Indian Indices Close in the Red

Indian equity markets headed for a weak close, remaining rooted in negative territory with most of the stocks seeing some selling pressure. At the closing bell, the BSE Sensex closed lower by 91 points, the NSE Nifty finished lower by 38 points. The S&P BSE Midcap & the S&P BSE Small Cap finished down by 0.4% and 1% respectively. Losses were largely seen in auto and IT stocks.

Asian markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.32% and the Hang Seng rose 0.26%. The Shanghai Composite lost 0.75%. European markets are mixed today. The CAC 40 is up 0.78% while the DAX gains 0.42%. The FTSE 100 is off 0.20%.

The rupee was trading at 66.86 against the US$ in the afternoon session. Oil prices were trading at US$ 48.29 at the time of writing.

As per an article in a leading financial daily, Lupin Ltd has received approval to launch Acotiamide 100 mg indigestion tablets in India from the Central Drugs Standard Control Organization (CDSCO). Lupin will commence promoting the product in India shortly.

Acotiamide is a drug which could benefit patients suffering from Dyspepsia or Indigestion. Acotiamide enhances gastric accommodation and gastric emptying.

One shall note that, Acotiamide is approved by PMDA Japan and is actively marketed in Japan.

According to IMS MAT June 2016, the current market for Gastrointestinal prokinetics and combinations is estimated to be around Rs 26.4 billion growing at 14%. Approval of Acotiamide would go a long way in addressing an otherwise common but unmet medical need for an effective drug for the management of dyspepsia and help Lupin to widen its footorints, the reports noted.

Our pharma sector analyst, Bhavita Nagrani, is of the opinion that Lupin was able to insulate its growth despite rising pressures in the sector. She has recently shared a detailed view on the company and valuations in the latest recommendation report of The India Letter. Click Here to know more.

Notably, the pharmaceutical sector, which is an important contributor to India's exports has stood out in terms of export performance. Geographies such as Europe and emerging markets like Brazil, Mexico, Russia, South Africa and South-East Asia regions too are important buyers of Indian drugs.

Lupin finished the day down by 2% on the BSE.

Moving on to the news from auto sector. Mahindra & Mahindra (M&M) has been reportedly planning to launch an affordable electric SUV via its Mahindra Electric Unit (previously known as Mahindra Reva).

The idea is to fuse Mahindra's special expertise in the SUV space with that of the Reva's expertise in making electric cars.

Meanwhile, Ford is also likely to chip in with the launch of an electric version of its successful compact SUV Ford EcoSport.

Mahindra has been making its foray into the electric vehicle segment quite early in hopes of selling high volumes and working out economies of scale. It is also expecting to sell initially about 6,000 units each year of the electric, hybrid and CNG models. In the meantime, Mahindra will also try to boost its export market for the Mahindra Electric range of vehicles, the reports noted.

M&M finished the day the day down by 0.9%.

IT Stocks Underperform
01:30 pm

Indian Indices drifted lower this afternoon, tracking weak global cues. Sectoral indices are trading on a mixed note with stocks from the FMCG & realty sectors witnessing buying interest while auto & IT stocks are bearing the maximum brunt.

The BSE Sensex is trading lower by 107 points (down 0.4%) while the NSE Nifty is trading lower by 44 points (down 0.5%). The BSE Mid Cap index is trading down by 0.3% and BSE Small Cap index is trading flat. Gold prices, per 10 grams, are trading at Rs 31,216 levels. Silver price, per kilogram is trading at Rs 44,553 levels. Crude oil is trading at Rs 3,253 per barrel. The rupee is trading at 67.17 to the US$.

As per an article in The Economic Times, Tata Power's South African joint venture Cennergi started commercial operations at its 95 MW wind farm project in South Africa's Tsitsikamma Community. The wind farm comprises 31 Vestas-make turbines with a generation capacity of 3.075 MW.

As the preferred bidder, Cennergi was selected for two wind projects under the second window of the Renewable Energy Independent Power Producer Procurement Programme by the South African government.

Notably, with the commissioning of the Tsitsikamma project, Cennergi's operational portfolio has increased to 229 MW.

On the other hand, the deal has also bolstered Tata Power's renewable portfolio outside India. This further demonstrates its commitment to enhance non-fossil based generation portfolio up to 30-40% of its total generating capacity, the reports noted.

Considering power sector's several headwinds, we have discussed the challenges faced by Tata Power (Subscription Required) in one of our premium editions of The 5 Minute Wrap Up.

Tata Power was trading lower by 0.5% while writing.

Moving on to the news from software sector. According to an article in a leading financial daily, The Competition Commission of India (CCI) has cleared HCL Technologies' equity swap deal to buy the business of Geometric Ltd. The pact excludes Geometrics' 58% stake in 3DPLM Software Solutions Ltd, a joint venture with Dassault Systems.

An equity swap deal occurs when shareholders' ownership of the target company's shares is exchanged for shares of the acquiring company as part of a merger or acquisition. As part of the transaction, HCL would issue 10 shares to shareholders of Geometric for every 43 shares held by them in the company. Both the companies reportedly signed an agreement for the deal in April this year.

