Auto, energy stocks lead the gains

Buoyed by strong sentiments across Asia and Europe, Indian stock markets performed well today and ended well above the dotted line. While the BSE-Sensex closed higher by around 230 points, gains on the NSE-Nifty came in at around 72 points. S&P BSE Midcap and S&P BSE Smallcap indices also closed strong, edging higher by around 0.8% and 0.5% respectively. Auto and oil and gas stocks emerged as the top gainers.

Asian markets closed sharply higher today with shares in China leading the region. The Shanghai Composite was up 2.32% while Hong Kong's Hang Seng was up 2.00%. Japan's Nikkei 225 closed higher by 1.15%. European markets have opened higher in early trade with shares in Germany leading the gains. The rupee was trading weak at 65.11 against the US$ in the afternoon session.

Healthcare sector finished the day with modest gains with IPCA Labs and Opto Circuits leading the gains. According to a leading financial daily, Swiss pharmaceutical firm Helsinn Healthcare SA has settled patent litigations relating to its anti-nausea injection Aloxi with Dr. Reddy's Laboratories Ltd. The settlement will allow Dr. Reddy's to market the generic version of Aloxi in the US on 30 September 2018 or earlier under certain circumstances. Aloxi generically called as palonosetron HCl injection is used to treat chemotherapy-induced nausea and vomiting in patients suffering from cancer. Reportedly, Aloxi had sales of nearly US$416 million in the US and Canada for the year ended 31 March.

Radhika Pandit, Managing Editor of ValuePro recently wrote an article in the '5 Minute Wrap Up Premium' highlighting the issues faced by Dr Reddy's. The article gives an in depth view of the company's delay in product launch.

Tata Consultancy Services (TCS) is reportedly in talks with nine of the 11 payments bank license holders to offer operational solutions. The company has been a key participant for government deals in the domestic market. In the banking sector, it works with most of the leading lenders. State Bank of India, the largest public sector bank, has its core banking operations on TCS' banking platform, BaNCS.

Tata Consultancy Services has announced its financial results for 2QFY16. The company has reported a 5.8% quarter-on-quarter (QoQ) increase in its consolidated sales and a 6.5% QoQ increase in its consolidated net profit in 2QFY16. Here is our analysis of the results.

Indian markets trade in the green
01:30 pm

After opening the day on a positive note, the Indian Markets continued to trade in the green in the post noon trading session. Sectoral indices are trading on an encouraging note with stocks from the auto and banking sectors leading the gainers.

The BSE-Sensex is trading up 237 points (up 0.9%) and the NSE-Nifty is trading up 77 points (up 1%). The S&P BSE Midcap index is trading up by 0.9% and the S&P BSE Smallcap index is trading up by 0.6%. On the commodity front, gold prices, per 10 grams, are trading at Rs 27,256 levels. Silver price, per kilogram is trading at Rs 37,505 levels. Per barrel crude oil is available at Rs 3,004. The rupee is trading at 64.79 to the US$.

Most of the engineering stocks are trading on a positive note with Jyoti Structure and Shanthi Gears leading the gainers. As per an article in Livemint, Larsen and Toubro Ltd (L&T) is planning to list five operational road assets through an Infrastructure investment trust (InvIT). The company is expecting to raise more than Rs 20 billion through this process. The company has stated that it is ready with the plan for InvIT, which the Board could propose in a month's time.

InvIT is a new structure cleared by the capital market regulator to simplify fund raising by infrastructure developers. The company in this regard pointed that institutions with long-term funds, such as the insurance companies and pension funds would be best suited for InvITs.

The company in its first quarter results of financial year 2015-16 has reported 6.7% YoY growth in sales. However, net profits fell by 37% YoY. Rahul Shah, Managing editor of Microcap Millionaires, recently put out a detailed note sharing his views on these results. You can read the same here (subscription required).

