Positive Start to the Week

Indian equity markets continued to hover near the dotted line with positive bias in the afternoon session. At the closing bell, the BSE Sensex stood higher by 35 points, while the NSE Nifty finished up by 29 points. The S&P BSE Mid Cap finished up by 0.6% while, the S&P BSE Small Cap finished up by 0.5%. Gains were largely seen in realty and metal stocks.

Asian markets finished higher today with shares in Hong Kong leading the gains. The Hang Seng is up 0.92% while China's Shanghai Composite is up 0.77% and Japan's Nikkei 225 is up 0.70%. European markets are broadly higher today with shares in France leading the region. The CAC 40 is up 1.40% while London's FTSE 100 is up 1.32% and Germany's DAX is up 0.70%.

The rupee was trading weak at 66.87 against the US$ in the afternoon session. Oil prices were trading at US$ 44.23 at the time of writing.

Oil & Gas stocks finished on a positive note with Petronet LNG and BPCL leading the gains. According to an article in The Financial Express, the overseas subsidiary of ONGC, ONGC Videsh Ltd (OVL) is seeking US$ 537 million worth of crude oil in lieu of cash due for its share of sales from a Venezuelan oilfield.

OVL owns 40% of the San Cristobal field and had invested about US$ 190 million in the project in 2008. State-run Petroleos de Venezuela S.A., or PDVSA, holds the remaining stake. The field currently produces about 28,000 barrels a day, down from a peak of 38,000 barrels a day.

Reportedly, OVL had received its dividend from sale of crude oil produced from the field totaling US$ 56.224 million for 2008. But dividends for 2009 to 2013 totaling US$ 537.631 million remained unpaid due to cash flow difficulties being faced by PDVSA.

During 2015-16, OVL's share of crude oil production was 0.585 million tonnes as compared to 0.645 million tonnes during the previous fiscal. Its share of investment in the project was Rs 26 billion.

Since PDVSA is facing a cash crunch, OVL wants its share of revenue from the field be paid in form of crude oil. Another option was to deduct the outstanding from the money Indian firms like Reliance Industries and Essar Oil pay to import crude oil from Venezuela.

Venezuela is India's fourth largest source of crude oil, supplying some 23.6 million tonnes or 12% of the country's annual import in 2015-16.

OVL, along with Indian Oil Corp (IOC) and Oil India Ltd, also holds 18% stake in Venezuela's Carabobo-1 project, which currently produces about 16,000 bpd of oil and is expected to reach 90,000 bpd by end of 2017.

ONGC finished the day up by 1.1% on the BSE. The stock price of ONGC has surged more than 15% in the last 6 months.

Moving on to news from banking sector. According to a leading financial daily, IFCI will sell its entire stake in Assets and Reconstruction Enterprise Ltd (ACRE) to Axis Bank for Rs 227.2 million. Axis Bank Ltd will buy a 13.67% stake in ACRE. In July, IFCI had sold a 0.5% stake in National Stock Exchange of India Ltd for Rs 890 million.

Meanwhile, In September 2014, Hong Kong-based stressed asset fund SSG Capital Management (Singapore) Pte Ltd had bought a 49% stake in ACRE. The other large shareholder in the ARC is Punjab National Bank (PNB), which owned 15.3% in it.

As per the reports, Life Insurance Corporation (LIC) of India, one of the promoters of Axis Bank, also owns a 2.8% shares in the asset reconstruction company. At the end of March, ACRE had total assets under management of Rs 3.36 billion.

With this investment, Axis Bank has become the second private sector bank to enter the ARC business in recent times. In August, ICICI Bank also said it is looking at opening an ARC with Apollo India Credit Opportunity Management LLC and AION Capital Management Ltd. ACRE helps banks and financial institutions clean up their books through acquisition of non-performing financial assets.

