Lackluster Day of Trading

Indian equity markets began the day's proceedings on a flat note and remained range bound through the entire trading session today. At the closing bell, the BSE Sensex closed higher by 7 points, the NSE Nifty finished lower by 2 points. Meanwhile, the S&P BSE Midcap & the S&P BSE Small Cap finished down by 0.5% and 0.8% respectively. Gains were largely seen in metal and IT stocks, while stocks from realty and power space witnessed selling activity.

Asian markets finished higher today with shares in Japan leading the region. The Nikkei 225 was up 0.84%, while Hong Kong's Hang Seng was up 0.46% and China's Shanghai Composite was up 0.37%. European markets are also trading higher today with shares in France leading the gains. The CAC 40 is up 0.28%, while London's FTSE 100 is up 0.28% and Germany's DAX is up 0.04%.

The rupee was trading at 67.20 against the US$ in the afternoon session. Oil prices were trading at US$ 46.18 at the time of writing.

According to a leading financial daily, The Indian Hotels Company has completed sale of its Taj Boston hotel for US$ 125 million (about Rs 8.39 billion). Net sale proceeds will be utilized largely to retire outstanding debt.

The hotel will continue to be operated and managed by IHMS (USA) LLC, which has entered into a management services agreement with the new owning company, thus ensuring continuity of Taj's presence in the Boston market.

Earlier this year, Indian Hotels had reportedly authorized the present management of the company for the sale of the Taj Boston.

As per the reports, net loss before tax for the Boston hotel widened to US$ 7.3 million in 2015-16 as against US$ 6.7 million in 2014-15. Taj Boston's total revenue in 2015-16 dipped 1.15% to US$ 34.1 million from US$ 34.5 million in 2014-15.

Indian Hotels Company had acquired Taj Boston Hotel in 2006. The company recognized the importance of the need of presence of brand Taj in the US, which is the single largest source market for the company.

However, global economic recession impacted fortunes of the hospitality sector around the world and its profitability as well. The company reported 9.6% YoY increase in sales and a loss of Rs 605 m in FY16 (Subscription Required).

The Indian Hotels Co. Ltd finished the day down by 0.4% on the BSE.

Moving on to news from the oil & gas sector. According to an article in the Livemint, India's demand for oil in the first three months of financial year FY17 grew at the fastest pace for any first quarter period in the past 10 years.

As per the reports, India consumed 48.5 million tons of oil products in the quarter, an increase of 7.8% from the same period a year ago. That's the fastest since the first quarter of the year ended March 2007, when growth was 8.4%. Diesel consumption expanded 4.7% to 20.1 million tons and gasoline use increased 10% to 5.9 million tons.

India is expected to lead the world in oil demand and surpass Japan as the world's third-largest oil user this year. It will be the fastest-growing crude consumer in the world through 2040 according to the International Energy Agency. The agency also estimates India will add 6 million barrels a day of demand, compared with 4.8 million for China.

The growth in consumption has a cyclical element to it with the first quarter being slower than the other three in a year. In the previous three quarters, demand climbed at least 11%.

Energy stocks finished the day on an encouraging note with ONGC and Chennai Petroleum leading the gains.

Realty Stocks Out of Favour
01:30 pm

After opening the day flat, Indian Indices slipped into the negative territory during the post noon trading session. Sectoral indices are trading on a mixed note with stocks from the metal and IT witnessing buying interest while realty and consumer durables bearing the maximum brunt.

The BSE Sensex is trading lower by 24 points (down 0.1%) and the NSE Nifty is trading lower by 17 points (down 0.2%). The BSE Mid Cap index is trading lower by 0.6% while the BSE Small Cap index is trading lower by 0.7%. Gold prices, per 10 grams, are trading at Rs 31,293 levels. Silver price, per kilogram, is trading at Rs 48,019 levels. Crude oil is trading at Rs 3,109 per barrel. The rupee is trading at 67.17 to the US$.

As per an article in The Economic Times, government is likely to issue a nod to hike kerosene prices by Rs 0.25 a litre per month till April 2017.

Reportedly, if the move sees the light of the day, the upstream oil companies such as ONGC may get benefited immensely, the report stated. The government last hiked prices on July 1 for the first time in five years.

The under-recovery on kerosene stands at about Rs 13.1 per litre, of which the government subsidises Rs 12.

Consequently, inclusive of July increase of Rs 0.25, a monthly increase of similar amount would result in a saving of Rs 2.25 a litre for the current financial year alone. Moreover, the increase will benefit three government-controlled oil marketing companies Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation.

