Indian Indices End Flat

After witnessing buying interest in the post-noon trading session, the Indian equity markets registered some losses and closed the day on a flattish note. Stocks from sectors such as IT, telecom, realty and FMCG were leading the gains, while banking stocks witnessed maximum selling pressure.

The BSE Sensex closed higher by about 46 points (up 0.2%). The NSE-Nifty ended higher by about 20 points (up 0.2%). The BSE Mid Cap ended lower by 0.3%, while the BSE Small Cap ended higher by 0.2%.

On the global front, most of the Asian indices closed the day on a negative note. Hong Kong's Hang Seng ended lower by 0.26%, while Japan's Nikkei 225 ended lower by 1.62%. The European indices also witnessed selling pressure. The FTSE 100 was down 0.72%, France's CAC 40 was down 0.83% and Germany's DAX was down 0.7%. The rupee was trading at Rs 67.45 to the dollar at the time of writing.

As per a leading financial daily, ONGC Videsh, a wholly owned subsidiary of Oil and Natural Gas Corporation (ONGC), has completed acquisition of 15% equity from Rosneft Oil Company, in JSC Vankorneft.

The deal was initially signed in September 2015. Back then, ONGC Videsh and Rosneft had signed agreement for ONGC Videsh to acquire not less than 15% shares in JSC Vankorneft, for a consideration of US$ 1,268 million.

Vankorneft is a company organized under the law of Russian Federation, which is the owner of Vankor Field and North Vankor license. Vankor is Rosneft's second largest field by production and accounts for 4% of Russian crude oil production. The daily peak production from the field is around 4,42,000 barrels of oil per day (bpd). With 15% shareholding, ONGC's share of daily oil production is said to be at about 66,000 bpd.

The above transaction is said to strengthen ONGC's presence in Russia and is consistent with its stated strategic objective of adding high quality international assets to its existing E&P portfolio.

ONGC is India's largest government-run corporation and produces about 70% of India's crude oil and natural gas. The company recorded an increase in crude oil production for the second consecutive year in 2015-16. The company produced 22.37 million tonnes (MT) of crude oil in FY16, marginally higher than 22.26 MT recorded in the previous fiscal. Also, the company last month announced that it is planning to explore as many as 17 shale gas and oil wells on both the east and west coasts. The company is going to invest around Rs 7 billion for the same.

The stock of ONGC closed the day lower by 0.2%.

Moving on to news from the banking space. As per an article in a leading financial daily, the Reserve Bank of India (RBI) has raised the cap on foreign shareholding in Axis Bank. RBI has raised foreign shareholding to 62%, from the earlier limit of 49%.

Reportedly, foreign institutional investors (FIIs) and registered foreign portfolio investors (RFPIs) can now invest up to 62% of the paid-up capital of Axis Bank under the Portfolio Investment Scheme (PIS).

This was moved by the board and was approved by the shareholders through a special resolution.

Axis Bank is the third largest bank in India. In its results for the fourth quarter ended March 2016, the bank reported 18.3% YoY and 11.8% YoY growth in net interest income and net profits respectively in FY16. Both the gross and net non-performing asset levels were higher in March 2016. The provision coverage ratio was at 72% at the end of March 2016 (82% before accumulated write-offs). The restructured advances were 2.3% of total loan book. To know our view on the stock of Axis Bank, you can read our detailed result analysis (subscription required).

The stock of Axis Bank closed the day down by 0.4%.

Telecom Stocks Lead the Gains
01:30 pm

After opening the day firm, the Indian indices have continued their momentum and are presently trading on a positive note. Sectoral indices are trading on a mixed note with stocks from the telecom, FMCG and IT sectors leading the gains.

The BSE Sensex is trading up 88 points (up 0.3%) and the NSE Nifty is trading up 24 points (up 0.3%). The BSE Mid Cap index is trading up 0.1%, while the BSE Small Cap index is trading up by 0.5%. Gold prices, per 10 grams, are trading at Rs 28,762 levels. Silver price, per kilogram is trading at Rs 38,615 levels. The rupee is trading at 67.32 to the US$.

Crude oil is witnessing volatility. At the time of writing, crude oil was trading at Rs 3,286 per barrel, down by around 1.4%. This is seen on the back of a stronger dollar and concerns about the outcome of this week's OPEC meeting. One shall note that the Organisation of the Petroleum Exporting Countries (OPEC) are going to meet in Vienna this week where a deal on capping production is to be discussed.

