A Negative End to a Dull Day

Indian equity markets began the day's proceedings on a tentative note as the morning session saw them oscillate to either side of yesterday's close. However, post noon selling activity intensified and this was sustained till the closing bell. While the BSE Sensex today closed lower by 145 points, the NSE Nifty closed lower by 49 points. Meanwhile, the S&P BSE Mid Cap index and the S&P BSE Small Cap index too closed the day lower by 0.3% and 0.02% respectively. Losses were largely seen in IT and metal stocks.

Asian markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 0.26% and the Hang Seng rose 0.18%. The Nikkei 225 lost 0.16%. European markets are higher today with shares in London leading the region. The FTSE 100 is up 0.65%, while Germany's DAX is up 0.42% and France's CAC 40 is up 0.12%. The was trading at 66.30 against the US$ in the afternoon session.

Stocks from oil & gas sector finished the day on a mixed note with Gujarat Gas Ltd and Gujarat State Petronet witnessing majority of the buying activity. According to a leading financial daily, India's fuel consumption in November stood at 14.8 million tonnes which is 6.4% higher than 13.9 million tonnes consumed in the same month a year ago. Diesel, the most consumed fuel in the country, however, saw a tapering in demand growth to 1.5%, rising from just over 6 million tonnes in November 2014 to 6.1 million tonnes this year.

According to reports, petrol sales surged 17% to 1.77 million tonnes, while naphtha consumption was up 39% at 1.05 million tonnes. LPG consumption was up 2.8% at 1.61 million tonnes but kerosene sales were down 13% at 518,000 tonnes. Petrol sales have risen in double digits every month this year except in May and June when it was 9% and 9.7% respectively. In September they had risen by a record 25.4%.

During the first six months of this year the total merchandise exports in the country fell by 16.4% in comparison to the same period in 2014. A major reason for the drop in the prices was due to the decline in oil prices. At the beginning November 2014, the price of Indian basket of crude oil was at around US$81 per barrel. Since then price of oil has fallen to US$34 per barrel a fall of around 58%.

Given the plunge in oil prices during the year, companies from the downstream segment (retail) have seen their stock prices rise, while those of the upstream segment (exploration and refining) have been battered. 2015 has been a mixed year for the stocks from the oil & gas sector. In one of our recent edition of The 5 Minute WrapUp Premium, we have discussed companies that have outperformed the Indian benchmark (Subscription Required) and how oil prices play an important role in determining the fortunes of companies in the energy space.

According to a leading economic daily, NTPC is likely to shelve the plan to take over Damodar Valley Corporation's (DVC) 2,520 MW Raghunathpur plant in West Bengal after the railways conveyed that it wasn't interested in buying power from the utility. This move could jeopardize the state-run thermal power producer DVC's debt reduction strategy.

Reportedly, the deal is unlikely to get the board's approval at this moment although NTPC had been conducting due diligence on the project for a final takeover for quite some time in December. The first phase of the Raghunathpur plant was scheduled for commissioning in 2010 but even after a delay of nearly five years and a revised cost estimate of Rs 75 billion, the utility continues to suffer from issues related to land acquisition for the rail and water corridors.

It may be noted that NTPC is the leading power generator of India. The total installed capacity of the company exceeds 45,000 MW which accounts for 25% of all India generation. The company is one of the seven Maharatnas and clocked the third highest profit amongst Public Sector Units (PSU) in FY15. Of its own capacity, 85% is coal based, operated through 18 coal power stations, 13% is gas based and the remaining 2% constitutes of solar and hydro power plants. Here is the detailed analysis of NTPC in our recent StockSelect report (Subscription Required).

Indian Markets Trade Flat
01:30 pm

After opening in the red, the Indian indices are currently trading on a flat note. Sectoral indices are trading mixed with stocks from the IT and FMCG sectors leading the losses. Telecom and realty stocks are trading in the green.

The BSE Sensex is trading up by 12 points (0.1%) and the NSE Nifty is trading down by 2 points (0.03%). The BSE Mid Cap index is trading up by 0.3% while the BSE Small Cap is trading up by 0.6%. Gold prices, per 10 grams, are trading at Rs 25,339 levels. Silver price, per kilogram, is trading at Rs 34,161 levels. Crude oil is trading at Rs 2,409 per barrel. The rupee is trading at 66.30 to the US$.

