Banking stocks drag markets down

The Indian stocks ended the day on a weak note with the market further declining during the final hour of trade. The BSE-Sensex closed with a loss of about 214 points while the NSE-Nifty closed lower by about 62 points. Barring stocks from the consumer durables and IT spaces, losses were seen across the board. banking and power stocks were amongst the least preferred today. The S&P BSE Midcap and S&P BSE Smallcap indices ended the day on a weak note as well, with the indices closing lower by about 0.5% and 0.1% respectively.

Asian markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.67%, while the Shanghai Composite led the Hang Seng lower. They fell 1.72% and 0.80% respectively. European markets are higher today with shares in Germany leading the region. The DAX is up 0.78% while France's CAC 40 is up 0.60% and London's FTSE 100 is up 0.37%. The rupee was trading at 65.04 against the US$ at the time of writing.

According to a leading financial daily, ABB India has rolled out its first 800kV ultra-high voltage direct current (UHVDC) transformer from its Vadodara facility. The transformer will be installed at Power Grid's Agra substation which is a part of the North East-Agra's 800 kV UHVDC transmission link. Reportedly, UHVDC enables evacuation and transmission of clean energy from the North East to load centers of North India. It also brings cheaper power from the states of Madhya Pradesh and Chhattisgarh to the North Eastern Region with nominal losses.

North-East Agra link will become the world's first multi-terminal UHVDC connection after it's fully commissioned in 2016. ABB has already supplied six units of 400 kilovolt (kV) converter transformer for this project for installation at Alipurduar substations in West Bengal from the facility in Vadodara.

Engineering stocks ended the trading day on a mixed note with Bharat Bijlee and Manugraph India leading the gains. While, Thermax Ltd and Opto Circuits closed with maximum losses.

2015 has been a disappointing year for the Indian engineering industry. Majority of the stocks from the engineering sector have underperformed, barring a few exceptions. The current problems that the sector is going through are largely on the account of the economic recovery not panning out as anticipated and the investment cycle not picking up with stalled projects yet to kick off in a big way. In our recent articles of '5 Minute Wrap Up', we outlined the engineering stocks which have underperformed the Sensex and what is expected of engineering sector going forward.

Moving on to stocks from the information technology space, Wipro has reportedly won a five-year IT contract from Coop Norge Handel AS (Coop Norge). Coop Norge is a leading retailer in Norway with a market share of 33% and over 1,500 outlets. As a part of the agreement, Wipro will transform Coop Norge's enterprise SAP software landscape and upgrade the company's data center infrastructure, geared towards achieving superior performance.

Reportedly, this collaboration will benefit supply chain and distribution operations at the Norwegian retailer, among other functions. It will enable Coop Norge to strengthen its move towards a more efficient operating model with increased reach and availability. This venture leverages Wipro's new age technologies, frameworks and IP including ServiceNXT, the company's integrated Managed Services framework.

Wipro in fact announced its results for the second quarter for FY16 recently. The company reported a 1.6% QoQ increase in sales and a 2.2% QoQ increase in net profits. Here is our analysis of the results. (Subscription Required)

Indian Markets Trade Weak
01:30 pm

After trading in the negative zone during the morning session, the Indian Indices continued to trade weak. Sectoral indices are trading on a mixed note with stocks from the banking and healthcare sectors bearing the maximum burnt. However, consumer durables stocks are trading positively.

The BSE-Sensex is trading down by 151 (down 0.6%) and the NSE-Nifty is trading down by 40 points (down 0.5%). The S&P BSE Midcap index is trading marginally down while the S&P BSE Smallcap index is trading up by 0.4%. Gold prices, per 10 grams, are trading at Rs 27,000 levels. Silver price, per kilogram, is trading at Rs 37,199 levels. Crude oil is trading at Rs 2,832 per barrel. The rupee is trading at 65.08 to the US$.

As per a leading financial daily, Maruti Suzuki India (MSI) will start paying royalty to its parent Suzuki in rupee instead of yen for all new models starting with a compact SUV to be launched early next year.

The move, which is aimed at insulating the company from foreign exchange fluctuations, is likely to result in an average royalty rate of 5% of net sales as compared to 5.6-6% for the existing models which are paid in yen.

The company said that the rates for specific models will vary depending on contribution from Maruti in the development of products. As per the decision, the higher the contribution, the lesser will be the rate.

