A dull start to the week

After trading in the negative territory during the post noon trading session the Indian equity markets closed the day on a weak note as selling activity increased towards the end. The BSE-Sensex closed lower by about 338 points while the NSE-Nifty too closed weak registering loss of 1.2%. Following the broader market trend, the BSE Mid Cap and BSE Small Cap indices closed lower by 1.16% and 1.2% respectively.

Stock markets in other parts of Asia ended the day on a firm note, while sentiments in Europe seemed to be dull at the time of writing. The rupee was trading at Rs 61.93 to the dollar at the time of writing.

Majority of the engineering stocks ended the day on a weak note. However, Thermax closed the day in the green and touched its 52 week high in early hours of trade. The rally came after the company disclosed it won orders worth Rs 3.5 bn in Africa to build a captive power plant. This is a repeat order from some African industrial major to support its cement operations. The scope of work includes design, installation, manufacturing etc. It may be noted that in the month of October Thermax had received an Rs 3.2 bn order from the same African company to supply power equipments.

Aviation stocks closed the day on a mixed note. The stock of Spice Jet fell by about 15% intraday today. Later it gathered some ground and closed with losses of 4.4%. The company is already plagued with survival issues amidst accumulated losses of over Rs 30 bn. Not to mention the debt burden of Rs 40 bn. On the top of this, the Department General of Civil Aviation (DGCA) revoked flight slots that SpiceJet had not been using and has asked the troubled airline major to pay the unpaid salaries of staff before Dec 15. Amidst all this operational mess, majority of the pilots from the company have joined rivals creating labor problems for the company. The board of Spice Jet is about to meet today and discuss all such operational matters including recapitalizing the company.

Indian share markets slump
01:30 pm

Indian share markets slipped deeper in the red in the post-noon trading session. Barring FMCG, all the stocks are trading in the red. IT and engineering stocks are the biggest losers today.

BSE-Sensex is down 264 points and NSE-Nifty is trading 87 points down. Both BSE Mid Cap and BSE Small Cap indices are trading down by 0.9%. The rupee is trading at 61.91 to the US dollar.

Majority of the large software stocks are trading in the red with HCL Infosys and Infosys being the biggest losers. As per a leading financial daily, Infosys founders have put 32.6 m shares of the company on the block. The company's founders N R Narayan Murthy, Nandan Nilenkani, K Dinesh and S D Shibulal and their families have decided to sell 25% of their holding of 124 m shares at base price of Rs 1,988 per share. The total worth of the founder's stake offered for sale is around $1.1 bn. The company has not disclosed the reason for the sale share citing family affair of the promoters, none of whom are actively involved in the company's business any more. Infosys stock is trading down 4.4% presently.

Most of the energy stocks are trading in the red with Gujarat State Petronet and Petronet LNG being the major losers. As per a leading financial daily, the gross refining margins (GRMs) of state-owned refiners such as Indian Oil Corporation Ltd (IOCL), Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd (HPCL) declined to a four-year low. The fall has been on account of low prices of petrol and diesel that forms a bulk of sales for the two companies. GRM is the difference between purchase price of crude and the end price of the refined product. The major refined products include petrol, diesel, kerosene, LPG, furnace oil and naptha. Therefore GRMs depend on the weighted average of the price difference of each refined product with crude oil prices also known as crack. Reportedly the petrol to WTI crude crack and diesel to Brent crack has contracted more sharply than the price of crude in the last four years. The margins of Indian state refiners are not only getting impacted by weak cracks but also inventory losses due to time difference between purchase of crude and sale of final refined products.

Small, mid caps in favour
11:30 am

After opening in the green, the Indian indices have given up early gains and are trading below the dotted line. Realty stocks are leading the gainers, while IT and telecom stocks are trading in the red. Mid and small cap stocks are witnessing buying interest.

The BSE-Sensex is trading down by 77 points. The NSE-Nifty is trading down 24 points. The BSE Mid Cap index is trading up 0.2% and the BSE Small Cap index is trading up 0.4%. The rupee is trading at 61.85 to the US dollar.

Power stocks are trading mixed today with Tata Power and Reliance Infra leading the gainers. As per a leading business daily, power generation grew 10.2% YoY during the month of November. This growth was propelled by an increase in thermal power generation which saw a rise of 13.6% YoY during the month. For the financial year to date, power supply has grown by 10.7% YoY, which is in fact the fastest pace in the past five years. Moreover, till October this financial year, energy demand grew 8.6% YoY which bodes well from the point of view of industrial activity in the country.