Banking stocks are trading on a mixed note with DCB Bank and ICICI Bank leading the gains. As per an article in The Economic Times, country's largest lender State Bank of India has announced that it will raise Rs 120 billion by way of issue of Tier II bonds to comply with capital needs under the Basel III rules. The fund raising for same will be done through private placement. The bank has not prescribed the timeframe and in how many tranches it would raise the bonds. However, it has said that it will decide the timing for the issuances at an appropriate time while the coupon rate would be decided at the time of actual issuance.

According to a Fitch Ratings report, Indian banks need US$ 140 billion of capital to ensure full compliance with the Basel III norms by 2018-19. Several PSU banks have in the recent past announced capital raising by way of bond issue. This is because they would need to hold more capital for every new loan they give in order to absorb any losses that may arise if the borrowers default on the loan, according to the Basel III accord.One should also note that earlier in August this year the government had announced fund infusion of Rs 200.8 billion into 13 PSU banks. SBI cornered a hefty sum of Rs 55 billion in the same.

Presently, stock of SBI is trading up by 0.5%.

As per a leading financial daily, Glenmark Pharmaceuticals has received the final nod from the US Food & Drug Administration (USFDA) for a generic version of anti-bacterial drug Zyvox. The product is the therapeutic equivalent of Zyvox tablets, 600 mg of Pharmacia and Upjohn Company, a subsidiary of Pfizer.

Zyvox is an anti-bacterial drug for adults and children for treatment of infections such as pneumonia, complicated skin and skin structure infections. As per the IMS Health sales data for the 12 months to October 2015, Zyvox tablets 600 mg, achieved annual sales of around US$ 447 million.

With this approval, Glenmark's portfolio now consists of 104 products authorized for distribution in the US marketplace and 62 abbreviated new drug applications (ANDA) pending approval with USFDA.

Stock of Glenmark Pharmaceuticals is presently trading up by 1.4%.

IT Stocks Lead the Losses
11:30 am

After opening in the red, the Indian indices trimmed losses but continued to trade in the negative territory. Sectoral indices are trading on a mixed note with stocks from the IT, and FMCG sector witnessing maximum selling pressure. Realty stocks are leading the gains.

The BSE Sensex is trading down 31 points (down 0.1%) and the NSE Nifty is trading down 14 points (down 0.2%). The BSE Mid Cap index is trading up by 0.3% and the BSE Small Cap index is trading up 0.5%. The rupee is trading at 66.28 to the US$.

Food and Tobacco stocks are trading mixed with Golden Tobacco and VST Industries leading the losses. As per a leading financial daily, Nestle India has said that it will launch other variants of the brand Maggi noodles such as oats noodles and cup noodles in 3-4 months. Also, the company said that it is ramping up productions at all of its five plants and is also ensuring to reach out to all the distributors.

The development follows the relaunch of Maggi masala noodles which commenced on November 9, after a five months ban by the Food Safety and Standards Authority of India (FSSAI) following a Bombay High Court order. Further to this, the Supreme Court had last week ordered re-testing of Maggi noodles by an accredited laboratory at Mysore.

The company stated that before the ban, Maggi noodles were distributed through 1,500 distributors across country. Presently, the same are sold through 1,000 distributors. The management has stated that it will ramp up its distribution network and recall all 1,500 distributors soon.

Lastly, on sales front, Nestle has sold 50 to 60 million packs of Maggi noodles so far after its relaunch. This is as against 300 to 400 million packs that it used to sell in full year before crisis.

Nestle's Maggi fiasco gathered much steam in stock markets then. Investors owning the stock of the company were worried about this controversial affair. However, does it make sense to dump any stock based on this tumult? One of our articles in 5 Minute WrapUp answers this question. You can read it here. Presently, the stock of Nestle India is trading up by nearly 0.9%.

Banking stocks are trading on a mixed note with Dhanlaxmi Bank and Karur Vysya Bank leading the gains. As per an article in The Economic Times, the Reserve Bank of India (RBI) is working on guidelines for peer-to-peer lending arrangements offered by online platforms. One must note that this kind of lending does not need regulatory approval. Even the lenders do not have to be registered as non-banking financial companies (NBFCs) and can earn returns ranging between 12% and 36%. This builds in a lot of risks in the lending system, especially on account of people who want to borrow money but do not have enough credit history. The RBI has stated that these risks need to be taken into account and plans to bring out a discussion paper soon on this matter for public consultation.

