Weakness All Across

Indian equity markets languished in the red throughout today's trading session on the back of persistent selling activity across index heavyweights. While the BSE-Sensex today closed lower by 378 points, the NSE- Nifty closed lower by 132 points. The BSE Mid Cap and the BSE Small Cap were not spared either and lost around 1.7% and 0.8% respectively. Losses were largely seen in healthcare, metals and oil & gas stocks.

Asian markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.15%, while the Hang Seng led the Shanghai Composite lower. They fell 1.43% and 0.18% respectively. European markets are mixed today. The CAC 40 is up 0.24% while the DAX gains 0.13%. The FTSE 100 is off 0.06%. The rupee was trading at 66.34 against the US$ in the afternoon session.

According to a leading financial daily, Tata Steel has entered into a collaboration with a leading UAE based petrochemical company to broaden its market base for energy sector products in the Middle-East. Tata Steel has joined hands with International Development Company (IDC) in acquiring national oil company approvals after recognizing the need to have local representation in Abu Dhabi.

The deal has come following increased focus by Tata Steel on productivity in a bid to reduce the total cost of ownership for its customers' projects. Tata Steel, along with IDC, will introduce its supply capabilities to oil and gas companies in the region, providing them with an opportunity to work with a supplier who has an excellent track record of providing for offshore and onshore line pipe projects worldwide.

In June 2015, the government imposed an anti-dumping duty of up to US$ 316 per tonne on a type of stainless steel imported from China, South Korea and Malaysia. The World Steel Association puts out the data for country wise production of steel every month. The latest data released on August 20, 2015, points out that between January and July 2015, Indian companies manufactured 52,889 thousand tonnes of steel. This is 9.2% more than what was manufactured during the same period last year. Vivek Kaul, the India Editor of 'The Daily Reckoning' highlights the implications faced by the steel companies.

Stocks from information Technology sector were under pressure today with HCL Technologies and Mphasis Ltd leading the losses. Wipro has reportedly entered into a partnership with Apttus, the category-defining Quote-to-Cash cloud solution provider, to deliver best-in-class Contract Lifecycle Management (CLM), Configure-Price-Quote (CPQ) & Revenue Management solutions to clients across industries.

This partnership combines Apttus's unique Quote-to-Cash functionalities with Wipro's CPQ/CLM solutions suite, strong salesforce foundation and expertise in solution implementations across industries. Reportedly, these integrated solutions enable clients to improve customer responsiveness, boost revenues while reducing operational costs and risks.

The script of Wipro finished the trading day on a negative note (down 0.6%) on the BSE.

Markets Remain Under Pressure
01:30 pm

Following a negative trend since the opening of the trading day, the Indian Indices have continued to remain under pressure in the post noon trading session. Sectoral indices are trading on a negative note with stocks from the capital goods, pharma and banking sectors bearing the maximum brunt.

The BSE-Sensex is trading lower by 263 (down 1%) and the NSE-Nifty is trading down by 97 points (down 1.2%). The S&P BSE Midcap index is trading lower by 1.2% while the BSE Small Cap index is trading down by 0.5%.Gold prices, per 10 grams, are trading at Rs 25,709 levels. Silver price, per kilogram, is trading at Rs 35,130 levels. Crude oil is trading at Rs 2,971 per barrel. The rupee is trading at 66.37 to the US$.

Banking stocks are trading on negative note with Yes Bank and Indusind Bank witnessing maximum selling pressure. As per a leading financial daily, large banks are seeing a surge in big corporate borrowings. Moreover, the bankers are expecting loan demand to shoot further by the end of the financial year in March.

Private sector banks, including HDFC Bank and Axis Bank, posted a 25% YoY growth in large corporate loans in September. SBI recorded a 21% increase while ICICI Bank's corporate lending rose 7% during the period.

This development has made the banking sector appear to be coming out of a single-digit corporate loan growth phase. It may be noted that earlier, top-rated companies raised funds directly from the market through commercial papers or corporate bonds. However, it appears that now the demand for bank loans is largely driven by a pick-up in infrastructure sector.

Lastly, bankers were also of the opinion that refinancing of loans will happen over a period of time and that will also help expand the loan growth.

Union Bank of India has reported its results for the second quarter ended September 30, 2015.