Tracking the above developments, crude oil futures declined yesterday. However, they managed to close the month of May higher by around 7%. Most of the gains during the month came after reports stated that US crude stocks dropped by 5.1 million barrels to 536.8 million during the last week. The commodity witnessed buying interest after the announcement and touched US$50 per barrel mark during the month. Also, recent comments from industry research group Genscape stated that inventories at the Cushing Oil Hub in Oklahoma fell by 6,86,600 last week. This too aided the uptrend in crude oil prices.

Vivek Kaul, editor of Vivek Kaul's Diary, has written an insightful piece on what the Modi government will do if oil prices continue to go up.

To keep a regular tab on the movements in crude oil prices, you can read weekly market commentary from the Daily Profit Hunter team. Their weekly commentary tracks the developments in the global economy as well as equity, currency and commodity markets.

Moving on to the news from pharmaceuticals space. Glenmark Pharmaceuticals has launched an offer on the Singapore Stock Exchange to raise up to US$200 million through issue of securities. The company has decided on a regulatory floor price for conversion of the FCCBs (foreign currency convertible bond) at Rs 861.84.

Last year, the company's board and shareholders had approved a plan to raise funds up to US$500 million through issuance of securities, including shares or equity-linked assets, convertible bonds, warrants, and depository receipts.

Glenmark Pharmaceuticals manufactures and markets generic formulation products and active pharmaceutical ingredients, both in the domestic and international markets. The company recently launched 'Digihaler', the country's first Digital Dose Inhaler (DDI). The company has also received final approval from the US health regulator US Food and Drug Administration (US FDA) to sell Rufinamide, which is used to treat seizures caused by Lennox-Gastaut syndrome.

In its fourth quarter and full year results for FY16, the company reported 13-fold jump in its consolidated net profit to Rs 1 billion for the quarter ended March 31, 2016. For the year ended March 31, 2016, the company has posted a 47% YoY rise in its net profit at Rs 7 billion. Its current portfolio consists of 113 products authorized for distribution in the US marketplace and 63 ANDA's pending approval with the USFDA. Presently the stock of the company is trading up by 0.4% on the BSE.

Indian Indices Spike Upwards
11:30 am

After opening the day on a positive note, the Indian stock markets have added to their early gains. Sectoral indices are trading on a positive note with stocks from the telecom and FMCG sectors leading the gains.

The BSE Sensex is trading up 152 points (up 0.6%) and the NSE Nifty is trading up 43 points (up 0.5%). The BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up 0.7%. The rupee is trading at 67.16 to the US$.

Service tax will be charged at 15% as the Krishi Kalyan cess of 0.5% comes into force from today. Similarly, a luxury tax of 1% will be imposed on cars priced above Rs 10 lakh and services valued at above Rs 2 lakh.

The development will push up retail prices of almost all everyday products, and services, including air travel, restaurant meals, movie tickets, telecom, credit card, electricity and mobile bills.

In Budget 2015-16, finance minister Arun Jaitley raised the service tax rate from 12.36% to 14%. The Swachh Bharat cess of 0.5% came into effect in November. Add Krishi Kalyan cess to this and service tax will increase to 15%. The revenues collected through the Krishi cess would be used for financing initiatives relating to the improvement of agriculture and welfare of farmers.

Further, the luxury tax is a part of the government's strategy to clamp down on cash transactions. Arun Jaitley had stated in the in the Budget that the aim of the tax is to reduce the quantum of cash transaction in sale of any goods and services, and for curbing the flow of unaccounted money in the trading system. Do read this interesting article by Vivek Kaul, editor of Vivek Kaul's Diary, where he explains correlation of car sales to black money.

The above increase in service tax rate could push up inflation rates. And a high inflation rate will mean less chances of an interest rate cut by the Reserve Bank of India (RBI).

Moving on to the news from the steel sector. Tata Steel's UK operation - Tata Steel UK has completed the sale of its Long Products Europe business to investment firm Greybull Capital LLP.

Under the agreement signed in April, Greybull Capital paid a nominal fee for the entire long-products business and takeover of Tata Steel UK's assets and liabilities. The deal includes a £400 million investment and financing package for the business, as well as agreements with suppliers and unions on cutting costs.

The sale follows an accelerated process of negotiations between Tata Steel UK and Greybull Capital to achieve this outcome.

On 29 March, Tata Steel decided to sell its UK operations, called Tata Steel Europe Ltd. This came as the company failed to turn around the business it bought as part of the takeover of Corus at the height of the commodity boom in 2007 for US$12.1 billion. The business suffered almost a decade of losses amid poor demand and cheap Chinese imports.

