat, while the BSE Small Cap index is trading up by 0.4%. The rupee is trading at 64.53 to the US$.

India Meteorological Department (IMD) said the seasonal monsoon rains have covered most of India and the amount of precipitation so far is within expectations. It also noted that normal rainfall has raised hopes for higher farm output after increased sowing of rice and soybean crops.

As per the IMD, cumulative monsoon rains have been 2% below average since the beginning of the rainy season in June until July 9.

However, recent rains have been heavier, as in the week to July 5, the seasonal showers were 21% above average.

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Last month, the IMD raised its monsoon forecast by 2% to 98% of the long-term average.

One shall note that a normal monsoon is critical to India since most of the farmers are still dependent on monsoon rains for their subsistence.

The rural economy has witnessed two consecutive draughts like situation in the past few years and monsoon has been above normal only once since 2012, as can be seen from the chart below:

Monsoon Has Been Above Normal Only Once Since 2012

So the normal rainfall this year bodes well for the Indian economy and will certainly aid many sectors. Having said that, the above trend is certainly not something to speculate on while buying stocks.

In other news, as per an article in the Economic Times, the government has increased import duty on sugar to 50%.

The Central Board of Excise and Customs notified that import duty on raw sugar, refined or white sugar that is imported by bulk consumers will increase from the present 40% to 50% with immediate effect. No end date was specified for the duty increase.

The development comes as a measure to curb dumping of the commodity in India as international prices fell. It will also keep prices of sugar under control in domestic markets.

With this move, the sugar industry seeks to prevent a build-up of arrears in payments to sugar cane farmers in the next season starting October 2017.


Sensex & Nifty Trade Near All-Time Highs; IT Stocks Lead
11:30 am

After opening the trading day on a positive note, Indian share markets continue to trade firm in the morning session. Gains are largely seen in information technology stocks and automobile stocks. Meanwhile, consumer durables sector and FMCG sector trading in the red.

The BSE Sensex is trading higher by 132 points and the NSE Nifty is trading higher by 47 points. The BSE Mid Cap index is trading flat while the BSE Small Cap index is trading up 0.4%. The rupee is trading at 64.54 to the US$.

As per an article in the Livemint, June quarter earnings growth of Indian companies is likely to slow because of uncertainty surrounding the implementation of goods and services tax (GST) and the impact of a stronger home currency on exporters.

The Indian rupee has strengthened 5.16% against the dollar since January and may hurt the exports realization of Indian companies. Implementation of GST has also caused major disruption in many sectors.

As the 1 July implementation of GST approached, there were reports of liquidation of inventory by dealers and supply-chain disruptions in various sectors-developments that may hurt earnings and revenue growth of companies.

GST, one of the biggest tax reforms since independence, subsumes more than a dozen state and central levies into one tax, economically unifying 29 states for the first time.

As per the reports, the growth will be limited to consumption-based sectors namely automobiles and auto ancillaries, retail, FMCG and aviation.

Uncertainity among sellers and distributors due to Goods and Services taxes (GST) rollout in Q2 FY18 is expected to cap revenue growth.

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The telecom sector is expected to regain its momentum slowly due to revenues slipping by about 10-15% owing to tariff war following the entry of Reliance Jio.

The metal sector is also expected to get back on track slowly as metal prices dipped in the month of June

Moving on to the news from stocks in pharma sector. According to an article in a leading financial daily, Lupin has entered into collaboration with the American Academy of Ophthalmology that would seek to expand and enhance continuing ophthalmic education in India.

The effort is expected to reach 3,000 ophthalmologists in the country. The collaboration will provide ophthalmologists access to several clinical education tools.

In another development, Alembic Pharmaceuticals share price is trading up over 4.6% on the back of USFDA approval for Dabigatran Etexilate capsules.

The company has received tentative approval from the United States Food & Drug Administration (USFDA) for its abbreviated new drug application (ANDA) for Dabigatran Etexilate Capsules, 150 mg.

The tentative approved ANDA is therapeutically equivalent to the reference listed drug product (RLD) PRADAXA Dabigatran Etexilate Mesylate Capsules, Eq to 150 mg base, Boehringer Ingelheim.

Notably, 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.

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.


Sensex Opens Marginally Up; Tata Motors Gains Post June JLR Sales Data
09:30 am

Asian equity markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.35%, while the Hang Seng is up 1.02%. The Nikkei 225 is trading up by 0.27%. The US stocks ended mostly higher led by gains in technology stocks as investors were optimistic ahead of earnings.

Meanwhile, share markets in India have opened the day on a positive note. The BSE Sensex is trading higher by 60 points, while the NSE Nifty is trading higher by 24 points. The BSE Mid Cap Index and BSE Small Cap index both opened the day up by 0.2%.

Barring consumer durables stocks and metal stocks, all sectoral indices have opened the day in the green with information technology stocks and automobile stocks leading the pack of gainers. The rupee is trading at 64.54 to the US$.

Tata Motors share price surged 2% after the company said that the sales of its luxury unit Jaguar Land Rover (JLR) rose 11% to 51,591 in June over last year, driven by healthy China market.

Jet Airways share price rose 1.9% on the reports that global airlines Lufthansa, KLM-Air France, and Delta as well as major private equity funds including the Blackstone Group, KKR & Co and TPG Capital are in the race to acquire a stake in Indian carrier Jet Airways.

According to a report in The Economic Times, the companies are looking to invest US$200-250 million in the country's second largest airline.