The bank has reported a 77% surge in its net profit to Rs 6,581 million during the quarter on a YoY basis. However, this was largely because the bank chose to make lower provisions against bad loans even as stressed assets rose.

Net interest income (NII) rose marginally by 0.8% YoY to Rs 21 billion during the period. Other income increased by 16% YoY at Rs 565 million.

Gross non-performing assets (NPAs) for the quarter jumped to 6% as compared to 4.7% in the quarter ended June 30, 2015. Provisions and contingencies for the quarter fell 45% from a year ago to Rs 4,325 million. Post provisioning, net NPAs were at 3% versus 2% in the June quarter.

Presently, the stock of Union Bank of India is trading down by 1.6%.

Pharma and Metal Stocks Lead the Losses
11:30 am

After opening the day in the red, the Indian Indices have failed to inch upwards and have continued to trade negatively. Sectoral indices are trading on a discouraging note with stocks from the pharma, oil & gas and metal sector witnessing maximum selling pressure.

The BSE-Sensex is trading down 131 points (down 0.5%) and the NSE- Nifty is trading down 50 points (down 0.6%). The BSE Mid Cap index is trading lower by 0.3% while the BSE Small Cap index is trading higher by 0.3%. The rupee is trading at 66.33 to the US$.

Power stocks are trading on a mixed note with GVK Power and Infra leading the gains and Gujarat Industries Power leading the losses. As per a leading financial daily, Tata Power will carve out a separate fully-owned subsidiary - Tata Power Renewable Energy Ltd (TPREL) - in order to enhance its focus on clean energy. This will be initiated by aggregating its renewable energy assets.

As the company stated, the proposed structure involves carving out of 500 MW of renewable assets of the company to its subsidiary Tata Power Renewable Energy Ltd (TPREL) and its subsidiaries. Also, other existing waste heat recovery based power plants of the company in certain JVs (joint ventures) are also intended to be aggregated. The company aims at focus mainly on renewable energy capacity addition and restructuring of assets.

The proposed move will be implemented by way of a Scheme of Arrangement under Sections 391 and Section 394 and other applicable provisions of the Companies Act, 1956.

The current installed capacity of TPREL stands at 220 mega watts (MW) with 250 MW of renewable energy projects under construction. Post the re-structuring the total installed capacity of TPREL will be about 720 MW with additional 250 MW under construction.

Tata Power has recently reported its results for the quarter ended September 2015. The company reported a growth in consolidated revenues by 7% on a YoY basis. The revenues expanded on the back of increase in generation of electricity which grew by 6.6% YoY. The operating profits of the company reported a growth of 19% owing to lower fuels costs and higher output. The company reported a profit of Rs 2473 million during the quarter as compared to a loss of Rs 777 million in the year ago period.

Presently the stock of Tata Power is trading flat.

Stocks in the mining space are trading negatively with Hindustan Zinc and Vedanta Ltd bearing the maximum brunt. According to an article in Economic Times, the government has reported that coal imports have dropped for the fourth consecutive month to 14.52 million tonnes (MT) during October. On a YoY basis, the import of coal has come down by 5.1% during the month of October.

The country's coal import during the month of September 2015 stood at 12.64 MT as against 17.30 MT in the same month last year.

Furthermore, a total reduction of 4.56% in coal imports was recorded during the April-October 2015 period on a YoY basis. In value terms, it was less by Rs 82 billion.

This is in line with the initiatives taken by the government in increasing the country's coal production. The government is eyeing to achieve 1.5 billion tonnes of coal production by 2020. Of this 1.5 billion tonnes, one billion tonnes is expected from Coal India which accounts for over 80% of the domestic coal production.

We have shared some views on the obstacles that stand ahead for the coal sector in one of our articles. It points out what developments are planned and what needs to be done in order to revive the coal sector. You can read it here.

Indian markets open in red
09:30 am

Barring the stock market in China (up 0.3%), major Asian stock markets have opened the day on a disappointing note. Stock markets in Korea (down 1.5%) and Hong Kong (down 1%) are the top losers in the pack. Major stock indices in Europe and US ended their previous session on a dismal note. The rupee opened trading at 66.33 per US$.

Meanwhile, Indian stock markets have opened the day on a negative note owing to weak global cues. The BSE-Sensex is trading lower by 130 points (down 0.5%) and NSE- Nifty is trading lower by 35 points (down 0.4%). BSE Mid Cap is trading marginally lower by 0.08%. However, BSE Small Cap is trading higher by 0.2%. Majority of the sectoral indices have opened the day on a weak note too. Stocks from oil & gas and telecommunication sector are witnessing maximum selling pressure.

