Markets Finish on a Flat Note

The Indian markets had yet another volatile trading session today as the indices swung between gains and losses. At the closing bell, the BSE Sensex stood higher by 41 points, while the NSE Nifty finished up by 16 points. The S&P BSE Mid Cap finished down by 0.2% while, the S&P BSE Small Cap finished up by 0.3%. Sectoral indices finished mixed with FMCG and pharma stocks leading the gains.

Asian markets finished mixed as of the most recent closing prices. The Hang Seng gained 0.63%, while the Nikkei 225 & the Shanghai Composite fell 1.26% and 0.68% respectively. European markets are also mixed today. The DAX is up 0.29% while the FTSE 100 gains 0.26%. The CAC 40 is off 0.06%.

The rupee was trading weak at 67.02 against the US$ in the afternoon session. Oil prices were trading at US$ 43.91 at the time of writing.

Power stocks languished in red. Reliance Infrastructure and KSK Energy leading the losses. According to a leading financial daily, Tata Power Company's wholly owned subsidiary,Tata Power Renewable Energy (TPREL) has completed the acquisition of 100% shareholding in Welspun Renewables Energy (WREPL) and its subsidiaries. This represents the largest transaction in the renewable space in India (Subscription Required).

Tata Power Company has 9.4 GW of power generation capacity from all sources at present, which it wants to double in six years. It is to be noted that WREPL has one of the largest operating solar portfolios in India spread across ten states. It has about 1,141 MW of renewable projects comprising about 990 MW solar power projects and about 150 MW of wind power. Out of 1,141 MW renewable portfolio, over 1,000 MW of capacity is operational and balance capacity is under advanced stages of implementation.

The acquisition is also a significant step towards attaining the company's objective of having non-fossil fuel based capacity up to 30-40% of its total generating capacity.

In another development, NTPC received bids amounting to Rs 14.95 billion for its taxable secured non-convertible debentures issue of Rs 5 billion. To meet its capital expenditure requirements, NTPC Ltd, invited bids for its series 63 of taxable secured non-convertible debentures. NTPC is rated "AAA" by CRISIL and ICRA and the bond issue was also rated "AAA".

Moving on to news from aluminum sector. The National Aluminium Company (NALCO) has been reportedly asked to raise its aluminum smelter capacity to at least 2 million tonne to ensure more of the mineral is utilized within the country instead of being exported. While NALCO's aluminium smelter capacity is only 460,000 tonne, it makes around 2 million tonne of alumina per year.

Piyush Goyal reportedly stated that NALCO had a full-fledged expansion plan which was formed some years ago but it never took off due to the high cost of electricity in the country. Instead, the company went for a tie-up with Iran to export alumina there and produce aluminum in Iran as power is cheaper there.

The Minister also said that the he will soon start a public discourse to put an end to alumina exports.

Meanwhile, NALCO posted a 22.5% decline in net profit in the first quarter of FY17. Company's net profit in the April to June period declined to Rs 1.35 billion against Rs 1.74 billion in the corresponding period of the previous year.

Revenue for the June-ended quarter grew 4% to Rs 15.28 billion from Rs 14.7 billion in the same quarter last year.

Nalco has added US$11.9 billion of captive resources, including over 75 million metric tons of bauxite ore. A new business model has been introduced by the company to strengthen the company's business by leveraging its core competency in mining, metals and energy sectors, through modernization, Greenfield and Brownfield expansions, upstream and downstream integration. NALCO finished the day up by 0.1% on the BSE.

PSU & Power Stocks Least Favored
01:30 pm

Indian equity markets continue to trade flat with negative bias amid weak global markets. Barring FMCG, healthcare and realty sectors, all the sectoral indices are trading in the red. Losses are largely seen in PSU and power stocks.

The BSE Sensex is trading lower by 35 points and the NSE Nifty is trading lower by 12 points. The BSE Mid Cap index is down by 0.2%, while the BSE Small Cap index is up by 0.3%. The rupee is trading weak at 66.90 to the US$.

According to an article in The Economic Times, Hindalco Industries will continue with its plan to sell its alumina plant and mines in Brazil. The deal is expected to be in the range of US$90 million to US$100 million.

Reportedly, the company wants to use the money to cut debt and focus on the India business where demand is showing signs of improvement amidst stiff import competition.

Metal and commodity companies are trying to sell assets, refinance old expensive loans to survive an increasingly tough operating environment. This exit will leave Hindalco with two aluminum assets in Brazil that are owned by Novelis. Resource rich Brazil's commodity boom went bust last year as commodity prices crashed world over.

