Sensex Finished on a Positive Note, BHEL Surges on Strong Q2 Results

After trading flat during the noon session, Indian share markets witnessed buying activity in the final few hours of trade to finish well above the dotted line. At the closing bell, the BSE Sensex stood higher by 132 points, while the NSE Nifty finished up by 46 points. Meanwhile, the S&P BSE Mid Cap & the S&P BSE Small Cap finished up by 0.4% and 0.2% respectively. Gains were largely seen in auto, banking and oil & gas stocks.

Share price of BHEL surged 2.9% today after the company reported a net profit of Rs 1.09 billion for the quarter ended September 2016. The company had reported a loss of Rs 1.81 billion for the same quarter last year.

Asian equity markets mostly finished flat as investors await the outcome of the U.S. presidential election between Hillary Clinton and Donald Trump. The Hang Seng gained 0.47% and the Shanghai Composite rose 0.46%. The Nikkei 225 lost 0.03%. European markets are mixed today. The FTSE 100 is up 1.83% while the CAC 40 gains 0.11%. The DAX is off 0.07%.

The rupee was trading at 66.73 against the US$ in the afternoon session. Oil prices were trading at US$ 44.81 at the time of writing.

Automobile stocks finished the day on a strong note with Tata Motors leading the gains. Share Price of Ashok Leyland surged by 2.3% in today's trade after the company posted a 71% jump in net profit at Rs 2.94 billion during the September quarter in the current financial year as against Rs 1.72 billion in the corresponding period last year.

Ashok Leyland's revenue during the quarter declined 6.9% to Rs 49.11 billion compared with Rs 52.74 billion in corresponding quarter of last fiscal, dented by lower volume. Sales volumes fell 9% YoY to 33,446 units, hit by medium and heavy commercial vehicles sales that fell 15% but light commercial vehicles reported an 8% growth in Q2.

Sentiments also remained upbeat after Ashok Leyland received approval from fair trade regulator Competition Commission of India (CCI) for buyout of its Japanese partner Nissan Motors' stake in three Joint Ventures (JVs). The joint ventures are Ashok Leyland Nissan Vehicles (ALNVL) for making vehicles; Nissan Ashok Leyland Power Train (NALPT) for manufacturing power trains and Nissan Ashok Leyland Technologies (NALT), which is a technology joint venture.

Earlier in September, Nissan Motors had announced that it would exit the three joint ventures by selling its stake to Ashok Leyland (Subscription Required). Post deal, the three entities would become wholly-owned subsidiaries of Ashok Leyland.

In another development, Tata Motors' subsidiary - Jaguar Land Rover (JLR) reported its best ever October retail sales of 46,325 vehicles, up 11% compared to October 2015.

JLR delivered solid retail sales growth across the majority of key regions for October year on year, with China up 39%, Europe up 25%, the UK and North America both up 8% but other overseas markets were down 22%. JLR sold 480,349 vehicles in the first ten months of 2016, 23% up on the same period in the prior year.

Meanwhile, share price of Tata Motors surged 6.5% in today's trade after the company clarified that it had not received any letter from foreign institutional investors (FIIs) of the company over governance concerns.

Moving on to news from stocks in oil & gas sector. According to a leading financial daily, ONGC Videsh Ltd (OVL), a subsidiary of ONGC, will provide US$ 318 million financing to help raise output at a Venezuelan oilfield after Venezuela signed a pact to supply 17,000 barrels per day of crude oil to India to clear past dues.

OVL owns 40% of Venezuela's San Cristobal oilfield and had invested about US$190 million in the project in 2008. State-run Petroleos de Venezuela SA (PDVSA) holds the remaining stake.

Reportedly, the financing will help boost production at San Cristobal field to 30,000-35,000 bpd from current 19,000-20,000 bpd. OVL has not been paid for its share of oil from the San Cristobal field in last few years.

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 $537.631 million remained unpaid due to cash flow difficulties being faced by PDVSA.

Venezuela has been unable to pay foreign partners on some of its projects as revenues slumped along with crude prices and as funds were diverted to social program and fuel subsidies.

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.

In another development, ONGC is reportedly seeking total pricing freedom for natural gas produced in India. According to company's chairman, prices should be deregulated and be determined by the buyers and sellers collectively through the market forces.

