Markets Close the Week 2% Lower

Indian equity markets began the day's proceedings on a cautious note but selling activity intensified as the day progressed on sustained foreign fund outflows and weak international markets. While the BSE-Sensex today closed lower by 208 points, the NSE-Nifty closed lower by 73 points. Midcaps and Small caps too finished on a negative note. While the BSE Mid Cap index closed lower by 1.2%, the BSE Small Cap index closed the day lower by 0.8%. Realty and banking stocks witnessed maximum selling pressure.

Asian stock markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.97%, while the Hang Seng led the Shanghai Composite lower. They fell 1.11% and 0.61% respectively. European markets are trading lower today with shares in Germany off the most. The DAX is down 0.71%, while France's CAC 40 is off 0.67% and London's FTSE 100 is lower by 0.49%. The rupee was trading at 66.79 against the US$ in the afternoon session.

Engineering stocks finished on a mixed note with Bharat Bijlee and Manugraph India leading the losses. Siemens has reportedly won an order worth approximately Rs 1.02 billion to supply a 400 kV Gas Insulated Switchgear (GIS) Substation to West Bengal State Electricity Transmission Company (WBSETCL). The scope of the order includes engineering, supply, installation and commissioning of the GIS Substation. The 400 kV GIS solution is being manufactured at the company's manufacturing plant at Aurangabad.

As the State Transmission Utility provider, Transmission Licensee and State Load Dispatch Centre, WBSETCL is responsible for transmitting electricity from generating sources to load centers through a transmission network spread across West Bengal. Siemens is one of the leading producers of energy-efficient, resource-saving technologies; combined cycle turbines for power generation; and power transmission solutions.

Siemens recently announced its fourth quarter results of financial year 2015 (September ending fiscal). The segment wise performance of the company was mixed. While the healthcare, mobility and energy management segments delivered good results, the power and gas and building technologies segments were under pressure in 4QFY15. The metals technologies business was unable to generate revenues due to the division being sold of effective December 2014. Here is our detailed analysis of the results (Subscription Required).

According to a leading financial daily, Tata Motors' subsidiary Jaguar Land Rover has entered into an agreement with the Government of the Slovak Republic to build a new plant in the city of Nitra, western Slovakia. The company will be the first British carmaker to open a manufacturing facility in Slovakia.

As part of Jaguar Land Rover's commitment to deliver more lightweight vehicles, the plant will manufacture a range of all-new aluminum Jaguar Land Rover vehicles. Reportedly, the first cars will come off the production line in late 2018. The factory will have an initial capacity of 150,000 vehicles and construction will commence in 2016.

Jaguar Land Rover has made significant progress in building its international manufacturing presence over the last year. It opened a new joint venture in China and commenced construction of its local manufacturing plant in Brazil at the end of 2014. The creation of new international plants allows Jaguar Land Rover to offer its customers even more exciting new models, protect against currency fluctuations and create a globally competitive business.

Although FY15 has seen the automobile industry limping back, the recovery so far has been tepid and slow. In our recent edition of 'The 5 Minute WrapUp Premium', we have discussed the performance of auto segments and what is expected of the industry in the near future (Subscription Required).

Broad Based Selling in Markets
01:30 pm

After trading near the dotted line in the morning session, the Indian Indices have slipped further into the red. All sectoral indices are witnessing selling pressure. Realty and banking stocks are leading the losers.

The BSE-Sensex is trading down by 218 points. The NSE-Nifty is trading down by 74 points. The BSE Mid Cap index is trading down 0.8% and the BSE Small Cap index is trading down 1%. The rupee is trading at 66.79 to the US dollar.

According to a leading financial daily, Tata Power's wholly owned subsidiary - Tata Power Solar has successfully commissioned a 12 MW solar rooftop project for RSSB Educational & Environmental Society. The project is the largest solar rooftop plant in the world, set up in a single phase. It is built across eight sheltered venues at a single place in Amritsar. The plant will produce more than 150 lakh units of power annually and offset over 19,000 tonnes of carbon emissions every year.

The rooftop project is set up under the Punjab Government's grid connected rooftop solar projects scheme, wherein power from the plant will be fed to the grid. In April 2014, the same organization had set up a similar 7.524 MWp solar plant on a single rooftop.

The scrip of Tata Power was trading down by 1.3% on the BSE at the time of writing.

Shares of Cipla were trading on a positive note after it was reported that the company has received Board approval for transfer of the consumer healthcare business of the company to Cipla Health on a going concern basis by way of a slump sale for a lump sum consideration of Rs 160 million.

Cipla Health is a newly incorporated subsidiary of the company and was incorporated on August 27, 2015. It will focus its business activities in the consumer healthcare space. Reportedly, the amount and percentage of the turnover contributed by the consumer healthcare business of the company for the financial year 2014-15 was Rs 542.8 million and approximately 0.48% respectively.

Reportedly, the transaction will enable the company to participate in the attractive and growing over-the-counter haelthcare market. This business requires a specialized FMCG kind of focus, and a separate subsidiary would enable the company to attract the right talent and provide the focus and attention required for this business.

Indian Markets Trade Flat
11:30 am

After opening the day on a flattish note, Indian equity markets continue to trade in a similar fashion. The selling pressure is the highest in telecom stocks.

The BSE-Sensex is down by 45 points and NSE-Nifty is down by 15 points. However, S&P BSE Mid Cap and S&P BSE Small Cap are trading higher by 0.2% and 0.3% respectively. The rupee is trading at 66.79 to the US dollar.