The decision comes since the government is still not able to introduce direct benefit transfer in kerosene, the reports stated.

Moving on to the news from banking sector. According to a leading financial daily, IDFC Bank Ltd has signed a pact to acquire Grama Vidiyal Micro Finance Ltd to expand its services. The acquisition offers the bank access to Grama's 1.2 million households apart from adding its 319 points of presence in seven states.

This is for the first time a bank has acquired a microfinance company in India. Grama Vidiyal is headquartered in Tamil Nadu and has assets under management (AUM) of Rs 15 billion as of March 2016.

The bank said the Grama Vidiyal will be its wholly-owned subsidiary and will act as a dedicated business correspondent of IDFC Bank.

IDFC Bank plans to grow its rural and consumer banking loan book to 25% by March 2017. Whether IDFC Bank realizes its dream will be a key thing to watch out for going forward. Speaking about IDFC Bank's journey ahead, Madhu Gupta, Managing Editor of ResearchPro has written an interesting piece on this matter in one of the editions of ValuePro recently.

Subscribers can access IDFC Bank's latest result analysis (subscription required) on our website.

IDFC Bank Ltd was trading down by 2% while writing.

Markets Trade Marginally Lower
11:30 am

After opening the trading day on a lackluster note, Indian markets are trading marginally negative amid mixed Asian markets. Sectoral indices are trading mixed with realty and power stocks leading the losses, while metal and oil & gas stocks are in demand.

The BSE Sensex is trading lower by 40 points and the NSE Nifty is trading lower by 20 points. The BSE Mid Cap index is trading down by 0.6% while the BSE Small Cap index is trading lower by 0.8%. The rupee is trading at 67.19 to the US$.

Energy stocks are trading on a firm note with ONGC and Cairn India leading the gains. According to a leading financial daily, Cairn Energy has raised a US$ 5.6 billion compensation demand from the Indian government for a breach in an investment treaty. Cairn initiated arbitration proceedings after the Indian authorities demanded Rs 102.47 billion from Cairn Plc.

The I-T Department had in January 2014 sent a draft tax assessment of Rs 102.47 billion to Cairn Energy on alleged capital gains it made on its 2006 transfer of Indian assets to a new subsidiary, Cairn India, and subsequent listing of the firm. Cairn had raised US$ 2 billion from what was then India's biggest IPO.

The compensation demand will reportedly hurt India's international business reputation.

Cairn Energy has transferred control of its Indian subsidiary, Cairn India, to Vedanta group, but had retained a 10% holding for some time but these shares were frozen by the tax department, leading to a huge fall in market value of Cairn (Subscription Required).

The stock price of Cairn India is presently trading up by 5.6%.

According to a leading financial daily, Tata Power has decided to raise Rs 35 billion through issuance of non-convertible debentures (NCDs) in one or more tranches on a private placement basis.

The tenor of these securities will not exceed 3 years (Debentures) from the date of issue on private placement basis. The board of company at its meeting held on July 11, 2016 has approved for the same.

The Company together with its subsidiaries and jointly controlled entities has an installed gross generation capacity of 9184 MW and a presence in all the segments of the power sector. Tata power is presently trading down by 0.5%.

The power sector is going through troubled times. The State Electricity Boards (SEBs) that buy power from generators are reeling under huge losses and bloated debt. The government program 'Ujwal Discom Assurance Yojana' (UDAY) for SEBs holds hope to revitalize the power sector (Subscription Required). This is because unlike the previous bail-out packages that were provided for debt restructuring, UDAY offers a framework for the long-term revamp of SEB operations.

Indian Indices Open Flat
09:30 am

Major Asian stock markets have opened the day on a positive note with stock markets in Japan and Hong Kong trading higher by 1.3% and 0.5% respectively. Benchmark indices in the US and Europe ended their previous session on an encouraging note with stock markets in Germany ending the day higher by 1.3%. The rupee is trading at 67.14 per US$.

Indian stock markets have opened the day on a flattish note. The BSE Sensex is trading marginally higher by 40 points (up 0.1%) and the NSE Nifty is trading lower by 1 point (down 0.01%). While, 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 pharmaceutical sector witnessing selling pressure. However, stocks from telecom sector are witnessing buying interest.

As per an article in Livemint, India's factory output, termed as the Index of Industrial Production (IIP) grew by 1.2% in the month of May. This index had declined by 1.3% in the month of April.