On a separate note, with all approvals in place, MSI is going to ask minority shareholders to vote on a proposal to allow its parent Suzuki Motor Corporation (SMC) to invest in and own a new manufacturing facility in Gujarat. Voting for the same will commence on November 16 and the results will be announced on December 17. The company has also been ramping up its R&D centre in Manesar in order to play a bigger role in product development done in collaboration with Suzuki.

The company recently reported its results for the quarter ended September 2015. The revenues of the company grew by 13.2% on a YoY basis. The sales of passenger vehicle grew by 9.8% YoY to 3,53,000 units during the September quarter. Reportedly, company's growth in the rural areas was higher as compared to the urban areas. This comes as a surprise as various automobile players are struggling in the rural areas. The company's sales in the rural areas grew by 10% as against 4% in the rest of the country.

Presently, the stock of Maruti Suzuki is trading up by 1.3%.

Energy stocks are trading on a mixed note with Chennai Petroleum leading the gains and Cairn India leading the losses. According to an economic daily, Oil and Natural Gas Corporation (ONGC) is expected to increase its upstream capital expenditure by 10% next year and intensify its exploration activities. This is aimed to take advantage of the current depressed global energy market.

With rig rates trading down by 30-40% on the year and other exploration services rates down by 40-50%, the company is finding it gainful to ramp up its activities by securing as many rigs as possible in the depressed environment.

With the decision, the company will be increasing its 2016 capital expenditure to about Rs 360 billion.

The company's trailing 12-month (TTM) EPS stood at Rs 21.52 per share as per the quarter ended June 2015. The stock's price-to-earnings (P/E) ratio was 11.38. The latest book value of the company is Rs 169.02 per share. Scrip of the company is trading down by 1.2%.

Indian markets trade in the red
11:30 am

After opening the day on a weak note, the Indian Indices have continued to trade negatively. Sectoral indices are trading mixed with banking and pharma stocks leading the losers. However, consumer durables stocks are trading in the green.

The BSE-Sensex is trading lower 143 points (down 0.5%) and the NSE-Nifty is trading down 36 points (down 0.4%). The S&P BSE Midcap index is trading flat while the S&P BSE Smallcap index is trading up by 0.3%. The rupee is trading at 65.04 to the US$.

Automobile stocks are trading on a mixed note with Maharashtra Scooters leading the gains and TVS Motors leading the losses. As per a leading financial daily, Bajaj Auto has launched a family of cruiser bikes under the Avenger brand. This is to strengthen its position in the premium end of the two-wheeler market. The company believes that the new range of 220cc and 150cc bikes have the potential to help it expand market share in the premium segment by 8%-9%.

While Avenger was available in the market, the company felt it appealed to a select clientele. Therefore, it sold just 4,000 units a month. However, moving ahead, the company has changed its strategy and decided to offer a range at different price points, cubic capacities with a different look and feel.

Going by that, the company is aiming to replicate the success it achieved when it launched a new range of Pulsars. With that launch, its segment share in the sports bike category had increased to 39% from 35%.

The company in its results for the quarter ended September 2015 reported 57.9% increase in its net profit on a YoY basis. This was owing to a robust operating performance. However, revenues grew marginally by just 2% YoY. Flattish volumes and high competitive intensity hit the same. The scrip of Bajaj Auto is currently trading down by 0.4%.

Stocks in the telecom space are also trading mixed with Himachal Futuristic and AGC Networks leading the losses. According to an article in Economic Times, Bharti Airtel has sold its 700 towers in Burkina Faso to Eaton Towers. Under the agreement, Bharti Airtel has committed to a 10-year tenancy contract with Eaton Towers in four countries-Ghana, Uganda, Kenya and Burkina Faso.

With this, Bharti Airtel has sold over 9,000 telecom towers across eight countries in Africa. Of these, 2,500 towers in four countries have been sold to Eaton. So far, the company has raised about US$ 1.85 billion from tower sales in the continent.

This is a part of Bharti Airtel's strategy to sell all of its 15,000 towers in Africa and use the proceeds to cut back its huge debt. The same was around US$ 10.7 billion at the end of September. The debt has been dragging down its consolidated financials. The scrip of Bharti Airtel is trading up by 1.8%.

Indian markets open weak
09:30 am

The major Asian stock markets have opened the day on a disappointing note. Stock markets in Indonesia and China are trading down by 1.2% and 0.6% respectively. The major stock indices in Europe and US ended their previous session in red. The rupee is trading at 65.09 per US dollar.