According to an article in The Livemint, stress resolution systems such as ARCs are high in demand owing to the increase in bad debt burden on the Indian banking system. However, a lack of capital has meant that bad loan purchases by ARCs fell to Rs 197 billion in the last fiscal compared to Rs 400 billion a year ago. At the end of June, Indian banks were sitting on Rs 6.3 trillion of bad loans.

Majority of the private banking stocks finished on a firm note Lakshmi Vilas Bank and IDFC Bank leading the gains.

IT & Metal Stocks Trade Higher
01:30 pm

Indian Indices have continued trading marginally higher during the post-noon trading session amid strong global markets. Barring FMCG stocks, major sectoral indices are trading on a positive note with stocks from the IT & metal leading the gains.

The BSE Sensex is trading higher by 78 points (up 0.3%) while the NSE Nifty is trading higher by 32 points (up 0.4%). The BSE Mid Cap index is trading higher by 0.6% and BSE Small Cap index is trading higher by 0.5%. Gold prices, per 10 grams, are trading at Rs 30,970 levels. Silver price, per kilogram is trading at Rs 45,915 levels. Crude oil is trading at Rs 2,986 per barrel. The rupee is trading at 66.92 to the US$.

Power stocks are trading on a mixed note with Satluj Jal Vidyut & Jaiprakash Power heading the gains. As per an article in Business Standard, Power Grid Corporation of India (PGCIL) has received its board approval for investment proposals worth Rs 5.6 billion for power transmission related projects.

Reportedly, the company has accorded investment approval for system strengthening in the southern region. It has a commissioning schedule of 30 months progressively from the date of investment approval.

Despite various hassles, the company has a consistent track record (Subscription Required) in commissioning projects on time or even before the scheduled date. Significantly, more than 45% of power generated in India is transmitted through PGCIL. The government has also laid a target of installing capacities of 175 Giga Watts (GW) of renewables by 2022.

In another development, it was reported that, union power ministry has proposed to extend the free electricity connections scheme to all. In this regard, the Centre will extend financial support to states to enable them to offer new electricity connections.

For this purpose, Rural Electrification Corporation (REC) is preparing a scheme to provide long-term loans to states that agree to offer free new electricity connections. As per the plan, the distribution companies will have to get new connection plans approved by REC. REC in turn will reimburse expenses incurred by power utilities in giving electricity access to households.

Apparently, this proposal is in line with the Centre's goal to achieve 24x7 power for all by March 2019.

Moving on to the news from pharma sector. As per an article in a leading financial daily, Dr Reddy's Laboratories Ltd announced expansion of its strategic collaboration with Amgen. Amgen is a US-based independent biotechnology firm.

As a result of the move, Dr Reddy's will market and distribute three of Amgen's medicines in the therapy areas of Oncology and Osteoporosis. The company will market and distribute three additional products in India namely, XGEVA (denosumab), Vectibix (panitumumab) and Prolia (denosumab). Xgeva is used in prevention of skeletal related events, Vectibix is a cancer medication, Prolia is used for treatment of post-menopausal women.

Notably, Last year, Dr. Reddy's had announced an initial strategic collaboration with Amgen to execute commercial services to seek approval of and launch Amgen's Kyprolis (carfilzomib), BLINCYTO (blinatumomab) and Repatha (evolocumab) in India.

The alliance is focusing to address unmet medical needs of patients in India, the company stated. Going forward, whether the collaboration leverages the capabilities of both companies to serve the needs of the Indian patients will be the key thing to watch out for.

ICICI Prudential Life Insurance's IPO opens today, the biggest initial public offering in nearly six years. The insurer's parent ICICI Bank will be selling a 12.36% stake with this IPO. An IPO is the most tempting vehicle to realise every investor dreams of making a lifetime of money. Most IPOs, however, fail to hit the mark. So, instead of getting influenced by the general uproar, investors should analyze well in order to avoid any pain in the future.

To help you approach them as an enterprising investor would, we are preparing special handbook for IPO Investing. Watch this space to know how you could access it...

