Flat End to the Day, SBI Loses 1.6%

Indian share markets ended the day on a flattish note. At the closing bell, the BSE Sensex stood higher by 80 points, while the NSE Nifty finished flat. The S&P BSE Mid Cap & the S&P BSE Small Cap finished lower by 1% and 0.8% respectively.

Asian markets finished on a mixed note as of the most recent closing prices. Stock markets in Hong Kong and Taiwan ended the day lower by 0.8% and 0.7% respectively. While, stock markets in Indonesia ended the day higher by 0.3%. At the time of writing, European markets are trading on a negative note with stock markets in France trading lower by 0.3%.

The rupee was trading at 66.8 against the US$ in the afternoon session.

Hero MotoCorp reported its results for the quarter ended September 2016. The company reported the highest ever net profit in it's history during this quarter. Net profits grew by 27.7% YoY to Rs 10 billion during the quarter.

Revenues too grew by 15% YoY to Rs 84.8 billion during the quarter. The company posted healthy revenues on the back of the ongoing festive season demand. Further, normal monsoon too played its part in boosting consumer sentiments to buy two-wheelers.

Operating margins too widened by 1.29% YoY to 16.2% during the quarter on the back of soft commodity prices and cost controls.

Going forward, the company intends to step up the pace of new product launches. In this regard, the first two scooters developed by the company's in-house R&D team is a positive sign.

On the capex front, the company will be investing in its R&D centre as well as the Gujarat plant and has guided for a capex of Rs 11-13 billion in FY17. The first phase of the Gujarat plant (capacity of 750,000 units) is expected to come on stream in the latter half of FY17.

Emerging competition from Honda Motorcycle and Scooters India Pvt Ltd will be the key things to watch out for. The share price of Hero MotoCorp closed the day trading lower by 3.1%.

In another news update, ITC too reported its results for the quarter ended September 2016. The company's revenues grew by 9.6% YoY during the quarter. While, operating profits and net profits grew by 7% and 10.5% respectively during the quarter as compared to a year ago.

Revenues from the cigarette business grew by 7% YoY during the quarter. Operating profit at the cigarette business grew by 8.4% YoY and the operating margins improved by 0.43% YoY to 37.7% during the quarter.

The non-cigarette packaged consumer goods business too grew by a healthy 13% YoY. However, subdued growth from the non-consumer business such as agriculture and hotel business dragged the overall performance of the company.

As cigarette business contributed to four fifth of the company's profits, the performance of this division will be the key things to watch out for. There is always the potential in the new Goods and Service Tax (GST) regime to levy taxes on cigarettes over and above the peak GST rate. If this were to happen, it could possibly have an impact on the company's earnings. The share price of ITC closed the day trading higher by 1.9%.

Tata Stocks Continue to Slide
01:30 pm

The Indian share markets continued to trade weak during the post noon trading session amid weak Asian markets. Barring FMCG stocks, all sectoral Indices are trading in red with stocks from auto & capital goods sector leading the gains.

The BSE Sensex is trading lower by 55 points (down 0.2%) while the NSE Nifty is trading lower by 34 points (down 0.4%). The BSE Mid Cap index is trading down by 1.1% while BSE Small Cap index is trading down by 0.8%. Gold prices, per 10 grams, are trading at Rs 29,893 levels. Silver price, per kilogram is trading at Rs 42,149 levels. Crude oil is trading at Rs 3,294 per barrel. The rupee is trading at 66.80 to the US$.

As per an article in The Economic Times, Dr.Reddy's Laboratories Ltd announced that it has entered into a strategic partnership with Gland Pharma. Gland Pharma is a globally recognized developer and manufacturer of sterile dosage forms.

Reportedly, the portfolio consists of filed ANDAs pending approval by the US Food and Drug Administration (USFDA) and ANDAs that will be filed imminently. It will also comprise of generic injectables administered in hospitals and clinics in the U.S. The collaboration is aiming to market and distribute a diverse portfolio of eight injectable Abbreviated New Drug Applications (ANDAs).

According to US-based IMS Health, the combined sales of branded and generic versions of the products in the US are estimated at around US$1 billion for the 12 months ended August.

One must note that, Dr. Reddy's is aggressively also developing its US injectable business and recently launched Paricalcitol Injection, a therapeutic equivalent generic version of Zemplar.

The shares of Dr Reddy's were trading up by 2.2% while writing.

Auto stocks are trading on a negative note with Escorts and Tata Motors leading the losses. According to a leading financial daily, Gulf Oil Lubricants India (GOLIL) and Bajaj Auto has entered into a strategic Original Equipment Manufacturer (OEM) tie-up.

As per the deal, GOLIL will manufacture Bajaj Genuine Oil in their manufacturing facility and distribute these lubricants in Bajaj Auto's dealer network. It will also tap into the bazaar market through Gulf's dealer network and in rural areas.

