A Firm Start to the Week

Indian Indices rallied smartly amid strong buying activity, thus ending on a positive note. At the closing bell, the BSE Sensex closed higher by 120 points, the NSE Nifty finished higher by 35 points. The S&P BSE Midcap & the S&P BSE Small Cap finished down by 0.5% and 0.1% respectively. Gains were largely seen in auto and capital goods stocks.

Asian markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 2.30%, while Hong Kong's Hang Seng was off 0.38%. Shares in China were unchanged with the Shanghai Composite at 3,070.03. European markets are higher today as French and German shares show gains. The CAC 40 is up 0.26% while the DAX is up 0.15%. The British FTSE 100 is closed.

The rupee was trading at 67.15 against the US$ in the afternoon session. Oil prices were trading at US$ 46.99 at the time of writing.

Pharma stocks traded mixed with Lupin and Ajanta Pharma leading the losses. As per an article in a leading financial daily, Dr. Reddy's Laboratories Ltd has launched Nitroglycerin sublingual tablets in US markets.

USFDA (Food & Drug Administration) granted approval for a therapeutic equivalent generic version of Nitrostat (Nitroglycerin) sublingual tablets in the strengths of 0.3 mg, 0.4 mg and 0.6 mg. These tablets are used for the treatment of certain heart condition (coronary artery disease). It may also be used to relieve chest pain and can be used before physical activities.

According to IMS Health MAT data, Nitroglycerin sublingual tablet brand had U.S. sales of approximately US$108 million for the most recent twelve months ending in March 2016.

In another development, Aurobindo Pharma and Intas are reportedly among the final contenders for the UK and Irish portfolio of Teva. Teva is undergoing a range of divestitures to fulfil anti-trust issues ahead of its US$40.5 billion acquisition of Allergan's generics business. Both the entities have submitted their binding offers of around US$1 billion.

Prior to that, around 80 of Teva's products in the US were sold to drug makers like Sagent, Cipla, Zydus Cadila, Aurobindo and Perrigo. Recently, Dr Reddy's also acquired eight abbreviated new drug applications Teva. Bhavita Nagrani, our pharma sector analyst has shared quick bits on the Teva deal in one of our premium editions of The 5 Minute Wrap Up (Subscription Required).

Dr. Reddy's finished the day up by 0.3% on the BSE.

Moving on to the news from oil & gas sector. According to an article in The Economic Time, Indian Oil Corporation (IOC) is making a successful foray in diverse areas such as liquefied natural gas business. It is attempting to lift purchases of the fuel to take advantage of a price drop amid a glut.

Reportedly, IOC is planning to buy two LNG shipments per month in the spot market for six months. Previously, IOC imported the commodity directly which equaled to a total of nine spot cargoes it bought previous year.

Notably, India is among buyers seeking more cargoes of the cleaner fuel as spot prices have fallen about 60% since October 2014 amid oversupply. IOC is seeking to increase direct procurement through spot deals. Further, IOC sold 1.93 million metric tons of natural gas during the year through March, up 6.9 per cent from a year ago. Higher imports will help IOC diversify further into natural gas. The government is seeking greater use of the cleaner fuel in the country's energy mix to curtail carbon emissions.

Moreover, India has more than doubled its imports in the past seven years as domestic supplies dried up. The country plans to increase its LNG import capacity to 55 million tons per year from about 21 million now, the reports noted.

IOC ended the day down by 0.3%.

IT & Metal Stocks Under Pressure
01:30 pm

After opening the day on a flat note, the Indian stock markets continue to trade near the dotted line amid mixed global markets. Sectoral indices are trading on a mixed note with stocks from the IT and metal sectors leading the losses. Auto and capital goods stocks are leading the gains.

The BSE Sensex is trading higher by 2 points and the NSE Nifty is trading higher by 1 point. The BSE Small Cap index is trading up by 0.1% while, the BSE Mid Cap index is also trading higher by 0.1%. The rupee is trading at 67.17 to the US$.

Shares of Larsen & Toubro (L&T) are trading on an encouraging note (up 1.2%) after it was reported that the company is planning to scale-up its business in Southeast Asia and Africa in a bid to cover up for losses in West Asia. Overseas orders now account for a third of the company's order inflow, up from a share of 10-12% a few years ago.

The company spread its presence in West Asia with the aim to reduce its exposure to the domestic market. However, it has faced challenges in West Asia, incurring huge losses on hydrocarbon projects while the fall in crude oil prices has led to drying of the order pipeline.

L&T has identified new markets including Tanzania, Kenya, Ethiopia, Uganda, Mozambique and Algeria in Africa and Malaysia, Vietnam, Indonesia in Southeast Asia.

Meanwhile, L&T reportedly plans to double its annual revenue (Subscription Rqeuired) to Rs 2 trillion by 2021. This is to be done without compromising on its margins. The company also plans to make its order inflow in excess of Rs 2.5 trillion a year in the same period.

