Sensex Finishes Flat; Realty & Energy Stocks Fall

Indian share markets witnessed some selling pressure in the final hours of trade to finish on a dull note amid subdued global cues. At the closing bell, the BSE Sensex closed marginally higher by 21 points, whereas the NSE Nifty finished higher by 11 points. The S&P BSE Midcap finished the day down by 0.2% & the S&P BSE Small Cap finished up by 0.2%.

The rupee was trading at 66.58 to the US$ at the time of writing, while oil prices were trading at US$ 49.6.

Asian markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 1.45%, while the Hang Seng & the Nikkei 225 fell 0.42% and 0.23% respectively. European markets are mixed today. The DAX is up 0.22% while the FTSE 100 gains 0.07%. The CAC 40 is even.

As per an article in a leading financial daily, Dr Reddy's Laboratories has forayed into the Colombian market to sell cancer drugs.

Reportedly, company's initial focus would be to provide access to affordable cancer medicines to patients through its proven portfolio of oncology products.

The company currently operates in 26 countries, being the second largest generic oncology injectable company by value in the US and a leading generic oncology company in India. Whether its entry in the Columbian market will widen its footprint in this space will be the key thing to watch out for going forward.

In another development, it was reported that, The National Pharmaceutical Pricing Authority (NPPA) has slashed the prices of over 30 essential medicines. In a bid to make several cancer medicines and antibiotics cheaper, the body has cut the prices by as much as 55%, the reports noted.

Further, the price of anti-cancer drug Imatinib has been capped at Rs 72.03 per capsule. According to NPPA, the medicine was earlier sold for up to Rs 85.50 per capsule. Similarly, prices of essential drugs including, anti-viral drug and a few antibiotics have been revised.

Shares of Dr Reddy's ended the day up by 0.9%.

Moving on to news from stocks in oil & gas sector. As per an article in Livemint, Oil India plans to undertake 20 development drilling wells in Jaisalmer district of Rajasthan at an estimated cost of Rs 2.2 billion.

Reportedly, Oil India had discovered natural gas in Jaisalmer sub-basin of Tanot fields and heavy oil in the Bikaner-Nagaur sub-basin in early nineties. Now, the company has received the green nod for development drilling of 20 wells in Baghewala mining lease block in Jaisalmer district.

Further, about one million metric standards cubic meter per day of gas is expected to be produced from these blocks. Later, it will be processed at the Dandewala gas processing complex. Oil India has over one lakh sq km of petroleum exploration licence or mining lease areas. These areas account for its majority of crude oil and gas production.

In another development, shares of Cairn India advanced as much as 3% today despite reporting a fall in its oil & gas production. The company reported a 4.34% drop in oil and gas production for the second quarter FY 2016-17 at 18.1 million barrels of oil equivalent as compared to 18.9 barrels of oil equivalent in the same quarter last year.

However, gross production from Rajasthan was marginally higher by 0.45% quarter-on-quarter. Encouraging results from Mangala EOR, driven by enhanced well productivity and new wells coming online, increased the EOR contribution to production from 42 kboepd in Q1 FY17 to 52 kboepd in Q2 FY17.

In oil & gas sector, government is looking to merge 13 state oil companies to create a giant corporation. The idea is that the creation of such a giant firm will catapult India into a much bigger league. Whether this highly ambitious plan will be successfully executed remains the big question.

Sensex Continues to Trade Flat; Consumer Durables & Metal Stocks Shine
01:30 pm

Indian share markets continued to trade near the dotted line with positive bias in the noon session amid mixed global markets. Barring PSU, oil & gas and realty sector, all the sectoral indices are trading in green.

The BSE Sensex is trading higher by 52 points and the NSE Nifty is trading higher by 21 point. The BSE Mid Cap index is flat, while the BSE Small Cap index is up by 0.4%. The rupee is trading at 66.69 to the US$.