Notably, Gulf Oil is among the fastest growing brands in the Indian oil lubricants industry. This association is the first OEM tie-up in the two-wheeler segment. Apparently, it will help the company grow further in the motorcycle oil segment, the company stated. These lubricants are available in two variants, 10W-30 (for bikes up to 100 cc) and 20W-50 (for bikes above 100 cc).

The Indian auto industry has had its fair share of ups and downs. The two-wheeler industry has faced fixed fortunes. However, one segment within the two-wheeler industry has been doing well quite consistently, i.e; scooters. Radhika Pandit, managing editor of ResearchPro recently wrote about this in Riding on the Growing Scooter Craze (Subscription Required) for The 5 Minute Premium. Bajaj Auto continues to dominate the two-wheeler space. Whether it widens its footprints in this segment further will be the key thing to watch out for going ahead.

The shares of Bajaj Auto were trading down by 1.2% at the time of writing.

Sensex Continues Downtrend; Telecom Stocks Witness Selling Pressure
11:30 am

After opening the day weak, the Indian share markets registered further losses and are trading in the red. Sectoral indices are trading on a negative note with stocks from the telecom sector and the auto sector witnessing maximum selling pressure.

The BSE Sensex is trading down 155 points (down 0.6%) and the NSE Nifty is trading down 60 points (down 0.7%). Meanwhile, the BSE Mid Cap index is trading down by 1.4%, while the BSE Small Cap index is trading down 1%. The rupee is trading at 66.87 to the US$.

Indian share markets are witnessing selling pressure on the back of various economic developments in the domestic as well as global financial markets.

The markets have been witnessing a downbeat mood this week as the Tata saga unfolds after the ouster of Cyrus Mistry as the chairman of Tata Sons. The recent development in this case is the letter from Cyrus Mistry to Tata Sons board members. Cyrus Mistry, in his five-page letter, warned that the Tata group may face US$ 18 billion in write-downs because of five unprofitable businesses.

Also, the Securities and Exchange Board of India (SEBI) is going to seek a detailed report from the Tata group companies to look into possible violation of corporate governance and listing norms referred by Cyrus Mistry.

Our recent edition of The 5 Minute WrapUp states some of the lessons from the Tata Group slowdown. While doing so, it explains why every stock from even the best business groups are not the best long term bets.

Owing to this development, shares of Tata Motors ,TCS ,and Tata Steel are trading in the red. ValuePro editor, Radhika has written a series about which Tata Group companies are investment worthy and which are not in ValuePro Contenders.

In another news update, the Union Cabinet is likely to consider today, the proposal of NITI Aayog for strategic stake sale in over a dozen public sector undertakings (PSUs). Reportedly, NITI Aayog has shortlisted some public sector units where the government can sell its majority stake to private companies. The proposal is in order to bring in greater efficiency and professionalism in functioning.

As per us, the above development is a positive news indeed. Most of the PSUs are surviving on the hard earned money of the taxpayers. For instance, the Union Budget 2016-17 allocated Rs 250 billion to recapitalize the public sector banks. Further, the government has already poured up to Rs 222.8 billion to keep Air India running. Now, where does this money come from? From us who are burdened with taxes.

The sale of PSUs will surely attract agitation from the employee unions. However, India is at a stage wherein it cannot afford the unproductivity at public sector enterprises being subsidised by the government. Further, every rupee that goes towards sustaining these companies is taken away from something else. Hence, the decision for a strategic sale of the PSUs needs to be taken sooner rather than later as the decision is inevitable.

To know more on the above issue, we recommend you to read some of the recent articles in The Vivek Kaul Letter (subscription required). Vivek Kaul addresses a range of big issues - such as the government's handling of oil prices, the mess in public sector banks, the current state of India's real estate bubble...and a lot more!

In fact, Vivek has just come out with a video that details all...including how these macro trends could impact you.

Click here to know more.

Sensex Opens in Red; Tata Stocks Crash
09:30 am

Asian markets are lower in early trade after Chinese data showed growth in industrial profits slowed last month. The Nikkei 225 is off 0.3% while the Hang Seng is down 1.2%. The Shanghai Composite is down 0.4%. The US and European markets closed below the dotted line in previous trades.

Meanwhile, Indian stock markets too have opened the day on a negative note. The BSE-Sensex is trading lower by 92 points and NSE-Nifty is trading lower by 36 points. Meanwhile, both S&P BSE Mid Cap and S&P BSE Small Cap are trading lower by 0.6% and 0.2% respectively. Barring oil & gas and FMCG sector, all the sectoral indices have opened in the red. IT and power sector is leading the losses. The rupee is trading at 66.76 against the US$.