As reported in a leading financial daily, latest version of real estate regulation bill mandates putting aside 70% of the sales proceeds in an escrow account by builders to meet the construction cost. This, experts feel, would curb delays and lead to a more efficient utilization of the funds by the property developers and builders.

However, this provision could impose serious risks in relation to the cash flows of the real estate companies. As they can utilize only 30% of the money acquired, they will have way too less money to endorse and promote their schemes.

To add to this, they can now launch their scheme only once they have got adequate approvals from the appropriate authorities. Previously, developers pre-sold their apartments at lower price points to buyer before obtaining the approvals. This will also put a dent on the cash flows of the real estate firm.

Recently, power sector reforms termed Ujwal Discom Assurance Yojana (UDAY) were introduced. Under this scheme, state governments had an option to take 75% of the loans which appeared on the balance sheet of State Electricity Board (SEB) as on 30 September 2015.

Recently, Chattisgarh government has given its approval to join the scheme. To add to this, states such as Andhra Pradesh, Jharkhand, Rajasthan, Punjab, Himachal Pradesh, Jammu & Kashmir and Uttarakhand have already given their in-principle approval for joining the UDAY scheme.

The scheme aims at providing a relief to the ailing state of the SEBs. To add to this, government is keen to revive this sector wherein the distribution companies owe huge debt to the public sector banks. A default of the same will lead to a huge setback to India's economy in general and the financial sector in particular.

Tanushree Banerjee (Research Analyst), Managing editor of Stock Select recently released a detailed research report on National Thermal Power Corporation (subscription required). In the note Tanushree explains the current scenario of the power sector and how things can turnaround provided the new reforms are implemented effectively. Further, she also explains how NTPC will be the biggest beneficiary once the sector revives. If you are interested in the stock, then this is a must read!

Indian Markets Open Flat
09:30 am

Barring Japan, major Asian stock markets have opened the day in red, with stock markets in Indonesia (down 0.9%) and Hong Kong (down 0.6%) being the top losers. Major stock indices in Europe ended their previous session in red. However, benchmark indices in US closed on a positive note. The rupee is trading at 66.75 per US dollar.

Indian stock markets have opened the day on a flattish note. BSE-Sensex is trading marginally lower by 4 points (down 0.02%) and NSE-Nifty is trading lower by 7 points (down 0.1%). However, both S&P BSE Midcap and S&P BSE Smallcap are trading higher by 0.2% each. Major sectoral indices have opened the day in green. Stocks from metal and capital goods sector are witnessing buying interest.

As reported in a leading financial daily, Cellular Association of India (COAI) has pleaded the Delhi High Court to put a stay on the call drop compensation. Recently, in the month of October, Telecom Regulatory Authority of India (TRAI) had ordered telecom operators to pay a compensation of Rs 1 for every call drop they experienced in their network.

However, COAI argued that TRAI does not possess any power for ordering telecom operators to grant compensation to the end subscriber under the TRAI Act.

Further, telecom operators contested that the regulator has not taken into account factors such as spectrum related issues, closing down of sealing of cell-sites and other factors which are beyond the control of service providers. The telcos state that such factors are significantly responsible for the call drop problems.

To add to this, telcos states that the outgo of money from such compensation will be Rs 540 billion on an annual basis. Further, they stated that in order to recover this compensation outgo the telecom operators will have to increase tariffs.

As per an article in Business Standard, there may be some bad news for players in the FMCG, pharmaceutical and apparel segment in relation to concerns regarding Goods and Service Tax (GST). Reportedly, trade discounts and incentives provided to the wholesalers and agents might not be deducted from the sales turnover figure for deriving at an amount to be taxed under the GST.

The draft GST law being discussed among the empowered committee of state finance ministers includes these trade discounts or incentives in the taxable value of goods and services. The move will essentially hit wholesale dealers and travel agents who are given incentives on volume targets.

Has the Government Got it Wrong?

The Modi government has been in power for one and a half years. Its mandate to revive the economy was clear. To its credit, the government has taken several measures to boost growth. These include the launch of initiatives like 'Make in India', changes to industrial and labour laws, easing of foreign investment rules, speedier project clearances and a major infrastructure push.

Falling commodity prices especially crude oil, has helped immensely as have the rate cuts and reforms initiated by the RBI. Industry has welcomed these initiatives. But the recovery is yet to pick up steam.

India's industrial production as well as manufacturing sector growth continues to be dull. The external sector (both imports and exports have crashed). The rural economy is struggling on the back of consecutive monsoon failures. Job growth is yet to pick up as several sectors continue to face muted prospects.

Questions are now being raised about the government's investment-led growth model as opposed to the consumption-led growth during the UPA years. While the fiscal deficit is in check, government spending has not boosted consumption. This is because money is being spent more on infrastructure and relatively less on welfare schemes.

This transition will clearly take time to be completed. In the meantime, growth will remain under pressure due to relatively lower consumption in both the public and private sectors. Speedier reforms would have made matters easier. Unfortunately, the government hasn't covered itself in glory on the pace of economic reforms.

An article in the Economic Times quotes many leading Dalal Street participants who are ruing this missed opportunity. The fall in consumption, they say, has hurt sales growth for corporates. This in turn has led to stagnant earnings. The fall in commodity prices cannot help corporates beyond a point. If consumption growth picks up, corporate sales will too.

However, this does not mean that the government should abandon its investment focus. Consumption driven growth has its limits. It also tends to fuel inflation as was evident in the UPA era. With inflation coming under control, we believe the government would do well to speed up its reform agenda rather than getting tempted to loosen its purse. However, this is easier said than done.