Pharmaceutical stocks are trading on a mixed note with Lupin Ltd and Indoco Remedies leading the gains. As per a leading financial daily, Sun Pharmaceutical Industries' US subsidiary - Taro Pharmaceuticals has acquired Canada's Zalicus Pharmaceuticals, a company engaged in the development of a pain management drug candidate coded Z944. The acquisition is aimed at strengthening Taro's focus on proprietary drugs and expanding beyond its forte in dermatology drugs.

Taro Pharmaceuticals has made cash payment of about Rs 250 million for the same. This is in addition to issuing a non-interest bearing, limited recourse promissory note of an equal amount with maturity date of July 1, 2017.

Sun Pharma is the fifth largest specialty generic pharmaceutical company in the world with a presence in over 150 countries. Presently the stock of company is trading marginally up.

Indian markets inch upwards
11:30 am

After opening firm, the Indian Markets have continued to edge upwards. Sectoral indices are trading on a firm note with stocks from the auto, banking and capital goods sectors leading the gains.

The BSE-Sensex is trading up 206 points (up 0.8%) and the NSE-Nifty is trading up 67 points (up 0.8%). The S&P BSE Midcap index is trading up by 0.8% while the S&P BSE Smallcap index is trading up by nearly 0.7%. The rupee is trading at 64.84 to the US$.

Automobile stocks are trading on a positive note with Tata Motors and Maruti Suzuki leading the gains. As per a leading financial daily, Mahindra & Mahindra (M&M) has reported that it is aiming to gain a respectable market share in heavy commercial vehicle (HCV) space and will further expand its presence in the utility vehicles segment.

For the HCV expansion, the company said that it is aiming to bring its market share at 5-6% as against the current 2.7%. Moving on to utility vehicles segment, the company is pushing up for higher market share with the help of new launches lined up. With that, the company is going to launch five more vehicles in the automotive segment in the current financial year.

Further, with its inability to sell enough electric cars in the domestic market, the company has decided to export the same from March-April, 2016 to the UK. Presently, the scrip of Mahindra & Mahindra is trading up by about 1.2%.

As per an article in Economic Times, Zee Entertainment Enterprises Ltd has posted its results for the quarter ended September 30, 2015. The company witnessed a rise in its net profit by 8.5% for the quarter on a YoY basis. Revenues for the company grew 24% YoY to Rs 11.18 billion. The advertising revenue for the quarter was at Rs 8.43 billion, recording a growth of 35% YoY. Subscription revenue showed 13% growth at Rs 4.79 billion.

The company after the results stated that it is endeavoring to further enhance its offerings and is ahead of the market in delivering innovative and high quality entertainment to its viewers across consumption platforms. Zee is the leading content player in the Indian TV industry offering maximum hours of content in India. Stock of the company is trading up by about 6%.

The company operates in the media sector. We have written a detailed the analysis for this sector. It points out the developments that have taken place so far and the future prospects of the sector.

Indian markets open firm
09:30 am

After last few sessions of dull performance, the major Asian stock markets have opened the day on an encouraging note. Stock markets in Hong Kong, China and Japan are trading up by 2.1%, 1.4% and 1.3% respectively. The major stock indices in Europe and US ended their previous trading session on a disappointing note. The rupee is trading at 64.73 per US dollar.

In line with the Asian peers, even Indian markets have opened the day on a positive note. BSE-Sensex is trading higher by 160 points (up 0.6%) and NSE-Nifty is trading higher by 52 points (up 0.6%). Stocks from S&P BSE Midcap and S&P BSE Smallcap are also in demand. Both the indices are trading higher by around 0.7% each. Major sectoral indices have opened the day in green with stocks from engineering and capital goods sectors witnessing maximum buying interest.

Hindustan Unilever Ltd (HUL) - India's largest FMCG company recently, declared its results for the quarter ending September 2015. The company's revenues grew by 4.7% YoY for the quarter. This growth was primarily driven on account of a 7% increase in sales volume. The company had cut the prices in its soaps and detergents category. This helped in better growth in the volumes of these products. However, the company witnessed weak demand from the rural market.