Indian Indices Trade Marginally Higher
11:30 am

After opening the day on a flat note, the Indian indices have continued to trade marginally higher. Majority of the sectoral indices are trading on a positive note with stocks from the IT, energy, and metal sector witnessing maximum buying interest. Realty stocks are, however, trading in the red.

The BSE Sensex is trading up 101 points (up 0.4%) and the NSE Nifty is trading up 35 points (0.4%). The BSE Mid Cap index is trading up by 0.5%, while the BSE Small Cap index is trading up by 0.6%. The rupee is trading at 66.88 to the US$.

The mega initial public offering (IPO) of ICICI Prudential Life Insurance is set to hit the markets today. This is recorded as the biggest IPOs since Coal India's stake sale in October 2010. The IPO will also be the first pure play insurance company in India. ICICI Bank will raise Rs 60 billion by selling a stake in its subsidiary ICICI Prudential Life Insurance Company. The bank has valued the insurer at Rs 480 billion.

Here's Tanushree Banerjee, Equitymaster Co-Head of Research, writing about the IPO In a recent edition of the Research Digest (subscription required):

  • The IPO of ICICI Life Insurance not only has the lure if being a billion-dollar issue. But it will also be the first pure-play insurance company to be listed in India.

    Now, if you've seen the financial statements of banks and non-banking financial institutions, beware that insurance is a different animal altogether. What constitutes impressive financials and a strong balance sheet for insurance companies differs quite a bit from other financial entities.

    Valuing insurance businesses is going to be a novel experience indeed.

The insurer's parent ICICI Bank will be selling a 12.36% stake with this IPO. The issue will remain open until Wednesday. To know our view on the IPO, you can visit our IPO Buzz section (subscription required).

Apart from the above, many more companies are considering going public. So expect more action in the IPO markets going ahead. This begs the question: What should be one's approach towards IPOs?

A recent edition of The 5 Minute WrapUp - How to Profit from IPOs - answers this question. It offers two ways one can think about IPOs to profit from them.

Moving on to the news from global markets... Global indices are trading with caution ahead of central bank meetings in the US and Japan this week. During the last week, global markets remained under pressure amid concerns regarding central banks, particularly the Fed, becoming less accommodative in the future and the prospect of Fed increasing the interest rates sooner than expected.

The US Fed is set to hold its policy meeting this Tuesday and Wednesday. While the manufacturing and services sectors in the US remain constrained, sustained labour market strength could push the Fed closer to raising interest rates.

Last month, Fed Chair Janet Yellen voiced optimism about the US economy and anticipation that interest rate hikes are ahead. Yellen said that with a firm labour market in the US and with the Fed's outlook for economic activity and inflation, the case for an interest rate hike has strengthened in recent months.

The Fed's stance on rate hikes has fuelled much volatility in the global markets of late. How can one avoid capital loss amid such volatility? Asad Dossani, editor of Daily Profit Hunter, says Don't Fight Easy Money. And Apurva Sheth tells you how in two articles - one highlighting some trading principles from Warren Buffett and another explaining how to use accuracy rate and risk-reward ratio to develop a winning strategy.

Indian Indices Open Flat
09:30 am

Major Asian stock markets have opened the day on a positive note with the stock markets in Taiwan and China are trading higher by 2.6% and 0.6% respectively. Benchmark indices in Europe and the US ended their previous session in red with benchmarks indices in US ending the day lower by 0.5%. The rupee is trading at 66.88 per US$.

Indian stock markets have opened the day on a flattish note. The BSE Sensex is trading marginally higher by 38 points (up 0.1%) and the NSE Nifty is trading higher by 8 points (up 0.1%). Both, BSE Mid Cap and BSE Small Cap are trading higher by 0.5% each.

Barring information technology, major sectoral indices have opened the day on a positive note. Stocks from banking sector are witnessing maximum buying interest.