Share price of ITC is trading on an optimistic note (up 0.8%) after it was reported that the company will sell its entire stake in its US-based wholly-owned subsidiary King Maker Marketing (KMM) for an estimated consideration of US$ 24 million.

ITC entered into an agreement with the US-based buyer, Premier Manufacturing, to divest 100% of its equity stake in KMM. KMM is primarily engaged in distribution of cigarettes in USA. The expected date of completion of sale of the subsidiary is November 30, 2016.

Main business of King Maker Marketing, registered in New Jersey, is to import and distribute tobacco products (Subscription Required) to licensed wholesalers and retailers throughout the USA. ITC is KMM's sole supplier of tobacco products.

KMM recorded net sales of US$ 32.7 million and earned a net income of US$ 0.53 million during the financial year ended March 31, 2016. During the last fiscal, KMM reportedly paid a dividend of US$ 1.5 million to ITC.

The cigarette industry in the USA continues to be adversely impacted by long-term decline in cigarette consumption and growing illicit trade due to tax differential between various States, mislabeled cigarette tobaccos positioned in a lower tax bracket, non-compliant imports and Native American manufacture.

In another development, according to an article in the Moneycontrol, ITC's improvement in cigarette business is likely to ramp up its business performance in the second quarter of this fiscal. It also expects revenue growth of the FMCG business to pick up significantly in second half of FY17 on improving macro and new product launches. It says paper prices are up significantly in the September 16 due to shut down of competitor plants.

Moving on to news from stocks in oil & gas sector. According to an article in the Livemint, Oil and Natural Gas Corporation (ONGC) has inked a preliminary agreement to take an operating stake in Gujarat government firm Gujarat State Petroleum Corp (GSPC)'s KG basin gas block. The Memorandum of Understanding (MoU) signed last week has a dispute resolution mechanism set out wherein any differences over issues like valuation or natural gas reserves would be referred to a three-member committee of outside experts.

As per the reports, this is perhaps for the first time that a MoU sets out a dispute resolution committee and it perhaps is indication of the pitfalls that ONGC anticipates in buying a stake in the block. It has already differed with GSPC on the gas reserves the block holds and has appointed US-based consultant Ryder Scott to do an independent assessment.

ONGC initially was not keen to buy stake in the block as it felt the block had reserves far less than what GSPC was claiming and the asking price for the stake was not commensurate with the returns. GSPC was to begin gas production from the block in 2013 but after sinking in US$3.6 billion it was found that gas reserves are one-tenth of 20 trillion cubic feet claimed in 2005 and that too is technically difficult to produce.

In the process it has amassed Rs 195.76 billion of debt, on which interest cost was Rs 18.04 billion in 2014-15, according to the CAG. And against this, its revenue was Rs.1.52 billion in 2014-15.

Share price of Gujarat State Petronet was trading up by 2.3%, while ONGC is trading down by 1.2% at the time of writing.

Sensex Flat; Tata Steel Continues Uptrend
11:30 am

After opening the day on a flat note, the Indian share markets have continued to trade near the dotted line. Sectoral indices are trading on a mixed note with consumer durables sector stocks and power sector stocks witnessing maximum buying interest.

The BSE Sensex is trading up 62 points (up 0.2%) and the NSE Nifty is trading up 23 points (up 0.3%). The BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up by 0.6%. The rupee is trading at 66.58 to the US$.

Stocks in the banking space are trading on a flat note. Axis Bank and IDFC Bank are witnessing most of the brunt here.

As per a leading financial daily, Tata Steel is moving closer to striking a new deal over the 15-billion-pound pension pot that stands in the way of an agreement over of its UK steelworks.

As per the news, the company is understood to have opened talks with the UK's Pension Protection Fund (PPF) and the Pensions Regulator over an unorthodox restructuring deal. The deal, if finalised, would see a merger of its European arm with Germany's ThyssenKrupp.