The company is expecting to complete the restructuring of its arm IDPL, engaged in infrastructure projects, by next March. The company recently sold the general insurance arm and the asset-heavy Kattupalli port.

Moving on to news from mining sector. According to a leading financial daily, Coal India (CIL) has received board's approval to ink Memorandum of Understanding with African Exploration Mining & Finance Corporation SOC (AEMFC), owned by the South African government, for acquisition of coal mines in that country.

Moreover, the company is considering to ink pact with a mining company owned by the government of South Africa to jointly undertake identification, acquisition and operation of coal assets in South Africa.

The company's shareholders have also approved buyback of 108.9 million shares worth Rs 36.5 billion. The Finance Ministry is pushing for buyback of shares by CPSEs. This is being done for two purposes to generate cash for the government and help push up the valuation for any divestment.

As per the reports, in the last one year, CIL has seen depletion in its cash reserve by 18%, or Rs 87 billion as on March 2016. The government has set a disinvestment target of Rs 565 billion for 2016-17. Of this, Rs 360 billion is expected to come from minority stake sales.

CIL board will deliberate on cash outgo due to the buyback and its long-term investment plan to meet the Coal Ministry's goal of 1 billion tonne output by 2020. Coal India is presently trading down by 0.4% on the BSE.

After much deliberation and delay, the Mines and Minerals (Development and Regulation) Act, 1957 had been recently revised and Rajya Sabha approved the amended Mines and Minerals Development and Regulation (MMDR) Bill, 2016. In a recent edition of The 5 Minute WrapUp Premium, we looked at the impact of the Act on various mining and metal companies (Subscription Required).

Indian Indices Trade Marginally Lower
11:30 am

After opening the day on a flat note, the Indian indices witnessed choppy trades and have continued to trade near the dotted line. Sectoral indices are trading on a mixed note with stocks from the realty and IT sector witnessing maximum selling pressure. Auto stocks are, however, trading in the green.

The BSE Sensex is trading down 6 points (down 0.02%) and the NSE Nifty is trading down 5 points (down 0.1%). Both - the BSE Mid Cap index and the BSE Small Cap index - are trading flat. The rupee is trading at 67.17 to the US$.

Global markets are trading on a mixed note. Most of the volatility in global markets is seen on the back of Janet Yellen's Friday speech. US Fed Chair Janet Yellen voiced optimism about the US economy.

Yellen said that with firm labour market in the US and with Fed's outlook for economic activity and inflation, the case for an interest rate hike has strengthened in recent months. Also, Fed policymaker Stanley Fischer sounded keen on raising interest rates by the end of this year.

A large group of Federal Reserve policymakers also defended their views on raising the rate. They said that raising interest rates gradually would allow them to stimulate the economy for longer. However, at the same time, an overheating economy could end in recession on the back of a rate hike.

Market participants are trying to make sense of what Yellen meant in her speech. As per a leading financial daily, Fed watchers are now pricing in a 33% chance of a September rate hike, up from 9% earlier in the month.

We've written about the 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. And a recent article from Vivek Kaul's Diary - God, Government, and YOU - offers two theories and explains how they influence policies of central bankers and economists.

Also, Asad Dossani from Daily Profit Hunter believes that the market and the Fed place undue importance on just twenty-five basis points (0.25%). And all of this in turn leads to a loss of central bank credibility. He has explained this issue in his article, Twenty-Five Basis Points.

In another news update from the domestic markets, Indian Ratings and Research (Ind-Ra), has raised its growth forecast for India's gross domestic product (GDP) in the financial year 2017 to 7.8%. This is a small rise from the previous forecast of 7.7%. The upward revision has been prompted by the progress of monsoon and the sowing of Kharif crop so far.

Also, Economic Affairs Secretary Shaktikanta Das recently said that India is expected to clock a GDP growth of nearly 8% this fiscal. This, he said, will be on the back of good monsoon rains and structural reforms undertaken by the government.

One must note that last year India achieved 7.6% growth on the back of poor monsoon.

While the above projections spark optimism for the Indian economy, not all is rosy in the garden. Many concerns still persist and pose a threat to the Indian economy. Vivek Kaul has spotted a trend he thinks has the potential to derail India's long-term growth story. He's of the view that there are many macro trends that could directly impact the economy and in turn you. These are the big issues like the government's handling of oil prices, India's disastrous jobs situation, the current state of India's real estate bubble, rising bad loans at the PSUs...and a lot more!

In fact, as you read this, Vivek has just come out with a full note that details all...including how this trend could impact you.

Click here to know more.

Indian Indices Open Flat
09:30 am

Barring Japan, major Asian stock markets have opened the day on a negative note with the stock market in Indonesia is trading lower by 1%.