The index grew on the back of a marginal pick-up in the manufacturing activity. Having said that, manufacturing activity still continues to remain weak and grew by 0.7% in May. While, electricity and mining grew by 4.7% and 1.3% in the same month.

Production of capital goods, an indicator of investment demand in the economy shrank by 12.4% YoY in May. This is the seventh consecutive month of contraction.

While IIP data has tended to be somewhat volatile in the past, what these numbers definitely point towards is the fact that the economy hardly seems to be growing at the kind of pace that the revised methodology of the GDP calculation portrays.

The inflation numbers were also released for the month of June. The Consumer Price Index (CPI) accelerated marginally to 5.77% in June from 5.76% a month ago.

The inflation continued to remain high on the back of higher food prices. Higher food inflation was driven by higher vegetable and sugar prices. However, experts believe that the inflation will see a sustainable downward moment beginning August on account of a normal monsoon.

The high inflation may dent the chances of a rate cut by the Reserve Bank of India (RBI) in its next monetary policy in August.

In another news update, the government has invited merchant bankers to help it sell minority stakes in 51 companies.

These companies include the likes of Reliance Industries Ltd, ICICI Bank, Axis Bank, Larsen & Toubro, ITC Ltd, Hindustan Unilever Ltd. The government holds a stake in these companies through The Specified Undertaking of the Unit Trust of India (SUUTI).

Reported, SUUTIs holding on behalf of the government is pegged at around Rs 600 billion. Now the interesting fact is that the government has asked Life Insurance Corporation to buy securities worth Rs 300 billion from SUUTIs holdings. That is almost half of SUUTIs holding.

Once again, the government has asked LIC to rescue it to meet its ambitious divestment target. Here is our very own Vivek Kaul's take on LIC coming to the rescue of the government:

The government treats LIC as a sovereign wealth fund, which keeps coming to its rescue whenever required. But the money LIC has and manages is not the government's money. The LIC manages the hard earned savings of the people of India and given that these savings need to be treated with a little more respect.

What's Changed 25 Years After 1991?

This year, India celebrates its 25th anniversary of economic liberalization since 1991. Sure many things have changed since then for good. Liberalization marked the end of License Raj. The economy was opened to the private sector as well as foreign players.

The fruits of liberalization materialized in 2006, when India recorded its highest GDP growth rate of 9.6%. With this India became the second fastest growing major economy in the world, next only to China.

As of today, we are the fastest growing economy in the world. We have certainly come a long way since then. However, there are still many matters on which we are worse off than in 1991. Let's go through some of those.

One being, the share of manufacturing in the gross domestic product (GDP). In 1989-90, the share of manufacturing in the GDP was 16.4%. Whereas in 2015-16, even after myriad new manufacturing policies the ratio stood at 16.2%. That's worse off than in 1989-90.

The weak share of the manufacturing sector in GDP is partly on account of weak labour laws. It is often argued that Indian entrepreneurs do not expand beyond a certain point because it is very difficult to fire workers once they have been taken on. The Chapter VB of the Industrial Disputes Act, 1947, makes it very difficult for companies with 100 employees or more, to fire an employee without the permission from the government. Such laws prevent entrepreneurs from expanding.

Not only this but inadequate credit, marketing opportunity, erratic power supply, wretched roads, bureaucratic regulations etc has played its part too in dampening the manufacturing sector.

The other being fiscal deficit. In 2014-15, the combined fiscal deficit including that of center and states was more than that as seen in 1995-96. Fiscal deficit is the difference between the government's expenditures and its revenues.

The government revenues have not met expectations. In spite of robust economic growth, tax revenues especially direct tax collection is not buoyant. In the assessment year 2012-2013, only 1.25 crore individuals paid any income tax. Data from the World Bank shows that in 2011 the population of India was 124.7 crore. This basically means that in assessment year 2012-2013 around 1% of India's population basically paid income tax. Now, this reflects tax department's inefficiency to collect taxes.

To add to this, the fiscal deficit has remained low in the preceding year partially on account of soft crude oil prices. Since, crude oil prices have recovered from their lows it will be interesting to see if the government is able to maintain the ambitious fiscal deficit target of 3.5%. Further, inefficiently managed loss making public sector undertaking has added to the burden of the fiscal deficit.

Though we have come a long way from the manner in which we operated before 1990-91, there are many structural issues which still needs to be addressed to sustain the tag of the world's fastest growing economy.