Indian stock markets have opened the day on a negative note too. BSE-Sensex is trading lower by 134 points (down 0.5%) and NSE-Nifty is trading lower by 35 points (down 0.4%). S&P BSE Midcap and S&P BSE Smallcap are trading marginally lower by 0.1% and 0.01% respectively. Major sectoral indices have opened the day in red with stocks from oil and gas and metal & mining sector witnessing maximum selling pressure.

Maruti Suzuki reported its results for the quarter ended September 2015. The revenues of the company grew by 13.2% on a YoY basis. The sales of passenger vehicle grew by 9.8% YoY to 353,000 during the September quarter. Reportedly, company's growth in the rural areas was higher as compared to the urban areas. This comes as a surprise as various automobile players are struggling in the rural areas. The company's sales in the rural areas grew by 10% as against 4% in the rest of the country.

The operating profitability of the company grew by 393 bps to 16.3% YoY. The operating profitability was higher on account of low raw material cost and favourable foreign exchange movements. The net profits of the company grew by 42.1% to Rs 12.3 bn on a YoY basis.

Further, Maruti plans to pay the royalty to parent company in rupee terms for all the new models it plans to introduce. Earlier the royalty was paid in Japanese currency 'Yen'. Royalty payment in rupee terms will ensure that the average royalty outgo is capped and is not subject to foreign exchange fluctuation.

Richa Agarwal, Managing editor of Hidden Treasure, recently wrote an interesting piece, where she has discussed about the excess royalties paid by the Indian arm of the MNCs, to use the MNC's product technology or brand. Read this article to know more on how the investor's wealth is getting affected due to the high payment of the royalties.

Lupin Ltd, too reported its results for the quarter ended September 2015. The revenues of the company (including non-operating income) grew marginally by 4.7% YoY. Reportedly, excluding the non-operating income the growth in the revenues was just up by 2% YoY for the said period.

As per a financial daily, the managing director of the company stated that the slowdown in the approvals from the US market was the key reason for the dampening of the growth in revenues. The company has received 8 product approvals in this financial year. However the same did not make a significant contribution to the revenues as the product approvals have smaller revenue potentials.

The operating profits declined by 24% to Rs 7.1 bn YoY. The net profit of the company reported a decline of 35% to Rs 4 bn YoY. The stock of Lupin is trading down by 1.4%.

Is China's economy really collapsing?

Recently, publisher of the Gloom Boom & Doom Report newsletter Marc Faber, stated that the credit bubble in China had reached a level of epic proportions. And that China's economy is not growing at all. The huge capital outflow from China in the past eight months was a testimonial of his argument. He also claimed that the Chinese were shifting their money out of the country at the record levels.

Further, he questioned the economic growth figures which the government has published. He doubted whether the 6.9% economic growth as portrayed is actually true. He substantiated the same with slow growth in export, import, industrial production and railway freight traffic. The railway freight traffic for instance dropped by 17% on a YoY basis.

China's slowdown in growth is not surprising. For a few years now, the country's growth rates have been declining steadily as per the data provided by International Monetary Fund (IMF). The growth has declined from 10.6% in 2010 to a projected rate of 6.8% in this year. Having said that, investor's should also keep in mind that over the years, China has moved from extreme poverty and technology backwardness to becoming a large, middle-income economy, powered by external trade and huge consumer spending. The economic growth had already hit sky-rocket levels. It would be unreasonable to expect China's economy to grow at levels of around 10% going forward.

An article in the business daily, states that China is contributing to the world economy than ever before. The Gross Domestic Product (GDP) of the nation is around US$ 10.3 trillion, up by almost 4.5 times from a decade ago. The article further states that simple arithmetic calculation shows that growth at 6 to 7% on a base of US$ 10.3 trillion produces much bigger numbers than 10% growth starting from a base that is nearly five times smaller.

As it may seem, these concerns do point towards China's issues being over-exaggerated. Having said that, China will definitely have to come up with productive economic reforms and policy measures to keep the momentum going, otherwise the concerns of a major economic slowdown may turn into reality.

All of these factors have certainly impacted the flow of foreign money towards emerging markets; China as well as in India. In India, for instance, FIIs have withdrawn around Rs 339 billion in the first half of this fiscal. However, these outflows have also been instigated by speculation of a rate hike by the US Federal Bank. Having said that, the fact remains that the highly volatile Chinese markets has led to shift of money to India. Exposure of most of the large offshore funds is the highest ever; in fact, most of these funds are believed to be overweight on India at the moment. While this may be a boon in present times, the opposite scenario could occur as well given the strong influence of FIIs on the Indian markets.