As per an article in Livemint, Lupin is looking for opportunities for an acquisition in the domestic market. The company has made significant number of acquisitions in the overseas market in the preceding two years. This includes the likes Gavis Pharmaceutical acquired for a sum of US$ 880 million and Shionogi's product portfolio in Japan.

Now it is looking out for opportunities in the domestic market, considering that pharmaceutical market in India is expected to grow to US$ 55 billion in 2020 from the current US$ 20 billion as per reports.

Reportedly, according to management the acquisition in the domestic space will be done for the therapies in which the company has lower market share or little presence. This will enable the company to diversify its presence across varied therapies.

India business currently accounts for 29% of the company's revenues. Lupin is currently ranked 8th in the domestic Pharmaceutical market. It is the leading player in the Anti-TB segment. Further, the company also derives major portion of its revenues from respiratory, anti-diabetic and cardiology segments in the domestic market.

Thus one will have to look into as to which new therapies Lupin will enter. The stock is trading marginally higher by 0.1%.

In another news update, a committee headed by the chief economic advisor, Mr Arvind Subramanian, has recommended increasing the minimum support price of tur and urad dal by 20%.

Reportedly, the committee stated that the MSP of the two pulse variety should be increased to Rs 60 kg from the prevailing Rs 50 kg. The increase in MSP if accepted will help the farmers with increased income. This in-turn can spurt the rural consumption which has remained subdued since a while now. Further, a normal monsoon this year is expected to bring in bumper production of agriculture produce of pulses in India.

Recently, there is a flood of Initial Public Offer's (IPO) hitting the market. Confused as to which one's to apply and which ones to avoid? Our recent edition of The 5 Minute WrapUp offers two ways to think about IPOs and explains how to profit from them.

Further, to help you approach the big IPOs as an enterprising investor would, we are preparing special handbook for IPO Investing. Watch this space to know how you could access it...

Should the Government Devalue Rupee?

The commerce ministry is concerned over the continuous slowdown in exports. Contracting for the second month in a row, India's merchandise exports fell 0.3% to USD 23.5 billion in August on persistent weak demand in developed markets and subdued prices.

In a draft Cabinet note circulated earlier to seek views of different ministries, it has suggested that a mechanism be formulated to ensure the rupee-dollar exchange rate reflect the realistic value of the domestic currency. The ministry has argued that adjustments in exchange rate policy are needed as it is important to increase the competitiveness of the products.

Currently, Indian currency's real effective exchange rate (REER) is viewed as overvalued compared to several countries like Mexico, South Africa, Argentina and Brazil. The REER is the weighted average of a country's currency relative to an index or basket of other major currencies, adjusted for the effects of inflation. The weights are determined by comparing the relative trade balance of a country's currency against each country within the index. By this yardstick, the Indian rupee is overvalued.

Macroeconomic theory suggests that the exchange rate of any country is expected to weaken to the extent its inflation differs with its trade partners. Retail inflation is expected to average around 5% this year and the rupee has weakened by just 1.24%.

In this case, should the rupee be devalued? It is important to understand what devaluation means. Devaluation is a policy of reducing the currency value against foreign currencies. It is a one-time large outsized policy driven move. Devaluation of currency essentially means, attempt to make Indian goods more attractive to foreigners as they would become cheaper. This will boost export competitiveness. Whereas, currency depreciation essentially means a change in the value because of market forces. That is, these countries allow supply and demand to determine the value of their currency relative to the currencies of other countries.

Given the rather global slump that we have, as far as trade dynamics are concerned, it is unclear how much of a devaluation is really going to help. Devaluation is a short-sighted strategy. The greater, long-lasting focus should be on enhancing productivity gains which, automatically, will feed through into export volumes and will help the exchange rate as well. The exchange rate should be thought as a stabilizer or as a shock absorber, rather than becoming a target point as far as policy is concerned.

To conclude, it is important to understand that the fall in exports has little to do with the exchange rate and more to do with depressed global trade. It's best to leave the rupee to market forces. After all, a relatively stronger currency cannot look out of place when the balance of payments is in surplus.