As per the reports, the government would consider the company's plea of pricing freedom because the company's aim behind this was to help raise domestic gas output, the same as that of the government. A few months back, ONGC had also written to the government that a floor price be fixed for the domestic prices.

Share Price of ONGC finished the day up by 1.3% on the BSE.

Sensex & Nifty Remains Range-Bound Ahead of US Presidential Results
01:30 pm

The Indian share markets traded in a narrow range during the noon trading session over the caution on today's US Presidential elections amid mixed global indices. Sectoral indices are trading mixed with metal & auto stocks witnessing majority of the buying activity. While healthcare & realty sector leading the losses.

The BSE Sensex is trading lower by 19 points (down 0.1%) while the NSE Nifty is trading lower by 6 points (down 0.1%). The BSE Mid Cap index and BSE Small Cap index both are trading down by 0.2%. Gold prices, per 10 grams, are trading at Rs 30,146 levels. Silver price, per kilogram is trading at Rs 43,203 levels. Crude oil is trading at Rs 2,997 per barrel. The rupee is trading at 66.70 to the US$.

IT stocks are trading on a mixed note with HCL Technology Ltd and HCL Infosys leading the losses. As per an article in Business Standard, Wipro Limited has launched its offerings that use Open Banking application programming interface (API) technological platform.

As an emerging trend in financial technology, open APIs enable third-party developers build applications and services for financial institutions.

Reportedly, the Open API platform will enable banks and financial institutions to launch Open Banking initiatives. It will also create new forms of distribution channels and servicing capabilities, provide access to third-party application marketplaces. Further, also comply with emerging regulatory norms through the standardization of APIs. Ankit Shah, our Research Analyst, has recently written an interesting piece on how banks are offering more services with the help of technology and how it might benefit the investors in future.

Wipro expects a large number of banks and financial institutions to adopt Open Banking initiatives to conform with evolving banking regulations. It will also help to meet customers' digital expectations, and stay ahead in an increasingly competitive Financial Technology industry.

Apart from accelerated time-to-value, the platform equips banks to create and manage an API-enabled ecosystem for new revenue streams and foster innovation. The platform leverages IBM API Connect. It offers capabilities to create, run, manage and secure APIs and micro services. It enables organizations to rapidly deploy and simplify the administration of APIs for both on premise and cloud environments, the reports noted.

India is an information technology powerhouse. In an extremely challenging global economy, western corporations are now expecting Indian IT firms to deliver a more compelling value proposition in terms of growth prospects. Going forward, whether the Indian IT firms are up to the task will be the key thing to watch out for.

Shares of Wipro were down by 0.7% while writing.

Moving on the news from stocks in pharma sector. Shares of Sun Pharma plunged 3.5% after it was reported by The Economic Times that the US Food & Drug Administration (USFDA) has commenced its scheduled inspection of the Mohali manufacturing site of Ranbaxy. Sun Pharma had acquired Ranbaxy in an all-stock transaction at an enterprise value of US$4 billion in April 2014.

Reportedly, USFDA had imposed an import alert on the facility following issues related to manufacturing violations. Further, USFDA had banned products from Ranbaxy's plants in Mohali, Dewas, Paonta Sahib in 2012, and Toansa in 2014, from exporting to the US. The company was found to have violated good manufacturing practices.

Mohali was the most modern facility of Ranbaxy and had shipped heart drug atorvastatin. This was the company's most prized opportunity in the US generics market. In 2013 the site was banned by the USFDA. The M&A activity in the Indian pharma space has been on the rise in recent times. At the end of the day, whether the company is able to derive value from the acquisitions and augment the overall performance will be the key thing to watch out for going forward.

Following this inspection, Sun Pharma's Halol site may also be inspected in a short time, the reports noted. Considering the pharma's regulatory distresses, are Indian pharma companies now adapting to the scrutiny by the USFDA? Bhavita Nagrani, our pharma sector analyst, shares her insights in one of our premium editions of The 5 Minute Wrap Up (Subscription required).

Sensex Remains Flat; Auto Stocks Witness Buying Interest
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 stocks in the automobile sector and metal sector witnessing maximum buying interest.

The BSE Sensex is trading up 17 points (up 0.1%) and the NSE Nifty is trading up 10 points (up 0.1%). The BSE Mid Cap index is trading down by 0.1%, while the BSE Small Cap index is trading up by 0.1%. The rupee is trading at 66.70 to the US$.