Steel stocks opened the day on a mixed note with Tayo Rolls Ltd and Jindal Saw Ltd leading the gains. As per an article in a leading financial daily, Tata Steel has commissioned a solar power plant at its iron ore mines in Noamundi, as part of its initiative towards reducing carbon footprint.

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The company set up a 3 MW Solar Photovoltaic (PV) Power Plant at Noamundi, at an investment of Rs 0.35 billion.

Incidentally, it is also the first solar power plant to be set up in any iron ore mine in the country. The project, which will serve the company's captive requirement around its mining locations, was executed by Tata.

Set up at a cost of Rs 0.35 billion and covering 19 acres, the power from the plant, Tata Steel will be the sole buyer at a contracted tariff. The selected site has a potential of 4.5 MW solar power generation.

The project came to light as a result of the synergy between three Tata group companies - Tata Steel, Tata Power Solar and Tata Power Trading Company.

Speaking of the renewable energy sector, and especially solar, has seen their fortunes change at a rapid pace. Leaps in technology have made renewables increasingly cheaper to produce (Subscription required) relative to traditional thermal power (coal-based). While thermal is still the cheapest to set up, the gap has quickly narrowed in the past few years and is now down to a whisker.

Costs of Setting Up Various Types of Power Plants

Rahul Shah, Co-head of Research, pointed out that a few of the renewable energy projects are already running into financial troubles. Can we rule out a similar fate for the other projects?

In his view, investors should not get carried away by the hoopla surrounding renewable energy projects. It's a much-needed initiative to reduce the pollution levels across the country. However, investors in this space must be extremely cautious.

Tata Steel share price opened down by 0.2% while Tata Power share price opened up by 0.1%.

Moving on to the news from the IPO space. As per an article in a leading financial daily, State Bank of India's (SBI's) executive committee of the central board has given the final approval for divestment of 80 million shares in SBI Life through an initial public offering (IPO).

SBI Life, the subsidiary of India's largest lender had earlier announced offloading 12 percent stake through the IPO. SBI will dilute 8% stake while BNP Paribas Cardif will sell 4%.

SBI Life will be only the second life insurer to list since the government allowed foreign investors to increase stake in national insurers to 49% from 26% earlier. ICICI Prudential Life Insurance was the first to list in September 2016 after the norms were relaxed.

It remains to be seen how the issue is priced, more so in light of the market expecting brisk growth from the company. And considering that the insurance business is quite a different beast compared to most other companies, valuation tends to be a tricky affair.

Meanwhile, our big-picture editor, Vivek Kaul, recently penned a pertinent report on the entire insurance industry. We strongly recommend you go through the full report on what's really happening in the insurance industry in India...and how it affects you. If you have not accessed Vivek Kaul's Letter yet, sign up here.

By the way, we have also prepared a guide to help you understand the valuation of insurance businesses.

Speaking of IPO space, we don't need thousands of IPOs to get rich. That's not how super investors make their fortunes. But a few good IPOs could certainly become the multibaggers in your portfolio in a few years.

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To understand this terrain, you may want to download our report - Handbook of IPO investing, which has a special section on the valuation of insurance companies. This will help you demystify the complexities of the industry before you attempt to invest in insurance IPOs.


Pharmaceutical Stocks on the Rise; Stocks to Watch Out for Today
Pre-Open

The S&P BSE Sensex ended on a strong note in yesterday's trade. Major sectoral indices ended the day on a positive note with stocks from information technology sector rallying the most. Tata Consultancy Service was up by 4.7% ahead of its results on 13 July.

Moving to the Top Cues in Action Today

Earnings season has commenced as companies have started reporting their results for the quarter ending June 2017.

The companies to report their results today includes the likes of IndusInd Bank, CCL Products (India) Ltd and Amtek Auto.

Ahead of its result, IndusInd Bank is trading at its all-time high of Rs 1559. Loan growth coupled with slippages on the bad loans front will be the key things to watch out for. We will keep you updated on this front in the upcoming market commentaries.

Talking about earnings, an analyst estimate suggests that there could possibly be a slowdown in earnings growth on account of implementation of goods and service tax (GST). Implementation of GST from 1 July 2017 has led to supply chain disruptions in various sectors. This could have a possible impact on the earnings growth.

We believe, such disruptions would prevail across sectors in the short run. However, in the long run GST will be a long term positive for the economy. Rahul Shah-Managing Editor of Microcap Millionaires, too is of the view that GST will be a long term positive for the economy. In one of his recent articles he stated how the organized sector is set to benefit in a huge way from this reform.

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News from the Pharma Sector...

The S&P BSE Healthcare index inched upwards by 1.2% in yesterday's trade. The pharma sector was in the buzz on the back of heavy buying in certain stocks like Sun Pharmaceutical Industries, Divis Laboratories and Lupin Ltd.

Divis Laboratories surged by 7.9% in yesterday's trade as the US drug regulator lifted its import alert issued under clause 99-32 on the company's Unit-II at Vishakhapatnam. However, the import alert issued under clause 66-40 persists. The removal of import alert under 66-40 would enable the company to export its products to the US. Thus, the removal of import alert under the clause 66-40 will be the key thing to watch out for going forward.

Overall, 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. The headwinds being faced by this sector, have led to such lethal contraction.

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.

While short-term pain is expected, companies with strong R&D capabilities and compliant plants (subscription required) will do well over the long term. The uncertainties make it important to be stock specific in the sector. It is important to look for companies that have the competence and staying power to overcome the challenges facing the sector.