Benchmark indices in Europe ended their previous session in green with stock markets in France, ending the day higher by 0.8%. While, stock market in the US ended the day lower by 0.4% post Jane Yellen's speech indicating a rate hike in the month of December.

The rupee is trading at 67.05 per US$.

Indian stock markets have opened the day on a negative note. The BSE Sensex is trading marginally lower by 20 points (down 0.1%) and the NSE Nifty is trading lower by 7 points (down 0.1%). Both, BSE Mid Cap and BSE Small Cap are trading marginally higher by 0.1% and 0.2% respectively.

Stocks from consumer durables and automobile sector are witnessing maximum buying interest.

As per an article in Livemint, Tata Motor's subsidiary Jaguar Land Rover's (JLR) profit after tax on a consolidated basis fell by as much as 57% during the quarter ended June. This revived some of the fears that Tata Motors would be the worst hit Indian company on account of the impact of Britain leaving the European Union.

However, the impact of Brexit on the quarterly result was a one-off and is not going to significantly impact the financials in the coming quarters. The profits fell mainly on the back of a steep depreciation in pound, which led to foreign exchange fluctuation losses.

Reportedly, the pound had depreciated sharply post-Brexit, resulting in losses on derivatives contracts used by the company to hedge its exposure to other currencies. Besides, the restatement of assets and liabilities as on 30 June also led to forex losses worth 84 Million Euros. However, this was a one-off and is not expected to occur henceforth.

In fact, depreciation of the pound will work in favour of the company going forward as it exports 80% of its vehicles outside the UK. It does import 40% of its components, on which it will take a hit on the forex front-but on a net basis, it will gain from a weak pound.

Further, a transition to Indian-AS too impacted the profits adversely. The positives from the declared results were that the new JLR models are gaining traction in the market. The F-Pace model launched earlier this year has a waiting period of three to four months and accounted for 40% of total Jaguar sales during the quarter. The recently launched Evoque Convertible too has created some excitement in the market.

The performance of JLR coupled with the traction from new models such as Tiago and other upcoming launches will be the key things to watch out for going forward.

In another news update, cement prices have fallen in almost all parts of the country except the southern region in the on-going quarter. Usually, this quarter is seasonally weak on account of a halt in the construction activity due to the monsoon season.

However, the good part is that the prices have not fallen as steeply as it did in the same quarter in the previous year. Though, the worrying part is that the volume off-takes have still not improved. Despite the government's efforts to push infrastructure and allied activities, the impact of these measures is yet to be felt on the ground level.

Provided, the off-takes do not pick up in the second half of the fiscal year the cement prices could possibly move further southwards which could possibly impact the financials of the cement companies.

A pick-up in the construction of real-estate activities and road projects would be the key things to watch out for going forward.

This Will Change the Way Companies Borrow Money

The Indian economy is largely bank-dependent.


Think of any corporate that wants to expand its capacity, invest in a greenfield project, or even wants to fund its working capital. What options does a borrower have?

Majority of them opt to borrow from the banking system. This is in contrast to the developed markets. There are other sources too. For instance bond markets form important source of borrowing. But speaking about India, this not the case. The market has failed to entice interest of investors and issuers both. Investors complain about the lack of quality credit. Issuers, on the other hand, complain about the lack of investors.

However, the outgoing Reserve Bank of India (RBI) governor Raghuram Rajan has unleashed changes that could have a significant impact on the way companies finance themselves. Last week, the RBI stated that it will cap exposure of banks to lend to large borrowers. Further it will also take steps to deepen the corporate bond market. This will serve two purposes.

First, the banks will have to set aside higher provisions for incremental lending to borrowers who have a certain amount of outstanding loans from the banking sector. Thus reducing the systemic risk created by the concentration of bank funds in a handful of corporate houses. And even help to reduce sector-specific concentration. Particularly the key sectors likes of infra, power and metal that have caused trouble for banks.

Second, in order to deepen corporate bond market, the RBI has stated that it will allow banks to provide greater credit enhancement on thr bond issues. Credit enhancement is essentially a way to improve the credit rating of a bond issue. This means the bank will provide assurance or guarantee to service the bond. So far, banks were allowed to provide partial credit enhancement to the extent of 20% of the bond issue. Now, the banking system overall can provide credit enhancement up to 50%, even though individual banks can have exposure of upto 20%.

With this, it will allow lower-rated borrowers to come to the bond market. Similarly, regulated investors (like insurance companies) will be able to invest in bonds issued by a wider range of companies.

Not to mention, the RBI has stated that it will eventually start accepting corporate bonds as collateral at its liquidity adjustment facility window. This means banks can use corporate bonds as security to borrow from the RBI. Since, this will require some changes in the RBI Act, the process is initiated to make required changes.

Similarly, foreign portfolio investors (FPIs) will get direct access to the bond market without having to go through brokers. Another change is the decision to allow brokers to act as market markers for repo operations in corporate bonds. This will help to improve liquidity in the corporate repo market.