Radhika Pandit, Managing Editor, ValuePro had written an interesting piece on this matter in one of the editions of The 5 Minute WrapUp titled 'The Perils of Big Acquisitions Spare No One...Not Even the Tatas'.

Steel stocks are trading on a positive note with Tayo Rolls and Jindal Saw leading the gains. The stock of Tata Steel is trading up by 0.7%.

Positive Start to the Day
09:30 am

Barring Japan, major Asian stock markets have opened the day in green. Stock markets in Indonesia and Taiwan are trading higher by 0.9% and 0.7% respectively. Benchmark indices in Europe and US ended their previous session on a disappointing note. The rupee is trading at 67.20 per US$.

Indian stock markets have opened the day on a firm note. The BSE Sensex is trading higher by 74 points (up 0.3%) and NSE Nifty is trading higher by 23 points (up 0.3%). Both, BSE Mid Cap and BSE Small Cap are trading higher by 0.2% and 0.3% respectively.

Barring stock from information technology sector, major sectoral indices have opened the day in green. Stocks from oil & gas and pharmaceutical sectors are witnessing buying interest.

The Central Statistics Office (CSO) released the gross domestic product (GDP) numbers for the quarter ending March 2016. If the numbers are to be believed, India's economy grew at 7.9% during the quarter. While for the fiscal year 2016, the economy grew at 7.6% as estimated earlier.

The healthy growth was on the back of improved agriculture performance and growth in consumption. Reportedly, private consumption remained robust at 7.4% in the fiscal year 2016. Moreover, the implementation of the Seventh Pay Commission coupled with projections of good monsoon will further boost consumption.

However, on the negative side the private investment continues to remain subdued. Going forward though, increasing consumption trends could lead to higher capacity utilization, which could encourage private sector to revive its investment plans.

Further, the economic survey has projected the economy to grow within a wide band of 7-7.5% in the fiscal year 2017. Moreover, Mr Arun Jaitley has even expressed hopes of the economy growing over 8%.

While India retains the tag of the fastest growing economy in the world, there is a wide gap between the Index of Industrial Production (IIP) figures and that of GDP. While, IIP registered a growth rate of just 2% in FY16, GDP grew at 7.6%. The wide gap only hints that there might be flaws in the computation of our GDP numbers.

In one the articles we have given a renowned economists view on how the GDP growth number is wrong. Don't miss to read this interesting piece. Click here to access it.

In another news update, Maruti Suzuki India Ltd on Tuesday said that it will resume production at its factories in Manesar and Gurgaon from today.

The company had suspended production at its facilities in the latter half of 29 May. The suspension was because of a fire at its supplier's factory, which disrupted the deliveries of the air-conditioner compressor.

Reportedly, on average, Maruti makes about 5,000 vehicles a day at both plants, which together have an annual capacity of 1.5 million units.

This setback comes at a time when company is witnessing rise in demand of its models. The resultant halt could possibly delay the already longer waiting periods of six months for models such Vitara Brezza and Baleno. The stock is trading higher by 0.6%.

Rising Inflation Is a Concern

The data pertaining to inflation for the month of April suggests that the retail inflation is on the rise. Retail inflation for April came in at 5.39%. Now, this is way higher compared to 4.83% in the preceding month.

The rising retail inflation is mainly on account of increasing fuel and food prices. Talking about fuel, the price of the Indian basket for crude oil has gone up by more than 71% between February and mid-May. Previously, low oil prices helped to keep the inflation levels in check. However, a surge in the oil prices would have an adverse effect on inflation levels.

Rising oil prices in turn lead to increase in the prices of the food items because of the logistics cost involved. Further, drought has played its part too. Reservoir levels are down in many parts of the country. This has affected the sowing of crops, leading to lower production and higher prices of food items.

While the government cannot control oil prices, it can partially keep a check on food inflation. The government's discipline on minimum support prices coupled with maintaining proper demand supply balance in terms of food products ensures that the prices do not inflate.

While, the government has done a good job in balancing the demand supply balance for cereals, the same does not hold true for pulses. It could have done a better job in controlling the prices of pulses. Going forward, the government needs to fix these structural impediments to ensure low and stable inflation in the medium term.

Further, a normal rainfall as predicted by the Indian Meteorological Department (IMD) will help keep the inflation numbers in check. However, if the rain gods disappoint, there may even be a case wherein the RBI increases interest rates should inflation begin creeping upwards.

While, RBI wants to bring down the inflation number at around 4% by the first quarter of fiscal year 2018, a rise in the oil and food prices can act as a deterrent in achieving this target.