Mining stocks are trading mixed today. The stock of Coal India is up almost 2% this morning. As per a leading business daily, the company is seeking the return of 2 of the coal blocks in Odisha that were cancelled by the Supreme Court's September ruling quashing the allocation of 214 blocks. These are blocks in the Ib Valley and Talcher and which were owned earlier by Coal India in a JV with private companies. The company has placed a request with the government to re-allot to it these blocks because a big part of the investment has already been done in these two blocks.

Indian stock markets open flat
09:30 am

The major Asian stock markets have opened the day on mixed note with stock markets in China (up 1.4%) and Hong Kong (up 0.3%) leading the gains. However, stock markets in Malaysia (down 0.5%) and Indonesia (down 0.5%) were facing selling pressure. The Indian stock markets have opened the day on a flat note. Barring software, all sectoral indices have opened in the green with FMCG and healthcare segment leading the gains.

The Sensex today is up by around 13 points (0.04%), while the NSE-Nifty is up by about 3 points (0.03%). The mid cap and small cap stocks have opened in the green with BSE Mid Cap index and BSE Small Cap index up by 0.3% and 0.5% respectively. The rupee is currently trading at Rs 61.87 to the US dollar.

Energy stocks have opened mixed with Castrol India Ltd and MRPL Ltd leading the gains. However, Bharat Petroleum Corporation Ltd (BPCL) and Essar Oil Ltd were facing selling pressure. As per a leading financial daily, Oil & Natural Gas Corporation Ltd (ONGC) is planning to develop 45 drilling wells at a block in Krishna-Godavari basin at an estimated cost of Rs over Rs 160 bn. The company has approached the Ministry of Environment and Forests to seek clearance for preparing terms of references. ONGC is likely to begin production in 2019, with a peak output of 4.5 million tonnes (MT) per annum, which is 20 % higher than the previous estimates.

Auto stocks have opened mixed with Eicher Motors Ltd and Escorts Ltd leading the gains. However, Mahindra & Mahindra Ltd (M&M) and Maharashtra Scooters Ltd were facing selling pressure. As per a leading financial daily, after facing issues with institutional investors over its Gujarat plant transfer to parent Suzuki, car maker Maruti Suzuki India Ltd has deferred seeking shareholders' permission for Gujarat plant. It is now is planning to seek permission of minority shareholders only after a proposed relaxation comes into effect in the Companies Act. Earlier, the company had planned to seek shareholders' approval for the transaction in November month. However, in the meanwhile, the Cabinet cleared a slew of amendments regarding new Companies Act. As such, the management believes it does not make sense to go for the vote until there is more clarity about the bill. It will wait for the changes to come into effect after Parliament's nod.

Can India grow faster than China?

India's economic growth prospects have been bleak in recent times. A combination of policy paralysis and red tape had crippled GDP growth. Things have brightened with the Modi government coming to power. However, the enthusiasm has yet to translate in to decisive action. Despite this, it is clear that the Indian economy is on the mend. The government has made its intentions clear. A few reforms have also been announced. But the key question remains: how fast will the economy grow?

If Goldman Sachs (GS) is to be believed then India will soon outpace China! That's right. The chief economist at GS has stated that by 2016, India's GDP growth will be higher than that of China. For calendar year (CY) 2016, he has forecasted 6.8% GDP growth for India and 6.7% GDP growth for China. In fact he is even more bullish for CY2017 projecting 7% growth for India.

The reasons are not hard to find. After growing at a breakneck pace for decades, the Chinese economy is finally slowing down. Domestic demand has been moderating in China and investment growth, the main driver of the economy, has slowed down considerably. Chinese factories have also had to deal with higher labour costs which have depressed margins and reduced profitability. It is clear that China will need many years to transform itself from an investment driven economy to a consumption driven economy.

At the other end is India. In India, the investment cycle is yet to pick up. But all indications are that it will pick up. If the government can keep up the reform momentum and can keep the fiscal deficit in check; then there is no reason to doubt a rebound in the economy. To add to this, if the RBI provides a tailwind in the form of lower interest rates then it should not be too difficult to overtake China's rate of growth we believe.

Does this mean that investors can go all out and buy any stock in the infrastructure/manufacturing sectors? Certainly not! It is important to remember that economic trends play out slowly and cannot be used as definitive forecasts. Also, there are still many risks to the nascent economic recovery in India. A lot will depend on the government fulfilling its promises. Thus, it will be wise if investors do not get caught up in euphoria and invest only in fundamentally sound companies that are available at attractive valuations.