Volatile Start to the Week

The Indian markets had a rather volatile trading session today as the indices oscillated to either side of the dotted line. At the closing bell, the BSE-Sensex closed lower by about 49 points, while the NSE-Nifty finished lower by about 7 points. Stocks from the FMCG and metals sectors were the least preferred today, while those from the consumer durables and realty spaces were in demand. However, BSE Mid Cap and BSE Small Cap bucked this trend and finished the day higher by 0.4% and 0.5% respectively.

Asian markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.10%, while the Shanghai Composite led the Hang Seng lower. They fell 0.56% and 0.39% respectively. European markets are lower today with shares in France off the most. The CAC 40 is down 0.75% while London's FTSE 100 is off 0.30% and Germany's DAX is lower by 0.05%. The rupee was trading at 66.35 against the US$ in the afternoon session.

According to leading financial daily, The High Level Clearance Authority (HLCA) of the Odisha government is willing to consider the proposal by National Aluminium Company (Nalco) to expand capacity of its alumina refinery at Damanjodi in Koraput district from 2.275 million tonne per annum (mtpa) to 3.275 mtpa. Nalco's expansion is estimated to cost around Rs 43.57 bn.

Reportedly, the Pottangi mines with 70 million tonne bauxite reserve would feed Nalco's new refinery of one million tonne capacity planned at Damanjodi. Recently, Nalco had submitted Rs 3 bn corporate social responsibility (CSR) package to the state government for the Pottangi deposits. The CSR projects would be implemented at Damanjodi, Angul and other parts of Odisha.

It has been a lackluster year for companies operating in aluminum space. Aluminum has looked the most vulnerable in the base metals space due to concerns over the Chinese aluminum exports and global meltdown in commodity prices. Moreover, domestic aluminum companies are also struggling with higher fuel costs. The aluminum companies were forced to source coal from the open markets in the wake of cancellation of the captive coal blocks allotted to them by the Supreme Court last year. And price hikes taken to pass on the cost has further dented their competitiveness in the global markets. This has all been reflected in the weakening financial performance during the first half of FY16. (Subscription required)

finished on a mixed note. Hero Motocorp and Ashok Leyland were leading the pack of gainers. According to a leading economic daily, Tata Motors has opened a new full range passenger vehicle dealership at Ahmedabad, Gujarat in collaboration with Cama Motors. The new dealership is Tata Motors' 4th dealership and the 6th showroom in the city. Under this agreement, the company and Cama Motors are all set to provide a luxury car ride experience to esteemed customers with the new and exciting models and aim to provide end-to-end solutions.

Earlier this week, Tata opened a new commercial vehicle dealership facility at Firozabad, Uttar Pradesh. The 3S (Sales, Service and Spares) facility which is operated by Ashok Auto Sales has a vehicle display area along with 7 bays, and has a capacity to handle about 500 vehicles a month.

Tata Motors closed the day down by 0.1%.

FY15 turned out to be very challenging year for the automobile industry when all the other segments reported a decline in volumes barring two wheelers. Although the last fiscal saw the industry limping back, the recovery so far has been tepid and slow. In our recent edition of '5 Minute Wrap Up', we highlight the performance of auto segments and what is expected of the industry in the near future.

Metal Stocks Out of Favour
01:30 pm

After opening the day firm, the Indian Indices are currently trading on a flat note. Sectoral indices are trading mixed with stocks from the metal and FMCG sectors leading the losses.

The BSE-Sensex is trading lower by 35 points (0.1%) and the NSE-Nifty is trading down by 6 points (0.1%). The BSE Mid Cap index is trading up by 0.4% while the BSE Small Cap is trading up by 0.6%. Gold prices, per 10 grams, are trading at Rs 25,140 levels. Silver price, per kilogram, is trading at Rs 33,320 levels. Crude oil is trading at Rs 2,721 per barrel. The rupee is trading at 66.39 to the US$.

Energy stocks are trading mixed with Petronet LNG and Gujarat Gas Ltd leading the gains. As per an article in Economic Times, Petronet LNG is close to renegotiate a major deal with its Qatar-based supplier Rasgas. The deal pertains to lowering in the costs of gas shipments and avoidance in a US$ 1.5 billion penalty fee for lifting less gas then agreed.