As per the reports, Hindalco refinanced US$2.5 billion of debt in August and September, helping save US$54 million in interest annually. Consolidated debt of Rs 675 billion should come down after completion of the Brazil deal.

Hindalco also exited Australia earlier this year after accepting a takeover bid from MetalsX for partly-owned Australian subsidiary Aditya Birla Minerals in a deal worth US$103 million. Hindalco is presently trading up by 0.4% on the BSE.

Moving on to news from energy sector. ONGC Videsh Ltd (OVL) announced that the firm and its wholly owned subsidiary ONGC Videsh Vankorneft Pte. Ltd., Singapore (OVVL) inked agreements with Russia's OAO Rosneft to acquire shares in JSC Vankorneft.

One must note that, OVL, the overseas subsidiary of ONGC, had last year bought a 15% stake in the field for US$1.268 billion. It paid an additional US$930 million for another 11% stake.

Reportedly, the acquisition will increase OVL's shareholding to 26%. Vankor is Russia's second largest field by production and accounts for 4% of Russian production. The field produces around 421,000 barrels per day of crude oil. Notably, together with earlier acquisition of 15%, OVL's share of daily oil production from Vankor will be about 110,000 bpd, the reports noted.

Moreover, the acquisition of a larger interest in Vankor is in line with the goal of meeting India's growing energy needs. The company also stated that the acquisition bears strategic importance and would add about 30% to its existing production at the current rate. It will add approximately 2.2 million tons of oil and 35.3 billion cubic feet (1.0 billion cubic meters) of gas annually.

Oil & Gas stocks are trading with negative bias with BPCL and Oil India Ltd leading the losses.

Listless Gains for Indian Indices
11:30 am

After opening the day marginally higher, the Indian indices have continued to trade near the dotted line. Sectoral indices are trading on a mixed note with stocks from the metal and banking sector witnessing maximum selling pressure. FMCG and healthcare stocks are, however, trading in the green.

The BSE Sensex is trading up 8 points (up 0.03%) and the NSE Nifty is trading flat. The BSE Mid Cap index is trading down 0.3%, while the BSE Small Cap index is trading up by 0.3%. The rupee is trading at 67.02 to the US$.

Prime Minister Narendra Modi on Wednesday reviewed preparations for roll out of the new Goods and Services Tax (GST) regime, possibly from April 1 next year. This came as Finance Minister Arun Jaitley and his team presented various milestones achieved on the GST front and its road ahead.

It was noted that the GST implementation is running ahead of schedule so far, with more than projected number of states ratifying the Constitutional amendment within the 30-day timeline set by the Centre. During the review, the Prime Minister was briefed about the demand for keeping GST rate at 18-19%. The presentation also stated expectations of states from the new regime and the impact of different tax slabs on the Centre in terms of compensation it has to pay states for loss of revenue.

One must note that the government is keen to implement the GST regime from 01 April 2017. This is in order to ensure a smooth rollover to the changed tax structure from the beginning of the new fiscal and avoid mid-year alterations.

The above review came within days of the Union Cabinet approving setting up of GST Council. Early this week, the Union Finance Ministry notified the provisions of the Constitution Amendment Act that allows for setting up the Goods and Services Tax (GST) Council. A ministry notification stated that the Central Government appointed the 12th day of September, 2016 as the date on which the provisions of section 12 of the said Act shall come into force.

The formation of GST Council marks as a step forward in the implementation process of GST after President Pranab Mukherjee gave his assent to the Constitution Amendment Bill on Goods and Services Tax (GST). This, along with the bill ratified by more than 50% of the state assemblies, has made GST a law. To know more about GST, please read Vivek Kaul's report - GST & You: What the Media DID NOT TELL YOU About the GST.

As for market participants, the question is: Will the landmark GST Bill make you go out there and buy stocks in large numbers? One of the editions of The 5 Minute WrapUp titled 'GST Approved: Time to Buy Stocks by the Fistful?' answers this question.

Moving on to the news from commodity space... Crude oil is witnessing selling pressure this week. Oil futures settled at a nearly two-week low on Wednesday. Most of the losses were seen after the International Energy Agency (IEA) cut its crude-demand forecasts. The agency warned that supply of crude oil will continue to outpace demand well into 2017. The forecast sparked concerns for a global supply glut and weighed on crude oil prices.

The above losses are followed by gains seen during the last week. Crude oil registered gains last week after the release of inventory data from the American Petroleum Institute (API). The data showed a 12-million-barrel drop in the US crude oil supplies for the week of August 28. This was recorded as the largest drawdown in crude inventories since the 12.4-million-barrel drop reported in March 2013.

The only positive cue for crude oil is the higher growth anticipated for some major oil consuming economies. Higher growth will lead to higher oil consumption in the coming months, particularly with the onset of winter.