The operating profit margins expanded by 0.4% on account of lower input costs. The cost of goods sold during the quarter fell by 3.2%. However the benefits from lowers input costs were spent largely towards advertisement and promotion expenses. The A&P spent increased by 23.7% YoY basis. Subsequently, the operating margins improved marginally. On the bottom line, the net profit fell by 2.6% to Rs 9.6 bn on a YoY basis. The stock of HUL is trading down by 2%.

As per the financial daily, Tata Motors have set a target to double the market share in the passenger market segment by 2020. The company expects the market share to grow to 10% from 5.7% currently. The company's projection is based on the new launches in its pipelines. The company is set to launch four new passenger vehicles in the coming 18 months. The sale of passenger vehicles was more than 76000 in the first half of this year. The company expects the sales from passenger vehicles to reach 2 lakh by the end of this fiscal year.

Meanwhile, Jaguar Land Rover sales were up by 3% in September on a MoM basis. Reportedly, the company has stated that the sales in UK, Europe and North America have shown impressive growth despite a challenging macro-economic environment. However the sales from China remained subdued during Q2FY16. The company plans to launch new models of Range Rover Evoque and Jaguar XJ in the fourth quarter of FY 16.

In fact, Radhika Pandit, Managing Editor of ValuePro, recently wrote an article in 'The 5 Minute Wrap Up Premium' highlighting the future prospects from Jaquar Land Rover (subscription required). The article gives an in-depth view about the growth prospects from China after the recent China Meltdown. If you are interested in the stock, then this is a must read! The stock of Tata Motors is trading up by 2.2%

India's banking crisis in the making?

The gross bad loans of the Indian banks as of March 2015 rose to Rs 3.1 trillion or 4.6% of total loans, as per data published by the central bank. According to RBI's annual report released in June 2015, six sectors account for the majority of bad debt in Indian banks: infrastructure, metals, textiles, chemicals, engineering and mining. The six account for only 30% of the total credit, but 36% of the total bad debts in bank books.

The banks are opting to refinance the stressed assets under the 5/25 scheme. Under the 5/25 scheme, loans can be repaid over a maximum period of 25 years and the banks will refinance the loans every five years. The major positive is that loans are not considered as 'restructured loans'. Therefore, no provisioning is required to be made on the same, that is, they are not recognized as Non-Performing Assets (NPA). As per an article in Outlook Business over Rs 1 trillion of loans have been refinanced under this scheme. In some Public Sector banks (PSU) there is a tendency to not recognize NPAs. The management of the PSU banks goes through vigilance mechanism and is afraid that any large NPAs will be considered bad from their career perspective. Therefore, currently more and more loans are being refinanced under the 5/25 scheme.

The main risk attached to the scheme is that the bank has to refinance the loan every five years. This leads to outflow of additional capital. In case of a situation where the stranded projects do not revive in the future, additional capital will also be in jeopardy.

Further, some are also of the view that the 5/25 scheme is better than corporate debt restructuring (CDR). 5/25 scheme allows the corporates to increase the tenure of the loans so that they can match each projects inflow and outflow. Whereas, CDR provides a temporary relief and the financials of the company won't change.

The banks and RBI are together taking precautionary measures to stop the piling up of bad loans. The Reserve Bank of India (RBI) allowed banks to seize control of a company if a debt recast fails, replace the management, and sell their stake in the defaulting company as soon as possible to recover dues. This is one of the central bank's most aggressive steps to rein in willful defaulters and curb rising bad loans. In a recent article in The 5 Minute Wrapup, Radhika Pandit, Managing Editor of ValuePro, discussed the consequences of the 5/25 scheme on the banking sector.

However, with sectors like telecom, infrastructure and power far from recovery, banks will continue to feel the stress on asset quality. NPAs have so far not been a systemic risk for India's banking sector. Investors need to be very cautious about selecting entities with a track record of good credit history.