Further, the CCI has approved acquisition by HCL of certain undertakings of Geometric and merger of remaining undertaking of Geometric with 3DPLM. Effectively, HCL Tech will issue 15.6 million shares to Geometric shareholders.

Moreover, the business that HCL is acquiring has more than 60 global clients in the US and Europe in order to drive greater synergies. So far, 2016, has not been too great for HCL as topline growth has remained sluggish and there is uncertainty with respect to how margins will pan out. However, will the recent deal with Volvo and the acquisition of Geometric Ltd (Subscription Required) further dampen or boost the margins is the key thing to watch out for going forward.

HCL Technologies was trading down by 1.78% at the time of writing.

Indian Indices Pare Early Gains
11:30 am

After opening the day marginally higher, the Indian indices registered losses and went on to trade in the negative territory. Sectoral indices are trading on a discouraging note with stocks from the pharma, auto and metal sector witnessing maximum selling pressure.

The BSE Sensex is trading down 116 points (down 0.4%) and the NSE Nifty is trading down 41 points (down 0.5%). The BSE Mid Cap index is trading down by 0.4%, while the BSE Small Cap index is trading down 0.2%. The rupee is trading at 67.19 to the US$.

As per an article in the Economic Times, state assemblies of Gujarat and Chhattisgarh are going to convene special sessions to ratify the Goods and Services Tax (GST) Bill today. As per the reports, the Bill is going to be introduced in the Gujarat State Assembly today. Further, a discussion and voting on it, if required, will take place on the second day. Apart from this, a one-day session of the state assembly is going to discuss the GST Bill in Chhattisgarh.

The bill could be ratified unanimously in both of these states as the Congress has already pledged its support for the legislation. The Congress has maintained that the standard rate of GST should not exceed 18%. The party is going to hold a meeting of its MLA today before the session begins.

However, the decision on the GST rate is likely to create many hassles going forward. This is because news during the last week reported that the standard GST rate could be closer to 22% when the tax is rolled out. As per the sources, the current estimates being drawn out in North Block have worked out a GST rate of 22% that will likely be most amenable to states. Also, Kerala Finance Minister Thomas Isaac has said that many states would not agree to a rate below 22%.

While GST has been approved by most of the leading parties, it still has a few hurdles to go through. Half the states still need to approve the legislation. And the GST council, a very important part of the process, will also need to be set up. It will be the job of the council, which will be two-thirds represented by the states, to decide on the GST rate after which three GST Bills (Central GST, Integrated GST, and State GST) mentioning the actual rates will be sent to Parliament and state assemblies for approval.

Vivek Kaul has written a brilliant report on GST titled GST & You: What the Media DID NOT TELL YOU About the GST. The report digs deeper into the practical implications of GST and explains the likely rates at which various goods and services will be taxed.

Moving on to the news from the global space... Bank of Japan Governor Haruhiko Kuroda announced that the central bank will not rule out deepening a cut to negative rates it introduced in February. He further said that the BOJ's negative rate policy has not reached its limit.

Along with this, the governor also said that the BOJ will also consider whether to make any changes to the 80 trillion yen per year massive asset-purchase plan once the outcome of a comprehensive assessment of its monetary policies is out in September.

The bank had first introduced negative interest rates in January this year. The bank stunned markets in January when it set a minus 0.1% rate on some deposits that banks place at the central bank. The move was introduced on hopes that it would encourage banks to lend more and thereby spur spending and inflation. However, none of these expected development is seen as of yet.

Also, the bank had recently decided on a modest dose of monetary stimulus. The central bank said that it would buy 6 trillion yen (US$ 58 billion) worth of exchange traded stock funds annually. This was against 3.3 trillion yen previously.

One must note that the BOJ at present is printing 80 trillion yen (US$750 billion) a year to stimulate inflation after decades of deflation and stagnant growth. Despite all these measures, the inflationary expectations appear to be weakening. An entry in Vivek Kaul's Diary explains how Japan became a giant laboratory experiment for novel monetary policies.

We've written about the ill-effects of low interest rates and central bank policies many times before. Bill Bonner, for instance, recently explained what it takes to survive in an era of low interest rates. In that same vein, Asad Dossani, editor of Daily Profit Hunter, explained why it's better to focus on profiting from central bank measures, instead of trying to explain or criticise them.

Indian Indices Open Flat
09:30 am

Barring Japan, major Asian stock markets have opened the day on a negative note. Stock markets in China and Taiwan are trading lower by 0.7% and 0.9% respectively. Benchmark indices in Europe and US ended their previous session in red with stock markets in Germany ending the day lower by 0.6%. The rupee is trading at 67.05 per US$.

Indian stock markets have opened the day on a flattish note. The BSE Sensex is trading higher by 60 points (up 0.2%) and the NSE Nifty is trading higher by 6 points (up 0.1%). While both, BSE Mid Cap and BSE Small Cap are trading higher by 0.2% and 0.3% respectively.