Petronet LNG had reduced its purchases from Rasgas by about a third this year due to rise in prices. This has made the company liable for a US$ 1.5 billion penalty. The company has a 25-year contract with Rasgas to annually buy 7.5 million tonnes of liquefied natural gas (LNG).

Under the new deal, Rasgas will also grant relief to Petronet from paying a US$1.5 billion penalty. This will be on the condition that the Indian firm lifts full volumes in subsequent years.

Petronet currently pays about US$12-US$13 per million British thermal units (mmBtu) for Qatari LNG under deal that began in 2004, compared with around US$7-US$8 per mmBtu for LNG in the spot market. The company has been increasingly substituting costly Qatari LNG with spot shipments. However, the proposed revision should allow it to step up Qatari imports as prices fall.

Stocks in the banking space are also trading mixed with Andhra Bank and Syndicate Bank leading the gainers. As per a leading financial daily, PNB Housing Finance, a subsidiary of Punjab National Bank (PNB), is planning to raise US$75 million from International Finance Corporation (IFC), a member of the World Bank Group.

As reported, the investment will be done by the way of subscription to a secured fixed or floating rate non-convertible debenture (NCD) issued by the company. The funds raised will be used to finance construction of green residential buildings that are certified by recognized green building certification standards.

Punjab National Bank is a state-owned commercial bank located in New Delhi. The Bank is one of the Big Four Banks of India. It recently declared its results for the second quarter (2QFY15) and first half for the financial year (1HFY15). While the net interest income increased by mere 3.4% YoY for the quarter, the net profits shot up by 13.8% YoY. The profits for first half were up by 11.2% YoY. Here is our detailed analysis of the results.

Indian markets trade flat
11:30 am

After opening the day on a positive note, the Indian stock markets registered some losses and are presently trading close to the dotted line. Sectoral indices are trading on a mixed note with stocks from the auto and realty sectors leading the gains. FMCG and metal stocks are trading in the red.

The BSE-Sensex is trading up by 25 points (up 0.1%) and the NSE-Nifty is trading up by 9 points (up 0.1%). The S&P BSE Midcap index and the S&P BSE Smallcap index trading firm, up by 0.4% and 0.8% respectively. The rupee is trading at 66.36 to the US$.

Stocks in the pharma space are trading on a positive note with Pfizer and Sanofi India leading the gains. As per a leading financial daily, Pfizer is reportedly moving forward to sign a deal to buy Botox maker Allergan for US$150 billion. This would be the biggest transaction in drug industry so far.

The deal would involve Pfizer paying with 11.3 of its shares for each Allergan share. Further, there will also be a small cash component, accounting for less than 10% of the value of the deal. As per the sources, Pfizer's Chief Executive Ian Read will be CEO of the combined company, with Allergan's CEO Brent Saunders serving in a very senior role focused on operations and the integration.

Moreover, Pfizer drugs such as Lipitor, Viagra and Lyrica would be brought together with Allergan's Namenda memory loss treatment, Restasis dry eye medication and other leading eye-care brands. If concluded, the deal will be blotting out Pfizer's US$ 90 billion buyout of Warner Lambert in 2000. The deal would also provide Pfizer the tax benefits of an Irish domicile.

Mergers and acquisitions (M&A) activity in the pharma space have been on the rise of late. To know more about the mergers and acquisitions (M&A) activity that has taken place in some past years, please click here.

Automobile stocks are trading on a positive note with Escorts and Hero Motocorp witnessing maximum buying interest. Maruti Suzuki has maintained its leadership in the domestic passenger vehicle (PV) market in October. This comes as four of its models featured in the top 10 selling brands last month.

The company's Alto retained the top position in October with sales of 22,861 units, a 6.6% YoY growth. The sedan Dzire was the second best selling model with 21,084 units as compared to 16,542 units in October last year. Its premium hatchback Swift was the third, with a YoY increase of 23.6% at 17,699 units. WagonR stood at fourth position last month with 2.9% YoY increase in sales at 14,734 units.