According to a leading financial daily, Punjab National Bank (PNB) cut the benchmark lending rate by 0.05%. The new marginal cost of funds based lending rate (MCLR) will be effective from November 1.

As per the reports, for overnight tenor it will be lower by 0.05% to 9%, for 3-months 9.15%, one year term 9.25%, three years 9.40% and that for five years the MCLR is fixed at 9.55%.

Banks have moved to MCLR as its new benchmark lending rate from June, replacing the base rate system for new borrowers. It is calculated on the marginal cost of borrowing and return on net worth for banks. It was introduced by RBI to ensure fair interest rates to borrowers as well as banks.

It also seeks to address the RBI's primary objective of expediting the monetary policy transmission along with increasing uniformity and transparency in the calculation methodology of lending rates.

In another development, HDFC Bank reported a 20.42% rise in its net profit at Rs 34.55 billion for the quarter under review as compared to Rs 28.69 billion for the same quarter in the previous year. The total income of the bank increased by 15.28% at Rs 199.70 billion for Q2FY17 as compared Rs 173.24 billion for the corresponding quarter previous year.

The bank's gross NPA for the July- September quarter of the current fiscal increased to 1.02%, as compared to 0.91% in the same quarter of the previous year, while the bank's Net NPA stood at 0.30% in Q2FY17.

Share price of HDFC bank has opened the trading day down by 0.6% on the BSE.

Moving on to news from stocks in the FMCG sector. According to an article in The Economic Times, FMCG companies clocked slowest Q2 sales in a decade, even as consumers across rural and urban markets remained unwilling to spend money.

Hindustan Unilever posted just 1.6% year-on-year increase in its net sales for the second quarter, while Dabur posted standalone revenue growth of just 2.3%. Meanwhile, ITC's FMCG business grew 13%, prompting everyone to concede that the overall market in the country remains "challenging".

According to the MD of Hindustan Unilever, July was when the company actually saw the consumer demand and volumes dip because of the confluence of drought plus floods in some places.

HUL's personal care business that accounts for half its overall sales declined 0.3% to Rs 40.28 crore in the September quarter, while home care segment grew 3% to Rs 27.77 billion. Hindustan Unilever's dominating presence in a range of daily consumption items such as soaps, shampoos and detergents makes its performance more or less reflects the overall consumer sentiment in the country.

Meanwhile, ITC's FMCG revenue rose 13.3% to Rs 26.72 billion in the quarter ended September led by new launches and favorable base in noodles. Reportedly, prices of key raw materials such as wheat, sugar and palm oil, though low, have been gradually rising, which could impact the profitability of companies.

Dabur posted standalone revenue growth of just 2.3% in the quarter at Rs 13.48 billion. Its net profit grew 17.7% to Rs 26.8 billion.

The OPEC Cartel Losing Clout Will Benefit India...

The Organization of the Petroleum Exporting Countries (OPEC) is a cartel formed by major oil producing economies mostly the Middle East and other African, South American countries. This was formed for the benefit of the major oil producers. These members generally meet to decide whether the current oil price is feasible for production and also to rebalance any excess supply/demand that might arise due to various global factors.

Saudi Arabia acts as the head of this group due to the vast proven oil reserves that it holds. The biggest competition to this cartel comes from two sources. First the American shale oil producers and the second, Russians who are also a major exporter of crude oil. However, the steep fall in the oil prices over the past few years has resulted in huge pain for all the oil producers alike. A major cause of this fall is the global supply glut over demand of crude oil across the world. Oil producing countries which are majorly dependent on oil for their revenues are struggling and are reporting fiscal deficits.

It is here that the OPEC cartel has struggled to remain united. As declining oil prices is reducing revenues, each country is trying to increase its production i.e. exports to tide over the revenue shortfall and also importantly to protect market share internally and with other Non-OPEC competitors as well. Thus, the cartel has failed to remain united and cut its production driving oil prices further south to lows of $30 per barrel. Iran, part of the OPEC cartel which was under sanction earlier and hence not able to supply its crude oil is also now looking to export its crude to countries thus adding to the global supply. The International Energy Agency (IEA) expects the global output to exceed demand until the second half of 2017.

How does this benefit India? India has to import over 75% of its crude requirements. The country lacks crude reserves and hence is dependent on the international market for meeting its crude requirements. A prolonged softening of oil prices will mean lower import bill and crucially save us a lot of our foreign exchange reserves. If India is to transition to a middle income country the crude requirement will only increase and any form of cartelization will inflate the import bill of the country. India is already building strategic crude reserves pile which will store our daily crude requirements for any eventuality. Our ability to tie up long term crude supplies will be crucial to avoid any supply shocks that might arise due to any geopolitical events in the future. A weak cartel makes our job that much simpler.