An agreement on this matter could secure the immediate future of the Port Talbot plant in South Wales and its 4,000 staff members. Further, it can also aid other plants of the company across the country which were put up for sale in March this year.

The British Steel Pension Scheme is seen as the biggest obstacle to the merger of the Tata operation with ThyssenKrupp. The arguments are centered on using a regulated apportionment agreement. This framework allows companies to pump cash into a pension scheme in return for being allowed to continue trading without those liabilities.

Tata Steel Group is among the top-ten global steel companies with an annual crude steel capacity of over 29 million tonnes per annum (mtpa). It is now the world's second-most geographically-diversified steel producer, with operations in 26 countries and a commercial presence in over 50 countries. To know our views on the stock of Tata Steel, you can read our analysis of the company results (subscription required).

Presently the stock of Tata Steel is trading up by 2.4%.

Moving to the news from the commodity space... Crude oil is witnessing selling pressure today. This is seen as Iraq's oil minister urged oil and natural gas producers operating the country to continue increasing output next year. As per the ministry's statement, the minister has affirmed the need to proceed forth with increasing oil and gas production through enhancing the national effort and those of the licensed companies for the remainder of 2016 and also for 2017.

The above comments raised concerns for rising inventory levels in the coming months and weighed on crude oil prices.

One must note that OPEC members in a recent meet had decided to cut output. OPEC had agreed to reduce output to a range of 32.5-33 million barrels per day (bpd) from the present output of 33.24 million bpd. The deal was struck during talks in Algeria to ease global supply fears.

Until a few years ago, US$100 per barrel was the new 'normal' for oil prices. And then this capricious commodity proved everyone wrong. Early this year, crude oil prices hit US$30 per barrel for the first time in twelve years. The root of this turmoil has been the global supply glut.

OPEC is a major source of the turmoil we've seen in crude oil prices. Check out Asad Dossani's article, How OPEC Lost Control of Oil Prices, for more on this.

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

Indian Share Markets Open Firm; Tata Steel Lead the Gains
09:30 am

Major Asian stock markets have opened the day on a negative note with stock market in Singapore and Hong Kong are trading lower by 0.25% and 0.42%, respectively. Stock markets in Europe and the US are also trading on a negative note. The rupee is currently trading at 66.53 per US$.

Indian stock markets have opened the day on a flattish note. The BSE Sensex is trading higher by 120 points (up 0.4%) and NSE Nifty is trading higher by 36 points (up 0.4%). Both, BSE Mid Cap and BSE Small Cap are trading higher by 0.6% and 0.5%, respectively.

Major sectoral indices have opened the day in green with stocks from metal sector are witnessing maximum buying interest. Tata Steel and SAIL are leading the gains.

In a recent news update from the global markets, China has declared to cut red tape and ease rules for foreign investors in order to boost the economy and counter a decline in private investment.

This comes as Beijing over the weekend said it would encourage investment in the medical-care, education, sports and culture sectors. Further, it also stated it would grant provincial governments more authority to approve projects not explicitly forbidden.

The Chinese government has cut some 95% of investment registration procedure under the new rules. All of these came after foreign business groups in China voiced growing concern about unclear laws, perceived anti-foreign sentiment and industrial overcapacity. As per a survey by the American Chamber of Commerce in China, 77% of respondent companies felt less welcome this year than a year ago, compared with 47% in 2015 and 44% in 2014.

Not only this, but the Chinese government has also decided to block new projects in sectors that are plagued by overcapacity. Some of these sectors in China are steel, coal, and aluminum.

While these measures will boost the investment environment, China needs to do better to come out of the ongoing economic slowdown. While stimulus measures by Chinese government had provided some aid, sluggish demand and excess capacity are threatening to reverse China's economic engine, which had been moving at a frenzied pace.

In another news update, as per the financial daily, Maruti Suzuki India (MSI) is all set to launch the premium hatchback Baleno in new markets like Caribbean Islands and South Africa in the coming months. Apart from this, the car will also be shipped to countries in Latin America, Middle East, and South East Asia.