The D-Day is here. The United States of America (USA) will vote in the much awaited presidential elections later in the day today with the results expected to be out by tomorrow morning. The outcome of elections results will surely have its impact on global financial markets.

The markets are expecting Mrs. Hillary Clinton to win the presidential elections. However, in case of a Trump win, Foreign Institutional Investors (FIIs) may flee from emerging markets to safe haven assets.

Donald Trump's win would deal a big blow to US trade deals with Asia. His stance on trade, immigration and foreign policy is already making markets jittery. While economies like China may suffer the most, Indian exports will not remain untouched.

That said, there are businesses in India that will continue to do well. And that would create shareholder wealth in the long term when invested in at right levels. So our message to all value investors is this: Focus on the business fundamentals, and use short term corrections due to global economic events to add such businesses to your portfolio.

In fact, we are keeping a close watch and will use any crash opportunity such as above to recommend great businesses that look good but do not allow action due to valuation concerns. Meanwhile, take care at your end to stay clear of profit killers, irrespective of how tempting the valuations look.

Moving on to news from domestic equity markets, the stock of ICICI Bank is witnessing buying interest post its Q2FY17 results. The key takeaway from the results is the growing concern over the bank's bad loan scenario. Fresh slippages during the quarter amounted to a massive Rs 80.2 billion. This in-turn led to the banks gross non-performing asset (NPA) doubling to Rs 321.7 billion at the end of September 2016 quarter as compared to a year ago period. As a percentage to total loans, the ratio of gross NPAs stood at 6.8% at the end of September 2016 quarter as compared to 3.7% in the year ago period.

The bank had created a watch list of loans worth Rs 440.6 billion at the end of the March quarter. The watch list comprises of loans which are at a risk of slipping into the non-performing asset category. This watch list now stands at Rs 324.9 billion as at September 2016 as about Rs 91.1 billion of loans from the watch list have already gone bad between April and September.

A check on the asset quality and the watch list will be the key things to watch out for. At the time of writing, the share price of ICICI Bank was trading higher by around 0.3%.

On to the news from the initial public offer (IPO) space, shares of Varun Beverages debuted at a 3.4% discount, as the stock of the company opened at Rs 430 apiece today.

The Rs 11 billion IPO was sold between 26-28 October and was subscribed 4.94 times from institutional investors. The categories for high net-worth and retail investors were subscribed 0.42 times and 0.79 times, respectively.

As far as IPOs are concerned, listing gains and over subscription of the issues have caught the eye of market participants. In our view, one should not get swayed away by the buoyancy surrounding IPOs. Instead, what one should look for in IPOs is the fundamentals of the business and the attractiveness of valuations.

The bottomline: One needs to evaluate each IPO on its merits by considering its fundamentals and most importantly the valuations, particularly when the hype and mania surrounding an IPO is at its peak.

One of our editions of The 5 Minute WrapUp offers two ways to think about IPOs and explains how to profit from them. Further, in case you wish to run IPOs through a handy checklist, we have something for you. Download our Handbook of IPOs to be able to pick only the right ones for you.

In news from commodity markets, gold is witnessing buying interest this week on the back of safe-haven bets. The yellow-metal also registered gains last week on increased jewellery demand during the festive season. To know more on the movements in gold and other commodities, you can read 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 Market Opens Flat
09:30 am

Barring Japan, major Asian stock markets have opened the day on a positive note. Stock market in Indonesia and China are trading higher by 0.9% and 0.4% respectively.

Stock markets in Europe and the US ended their previous session on an encouraging note with benchmark indices in US ending the day higher by 2%.

The United States of America (USA) will vote for the much awaited presidential elections later in the day today with the results expected to be out by tomorrow morning.

The rupee is currently trading at 66.71 per US$.

Indian share markets have opened the day on a flattish note. The BSE Sensex is trading higher by 78 points (up 0.3%) and NSE Nifty is trading higher by 42 points (up 0.5%). Both, BSE Mid Cap and BSE Small Cap are trading higher by 0.3% each.

Major sectoral indices have opened the day on a positive note with stocks from automobile sector are witnessing maximum buying interest.

ICICI Bank reported its results for the quarter ended September 2016. The key takeaway from the results is the growing concern over their bad loan scenario. Fresh slippages during the quarter amounted to a massive Rs 80.2 billion. This in-turn led to the banks gross non-performing asset (NPA) doubling to Rs 321.7 billion at the end of September quarter as compared to a year ago period. As a percentage to total loans, the ratio of gross NPAs stood at 6.8% at the end of September quarter as compared to 3.7% in the year ago period.