Tata Power reported its results for the quarter ended September 2015. The company reported a growth in consolidated revenues by 7% on a YoY basis. The revenues expanded on the back of increase in generation of electricity which grew by 6.6% YoY.

The losses from the Ultra Mega Power Project (UMPP) in Mundra reduced significantly by 73% to Rs 740 m for the quarter ended September. This was largely due to fall in the prices of coal.

The operating profits of the company reported a growth of 19% owing to lower fuels costs and higher output. The company reported a profit of Rs 2473 m in this quarter as compared to a loss of Rs 777 m in the year ago period.

Going forward, delay in the order for the compensatory tariff for the Mundra plant and the stake sale from the Arutmin coal mine in Indonesia will be the key things to watch out.

The stock of Tata Power is trading up by 2%.

Dr Reddy's had recently received a Warning letter from the USFDA regulator on its three facilities. As reported in a financial daily, among the various concerns highlighted by the USFDA, it also expects the company should increase the scope of work from the third party. A third party audit is conducted when the regulator does not have comfort about a company's internal procedures. The special audit is ordered, just few days after the company has received a warning letter from the regulator stating violation of its manufacturing standards at three of its plants in India. The violation in the manufacturing standards was in relation to inadequate quality control in documentation and lab testing procedures.

The warning would mean that the company will not receive any approvals for the new drugs at the above three plants until it fixes the problems, while it can continue to manufacture and supply existing products in the US market. The company is taking various remedial measures, including site transfer of its products that are being manufactured in these facilities. Quite recently, Bhavita Nagrani our in-house Pharma Analyst had written an interesting piece on the growing regulatory issues, in one of our 5 Minute Premium edition(subscription required). Here she has discussed in-depth about the changing regulatory landscape, and challenges that companies like Dr Reddy's are facing. Read on to know more about them.

Will the new scheme save the Discoms?

We are all well aware of dire state of power distribution companies (DISCOMs). Reeling under legacy issues, these companies are stuck in a vicious cycle of high debt and losses. Lot of initiatives have been taken in the past to solve these issues, all in vain. Will Ujwal Discom Assurance Yojana (UDAY) be any different?

The present state of discoms...

Discoms across the country are operating on huge debts. Cumulatively they are sitting on a debt worth Rs 4.3 trillion. Their losses total up to Rs 3 trillion. Ironically, some of them don't even have the money to buy power.

The Ujwal Discom Assurance Yojana (UDAY)

The government has recently announced a scheme named Ujwal Discom Assurance Yojana (UDAY). Under the scheme the government has allowed state governments, which own the discoms, to take over 75% of the debts as of September 30, 2015 over two years - 50% in 2015-16 and 25% in 2016-17. These states will in turn issue bonds at much lower interest costs in the markets or to the banks /FIs holding the debts of DISCOMs. The remaining 25% debt will be converted by the Banks / FIs into loans or bonds with interest rate not more than the bank's base rate plus 0.1%. Or, the companies may issue state guaranteed DISCOM bonds at the prevailing market rates with similar interest limits.

The stumbling blocks...

The moot point here is: Will DISCOMs really benefit from this? Most importantly, who will bear the ultimate burden?

As an article in Livemint states, states of many troubled discoms are already in a financial mess and rely on Central government help for budgetary needs.

So while the debts on DISCOMs' balance sheet may come down, states will continue to face financial crunch. This is because they will have to pay interest on this debt amid their unstable financial conditions. This in turn will limit resources available for other schemes. Not to mention that it does not help the banks much, that will be buying the bonds issued by state governments.

Further, a mere transfer of DISCOMs' future losses to states cannot guarantee their revival and operational efficiencies. The discoms have been suffering because of the cost under-recovery and high transmission and distribution (AT&C) losses. While the government plans to reduce the AT&C losses and bring down the gap between cost and realizations, the chances of its success, going by the history, do not seem bright.

It was poor implementation that led to failure of several initiatives to revive power sector in the past. Ultimately, the success of this scheme will depend how the execution is carried out. As things stand today, it might be too early to hail this scheme as a panacea for the ailments of the power sector.