With these triggers, does it make sense to bet on oil? Are crude oil companies a good long-term investment? One of the editions of The 5 Minute WrapUp says This Could Be the Biggest Buying Opportunity Out There.

To keep a tab on the movements in crude oil and other commodities, you can read weekly market commentary from the Daily Profit Hunter team. Their weekly commentary tracks the developments in the global economy as well as stock, currency and commodity markets.

Indian Indices Open Flat
09:30 am

Major Asian stock markets have opened the day on a negative note with the stock markets in Japan and Singapore are trading lower by 1.3% and 0.6% respectively. Benchmark indices in Europe and the US ended their previous session in red with benchmarks indices in France ending the day lower by 0.4%. The rupee is trading at 66.96 per US$.

Indian stock markets have opened the day on a flattish note. The BSE Sensex is trading marginally higher by 26 points (up 0.1%) and the NSE Nifty is trading higher by 17 points (up 0.2%). Both, 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 positive note. Stocks from power sector are witnessing maximum buying interest.

As per an article in Livemint, India's top telecom companies have signaled their intent to participate in the upcoming spectrum auction.

The spectrum auction is going to be the largest in India's history. The auction would start from 1 October 2016.

The government could potentially raise Rs 5.66 trillion from this auction. Further, the government is putting on sale spectrum bands of 700MHz, 800MHz, 900MHz 1,800MHz, 2,100MHz, 2,300 MHz and 2,500 MHz. Amongst these, the 700MHz band is the most effective and expensive band.

A 25% upfront will have to be made for all bands under 1000MHz. While, a 50% upfront would be required for 1,800 MHz, 2,100MHz, 2,300MHz and 2,500MHz bands. The balance will have to be paid on two year moratorium and ten year's installment.

In the event of aggressive bidding, the stressed balance sheet of telecom operators (TELCOS) will come under further pressure. Saddled with a huge pile of debt, this additional burden will put profitability under pressure.

In another news update, the corporate debt restructuring (CDR) failure rate rose to 43% at the end of the June from 36% a year ago. In terms of absolute figures, loans worth Rs 972.4 billion had failed at the end of June.

This means that banks have failed to recover around 25% of the loans approved for corporate debt restructuring in the past fifteen years.

The failure rate has increased mainly on account of the loans which had been given to the infrastructure companies. This just goes on to state that the banks were restructuring the loans only to avoid higher provisioning requirement so as protect their bottom-line.

However, since March 2015 banks have gone slow on CDR as Reserve Bank of India (RBI) have mandated that lenders would have to provide as much for a restructured loan as they did for a bad loan.

The recovery of the restructured loans will be the key things to watch out for going forward to gauge the financial health of the banks especially public sector banks.

Why India Cannot Afford to Remain a Poor Nation?

India currently has one of the youngest populations in the world, with a median age of less than 30 years. An estimated 90% of the country's population is expected to be below the age of 60 by 2020. The demographics are in the country's favor for at least the next few decades or so. But high levels of poverty can undo the benefits from the demographic advantage.

As per the former Reserve Bank of India governor, Raghuram Rajan, India needs to move up the ladder from its current per capita income of around US$1,500 to around US$6,000- US$7,000 to capitalise on the demographic dividend. In other words, the country has to progress towards being a middle income country.

The government, through its varied initiatives, is trying to bring in positive changes in the economy. Key reforms are being debated and implemented. There seems to be a concerted effort from the government towards creating a conducive environment for long term sustainable growth of the economy. A few key variables however need to be addressed in order to stimulate this growth. First, there is an urgent need to find a long term solution to the inflation problem, especially on the supply side front. A benign inflation environment will result in higher financial savings providing more capital for the country's infrastructure needs.

Second, banks need to be well capitalized with strong balance sheets. On that front, through its asset quality review, the RBI has made sure that banks report their distressed assets in a timely manner. This cleanup in the banks' balance sheet is crucial for them to have the ability to lend and support credit growth in the country.

Third, there is a need to leverage technology for our benefit. Technology disruptions has changed the entire landscape of the economy. Technology has helped in bringing informal workers under financial inclusion. With the rise of technology companies like Uber, Ola, Flipkart, Amazon, there has been a sizable increase in the semi-skilled population like the drivers, workforce for delivery that are being inducted into the formal economy. At the same time, rising use of technology and increased productivity has led to fewer persons required to do the same work.

India will continue to have more youth population entering the workforce than ever before. The challenge will be creating meaningful jobs for this young workforce. It remains to be seen if we are able to thrust ourselves into a middle income country or not. This is extremely crucial in our fight against poverty.