Barring stock from the metal sector, major sectoral indices have opened the day on a positive note. Stocks from oil & gas and power sector are witnessing maximum buying interest.

The government appointed Mr Urjit Patel as the new governor of Reserve Bank of India (RBI). This comes as an unexpected decision as Mr Patel has very strong opinions about maintaining the inflation trajectory as set by the RBI. Further, he is also considered to be a fiscal hawk. Meaning, he places great emphasis on keeping government budgets under control.

Mr Jaitley is keen on reducing the interest rates further. However, with the appointment of Mr Patel, this does not seem to be happening unless there is a significant reduction in the inflation levels.

A paper written by Mr Patel in 2012 goes on to suggest his strong views on maintaining inflation at lower levels. Reportedly, the paper has some very scathing remarks about the attitude of the then government and the RBI top brass to inflation.

  • "A spate of recent statements seems to suggest that the medium-term objective of around three percent inflation articulated by inter alia the Reserve Bank of India (RBI) is being given a quiet burial; A senior (and serious) official earlier this year described six percent annual inflation as 'comfortable', and 'quiet (sic) acceptable'-comfortable and acceptable to whom? Is the suspension of long-standing sound, conservative, inflationary targets temporary, or, is this the new 'normal?"

Recently, Mr Ajit Dayal has written an excellent piece stating as to if the RBI will remain independent?

Click here to access his views on the same.

In another news update, the government's grand plan to double the number of road projects awards seems to be in jeopardy. This is on the back of the existing stalled projects coupled with failed deals between parties to sell the existing road projects. This in-turn leads to weak financial position for the road developers to bid for the new projects.

Reportedly, the deals to sell the existing assets are getting stuck on account of certain external factors such as delays in getting no objection certificates from National Highways Authority of India (NHAI) as well as from the stakeholders at the project or the holding company. In certain cases banks are refusing to take a haircut on the loans they have provided, which in-turn are leading to delays in the deals.

Not only external factors, internal factors too are playing its part in delaying the existing deals. Difference in valuations as computed by buyer and seller are also causing delays. Reportedly, there is a valuation disconnect between the buyer and seller due to the difference in estimates of WPI (Wholesale Price Index) and traffic growth.

The government should fix certain problems beneath their control as soon as they can in order to achieve their ambitious dream to double the road project awards in the current fiscal.

A New Boogeyman for India's Demographic Dividend...

Going by Rancho's definition from the gripping movie '3 Idiots', a machine is anything that reduces human effort. And as time flew, these machines too have evolved with the help of technology and innovation. Today we have robots to handle the monotonous work, internet to get things done within a few minutes, software applications at our fingertips, and various similar automated systems. So no doubt these machines have meant a reduction in human efforts than ever before. But there's a catch here. And it has a lot to do with India. The use of automation and technology is set to pose serious threats to the Indian economy. Allow us to explain.

The prime concern for India in this sphere can be felt on the employment front. The penetration of automation and various technologies has displaced many jobs in India. This has further made the issue of unemployment worse than before. Moreover, the trend is set to grow in the coming future.

We came across an article in the Economic Times that addresses some of the issues on this front. The article states that India will lose around 69,000 jobs until 2021 due to the adoption of the internet-of-things (IoT).

For the unknown, IoT is the term used to describe the addition of sensors and chips to machinery which allows them to be monitored and combined over the internet. It is said that people working in areas such as office administration, support staff, and maintenance will see their roles being taken over by the IoT technology. This is expected as the IoT market in India is set to grow in the years to come. The article states that the market for IoT technology in India is set to rise by 44% by 2021. This is against the 40% recorded at present levels.

Leave it at that. This is just a part of the puzzle. Apart from the above, India is set to witness jobs slowdown with the rise of automation. As the article suggests that there will be hundreds of thousands of jobs that experts say will be lost due to automation. In fact, this trend is already visible. The automation trend is accelerating not just in manufacturing but in services sectors such as IT too.

We've been talking about the megatrend in robotics, automation, and technologies for quite some time. And this megatrend is worrisome for India because about 13 million young Indians enter the work force every year. If they are not productively employed, India could have a big crisis ahead for the so-called demographic dividend.

And the trouble doesn't end here. Poor education system in India coupled with the corruption amplifies this risk. These factors lie behind India's incapability to generate enough decent jobs for a bulging workforce. Vivek Kaul, editor of Vivek Kaul's Diary, has some interesting points to make in this regard. In one of his recent articles, he points out how politicians wanting to set up engineering colleges have spelled a sure sign of trouble for the Indian education system. Further, he has also written on the fallacy of the demographic dividend. And how it has forced us to question this much hyped competitive advantage as compared to other nations.

In a slight different vein, one of our editions of The 5 Minute WrapUp explains how market participants can take advantage of the advances in technology and robotics.

The bottomline for a young nation, however, is that automation remains a threat we cannot afford to ignore. It has the potential to bring many economic concerns for a country that boasts itself of the largest working age population in the world.