The development is a part of company's plans to export the new car model to over 100 nations. At present, MSI exports the car to France, Denmark, Germany, Greece, Hungary, Iceland, Italy, Japan, Netherlands, Poland, Spain, Sweden, Switzerland, Chile, Israel, England, Nepal, Bhutan, Austria and Australia.

Around 38,000 units 0f the new car model have been dispatched to the above destinations till date. As far as domestic car sales are concerned, the car has already crossed the milestone of 1,00,000 sales.

Maruti had launched Baleno in India in October 26th last year. The company and its supplier partners have invested around Rs 10 billion in the development of Baleno, which is being manufactured at the company's Manesar plant.

Maruti Suzuki is India's largest carmaker. The company reported a strong 31% year on year (YoY) growth in its passenger vehicle sales in September 2016. The sales of 149,143 units as against a total of 113,759 units in September last year were reported on the back of highest-ever domestic sales. On domestic sales front, the company reported a jump of 29.4% during September 2015. Its compact segment comprising Swift, Ritz, Celerio, Baleno and Dzire models clocked were up by 12.3%.

The stock of Maruti Suzuki had opened the day up by 0.5%.

Non-Convertible Debentures Dominate Fund-Raising Option

Companies normally raise money by going public, i.e. through an Initial Public Offering (IPO), follow-on-public offer (FPO), qualified institutional placement (QIPs), preferential issues, borrowing money from banks, and by issuing debentures which include Non-convertible debentures (NCDs) and convertible bonds.

NCDs are loan-linked bonds that cannot be converted into stocks. This instrument offers a higher rate of interest than convertible debentures. On the other hand, a convertible bond is a bond issued by a company which gives the bondholder the option to trade in the bond for shares in the company that issued it. Here, the bondholder gets both a fixed-income investment with coupon payments as well as the potential to benefit from an increase in the company's share price. As the bondholder gets an option of converting a bond to equity share, the coupon payment on the bond will be lower than that of an equivalent bond with no conversion option.

As per an article in Mint, Indian companies raised Rs 3.7 trillion in the first half of the current fiscal year and NCDs were the most preferred. According to recent Prime Database data, of the total funds raised in the 1HFY17, Rs 2.73 trillion was via NCDs (on a private placement basis). This comes to nearly 75% of the total funds raised.

So the question is what makes NCDs so popular among corporates? The answer lies in the bond market. With bond yields falling in line with policy rate changes, raising funds via NCDs has become a cheaper source.

Now, if the rates are falling, bank rate should also come down, right? However, that is not the case. On 5 October 2016, the RBI cut repo rate by 25 bps, how many banks lowered their base rate by at least 10 bps? The answer is zero. Why? Vivek Kaul has an answer. He writes...

  • While banks are quick to raise interest rates when the RBI raises the repo rate, they are slow to cut interest rates when the RBI cuts the repo rate. Also, if banks lower their base rate, the interest they earn on the money that they have lent comes down immediately. But the interest that they pay on their deposits does not change. While loans rate are floating, deposit rates are not. Hence, banks continue to hold on to interest rates on their loans.

Banks are currently grappling with issues of non-performing assets. The HYPERLINK "" \t "_blank" bad loans will also limit the ability of banks to cut their lending rates.

Due to above, many companies have been opting for NCDs. Muthoot Finance, Mahindra & Mahindra Financial Services, Dewan Housing Finance Corp. and Edelweiss Housing Finance were among the companies that mobilised funds through this route. Similarly, mining major Vedanta announced that it will raise up to Rs 12.5 billion through NCDs and several others like Apollo Hospitals and Shriram City Union Finance are in the fray to follow suit.

Will NCDs continue to be in trend? It looks like at the moment. With bond yields coming down further on the heels of the Reserve Bank of India's rate cut, the NCD route will continue to look attractive.