The bank had created a watch list of loans worth Rs 440.6 billion at the end of the March quarter. The watch list comprises of loans which are at a risk of slipping into the non-performing asset category. This watch list now stands at Rs 324.9 billion as at September 2016 as about Rs 91.1 billion of loans from the watch list have gone bad between April and September.

Further, the bank's exposure to stressed sectors continues to be in the lower double digits. Loans to stressed sectors such as iron, steel, power, mining stood at 11.9% as at September end. However, the company is working on a strategy to reduce the exposure towards these sectors.

On account of higher slippages, provisions rose to 651% YoY to Rs 70.8 billion during the quarter, which in-turn dragged the profitability of the company. Profits grew marginally by 2.4% YoY aided by gains made from the sale of ICICI Bank shares in its life insurance arm.

A check on the asset quality and the watch list will be the key things to watch out for. The share price of ICICI Bank is trading higher by 2.8%.

In another news update, spot electricity rates continue to remain high in the Southern part of India as compared to other geographies. The spot rate of electricity in South on the Indian Energy Exchange (IEX) stood at Rs 2.75 per unit as compared to Rs 2.49 in the north and Rs 2.4 in the eastern and western parts. The prices in the southern region remain high mainly on the back of congestion in the transmission corridor. Having said that, the spot prices have reduced significantly as compared to a few years back.

Another important point to note here is that the off take from renewable projects is reducing on the back of lower spot prices of electricity. The spot price at the power exchange market is hovering somewhere around Rs 2.41/ KWH.

Whereas, tariffs in some of the agreements that these DISCOMS have signed with renewable developers are as high as Rs 7/KWH. Burdened with a huge pile of losses, the DISCOMs are increasingly shifting to purchase cheaper power from the power exchanges. This puts into jeopardy the massive renewable projects that are scheduled to come up going forward.

Owing to this, stranded capacities could build up in-turn hampering the return ratios. Reportedly, solar power offtake is already seeing curtailment in the state of Rajasthan and Tamil Nadu.

Recently, we had written an article stating the major flaw in the US$ 100 billion solar sector. Click here to read this interesting piece.

Has GST Moved in the Wrong Direction?

What is the simplest way a layman understands Goods and Service Tax (GST)? The answer to that is 'one nation one tax'.

One tax essentially means that there is one standard rate of tax which applies to all goods and services in the country with the exception of certain items such as sin goods and essential commodities. This essentially means that whether you manufacture a car or a refrigerator, provide consultancy in relation to taxation or legal matters- the amount of tax to be levied is the one standard rate of tax as decided under GST. The main advantage of GST is its simplicity as there is one standard tax rate and it subsumes all indirect taxes under one roof.

However, the government is complicating the very basics of the concept of GST by implementing a multi-tiered tax rate system. Here are the agreed upon tax slabs under GST.

50% of the items present in the consumer price index (CPI) basket, including food grains such as rice and wheat will attract zero tax rate.

The next slab will be 5%, wherein items of mass consumption like spices, tea and mustard oil will be taxed. Next will be two standard rates of 12% and 18% wherein a majority of items used by the common man will be taxed.

After that, there would be a higher slab of 28% where items currently attracting a tax of 27-31% will be taxed. Items like white goods and cars will be included in this tax bracket.

Now, the so called demerit and sin goods such as aerated drinks, luxury cars, tobacco and pan masala will also be taxed at 28%. However, on such goods a cess will be levied by the Centre over and above the 28% slab.

The only people who benefit from this multi-tiered tax system are bureaucrats. As rightly pointed out by an article in Mint, the multi-tiered tax system lead to private companies having an incentive to go to New Delhi and press for their products to be shifted to a lower tax slab. It's an open invitation to producers and traders associations to lobby bureaucrats. The government's own chief economic advisor had produced a report earlier arguing just for two rates, with a maximum of 18%. This is also close to the best practices worldwide.

with this move, the government could have possibly moved in a wrong direction which would increase paperwork as well as litigations pertaining to classification of goods. Moreover, it could also complex things and will no longer be any more simplistic than the current prevailing laws pertaining to indirect taxation. As rightly pointed by an expert the law could possibly be a name changer rather than a game changer.