Indian Markets Open Weak
09:30 am

Major Asian stock markets have opened the day on negative note, with stock markets in China (down 0.5%). Major stock indices in Europe ended their previous session on a dismal note too. However, benchmark indices in US ended the previous session on a positive note. The rupee is trading at 66.32 per US dollar.

Indian stock markets have opened the day on a negative note. BSE Sensex is trading lower by 75 points (down 0.3%) and NSE Nifty is trading lower by 26 points (down 0.3%). However, both BSE Mid Cap and BSE Small Cap have surged upwards and are trading higher by 0.2% and 0.4% respectively. Major sectoral indices have opened on a mixed note with stocks from pharmaceutical sector facing maximum buying interest. However stocks from information technology are under pressure.

As per an article in leading financial daily, owing to the recent diesel cars ban in New Delhi Tata Motors has been taking steps to revamp its portfolio. Accordingly the company is working on fully electric systems and partial hybrids for their future range of passenger vehicles.

Earlier, high cost of batteries made the electric vehicles expensive. However, higher production of electrical vehicles in China has led to a reduction in the cost of batteries. Partial hybrids too are cost efficient as they offer superior mileage. The initial cost of purchase of partial hybrid vehicles is expensive. However, in long run they become cost effective as they offer superior mileage.

Further, the company management stated that the company is commissioning a battery assembly pilot line in Pune. Going forward, this will help it to concentrate more on the electric version of passenger vehicles.

In recent times, Tata Motors has been focusing on bolstering its passenger vehicles portfolio through new launches. Indeed, it has outlined a product plan till 2020 as per which 2 new vehicle launches will be slated every year.

As per an article in leading financial daily, Cipla announced the launch of a generic version of anti-hepatitis drug named 'Ledipasvir-Sofosbuvir'. The drug is launched in India and is used to cure the hepatitis C virus.

Reportedly, 12-18 million people are suffering from hepatitis C virus in India. Further, this medicine is an oral combination therapy having a fixed dosage of once-a-day. A pharma company named 'Gilead Sciences' have signed a non-exclusive licensing agreement with seven Indian companies, including Cipla for the manufacture and distribution of the drug in India. Companies like Cadila healthcare and Natco have already launched the drug few month back.

Will Capex Revival Remain a Mirage?

Early this year, large private sector entities were quite ambitious on increasing their gross block. They were optimistic about the government's reform agenda. However, as we can see, things didn't work out as planned by the government. And for the matter of revival in corporate capex (capital expenditure), things on the ground seem to be hardly enthusing.

As an article in Livemint states, a revival in private sector capital expenditure is unlikely to happen in 2016. The reason for the same can be many.

Sluggish economic cycle

The recovery of the Indian economy seems to be at a nascent stage. The government recently lowered the 2015-16 GDP growth forecast to 7-7.5% from 8-8.1% earlier. Growth across various sectors has still not picked up. Many economic reforms are yet to be implemented. As a result, private companies have put their investment plans on hold. Given the subdued recovery and uncertainty, they are less inclined to incur major capex at this stage.

plus capacity and subdued demand

Excess capacities have burdened many companies. As per the Reserve Bank of India (RBI), utilisation levels were near 71% in the first quarter of the current fiscal. So, until these existing capacities are fully utilised, there remains little room to believe that companies will go for additional capex plans.

Another reason why capex will be sluggish in the near term is because of the subdued demand levels. If demand does not pick up, companies won't be confident enough to go ahead with their capex plans.

Focus on small investments and fall in prices of commodities...

The availability of cheap stressed assets has led companies to expand their market share without investing time and capital in greenfield projects. By preferring inorganic growth, companies are holding off on large greenfield investment plans.

Commodity prices are hovering at multi-year lows. Commodity players contribute to a huge chunk of capex. Therefore, it is also unlikely that commodity players will take up large capex spending any time soon.

What to expect?

We believe private investment is far more productive than investments made by the government. It can lead to a broad-based, sustainable economic recovery. However, a lot needs to be done to boost up the capex cycle.

The government should explore innovative ways to restore spending in the infrastructure space. Otherwise, achhe din will remain just a distant dream.