Maruti Suzuki is India's largest passenger car company, accounting for over 50% of the domestic car market. The company is engaged in the business of manufacturing, purchase and sale of motor vehicles and spare parts. It is a subsidiary of Suzuki Motor Corporation of Japan. Currently its stock is trading up by 0.7%.

Indian markets open in green
09:30 am

The major Asian stock markets have opened the day in green with stock markets in Korea (up 0.8%) and China (up 0.4%) being the top gainers. Major stock indices in Europe and US ended their previous session on a positive note. The rupee is trading at 66.09 per US dollar.

Indian stock markets too have opened the day on a positive note. BSE-Sensex is trading higher by 63 points (up 0.2%) and NSE-Nifty is trading higher by 16 points (up 0.2%). Both S&P BSE Midcap and S&P BSE Smallcap have surged upwards and are trading higher by 0.7% and 0.8% respectively. Major sectoral indices have opened the day firm. Stocks from capital goods & engineering and telecommunication sector are witnessing maximum buying interest.

As per an article in leading financial daily, Mahindra & Mahindra has managed to increase its market share in the Light Commercial Vehicle (LCV) segment. The company has the largest market share in this segment and has taken over the likes of Tata Motors in this segment. Reportedly, Tata's market share in LCV's has come down from 48% in 2013-14 to below 37% in April-October period this year. During the same period, M&M market share has increase from 36.39% to 42.61%.

The launch of the brand 'Jeeto' has immensely benefited M&M to gain market share in the LCV segment. The small trucks in the LCV segment are used for intra-city transportation of goods. Further a boom in the e-commerce and retail segment bundled with easy financing option is expected to further boost the demand for LCV's in the near term.

As per an article in leading financial daily, National Institute of Public Finance and Policy (NIPFP) proposed the standard GST rate to be in the range of 23-25%. The empowered committee of state finance ministers had asked the NIPFP to rework the GST rates last year. However, recommendations of committee are not binding on the government and are just a suggestion.

The key thing to watch out for is the recommendation of the Subramanian committee which will soon submit its report. The report of this committee will depict the likely rates of GST. Reportedly, rate could be in the range of 18-19% if there is only a single GST rate. Further, if goods and services are taxed at different rates the GST rate is expected to be in the range of 23-25%.Goods are likely to be taxed at three different rates.

Government will have to go all in to pass the GST bill in the winter session of parliament. Earlier, Finance Minister, Arun Jaitley, stated that the government has the votes to pass the bill in the winter session of parliament. However with the opposition parties reluctant to pass the bill, the clearance of the bill will be an important one for the government to kick-start the reform process.

The Biggest Problem for the Economy

The Indian economy is clearly not out of the woods. Over the last 18 months, the Modi government has initiated quite a few reforms. The intention continues to remain positive. Sadly, the speed of the reforms process has left a lot to be desired.

On the positive side, the fall in commodity prices has helped India a lot. Inflation is lower than what it used to be. Interest rates are falling. FDI flows have improved. The international narrative about India is still positive. Unfortunately, this will help beyond a point.

India' problem stemmed from a lack of trust by entrepreneurs to invest in the economy. This was partly because crony capitalists came under fire during the UPA 2 years. But mostly, it was due to multiple problems facing the economy: policy paralysis, corruption, labour & land issues, etc. Without investments on the ground, growth was bound to stagnate.

The reality today is the same. Investments have yet to pick up. Confidence in the government seems to be lacking among India's business class. This despite the improved business environment under the Modi government vis-a-vis the UPA government. Thus, it came as no surprise to us when the RBI, recently lowered its GDP growth forecast for FY 15-16 to 7.4% from 7.6% earlier.

The RBI Governor Raghuram Rajan recently flagged this issue as the biggest challenge for the economy. As per the governor, India's factories are running at around 30% capacity and weak capital investment is the key factor preventing India from achieving its full growth potential. With both, public and private investments dropping, India economy continues to be hampered.

We couldn't agree more. We believe private investment will only pick up once there is more clarity on major issues like GST, land acquisition, and labour reforms. Until then, hoping for achhe din would be futile in our opinion.