Todays Market from Equitymaster The happenings in the stock markets, including a pre-open and closing commentary. Todays Market from Equitymaster Markets Continue to Rally
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Indian equity markets finished on a strong note for the third consecutive day as indices traded firm throughout the trading session. At the closing bell, the BSE Sensex closed higher by 260 points, the NSE Nifty finished higher by 84 points. The S&P BSE Mid cap & the S&P BSE Small Cap also finished up by 1.3% and 1% respectively. Gains were largely seen in realty, power and metal stocks.

Asian markets finished mixed as of the most recent closing prices. The Hang Seng gained 1.81% and the Nikkei 225 rose 0.06%. The Shanghai Composite lost 0.07%. European markets are trading higher today with shares in London leading the region. The FTSE 100 is up 0.21%, while France's CAC 40 is up 0.13% and Germany's DAX is up 0.07%.

The rupee was trading at 67.62 against the US$ in the afternoon session. Oil prices were trading at US$ 49.39 at the time of writing.

Buying activity was witnessed across majority of the power stocks with NTPC and Cesc Ltd leading the gains. According to a leading financial daily, Tata Power Solar, a subsidiary of Tata Power has commissioned a 100 kilowatt (kW) rooftop solar plant at Toyota Kirloskar Auto Parts Ltd. at Bidadi. The 340 modules manufactured by Tata Power Solar used for the project will generate 146,000 units of power and offset nearly 117 tonnes of carbon dioxide annually.

With 112 megawatt of rooftop and distributed generation projects (Subscription Required) across the country, Tata Solar is ranked first in the solar rooftop market by 'Bridge to India'. Tata Solar has a production plant in on the city's outskirts, with 300 mw production capacity and 180 mw of cells.

In another development, the Maharashtra government plans to sign a MoU with Tata Power for sourcing 1,000 MW from the upcoming Dherand Thermal Project. Maharashtra's Power Minister has reportedly said both power requirement and transmission capacity for the Mumbai region requires further augmentation.

The Minister also announced a series of power subsidies for industries located in Vidarbha, Marathwada, Northern Maharashtra and other areas of the State, which have been classified as D and D-plus industrial areas. The subsidies were announced by a committee after a 13-month study of the power situation in the state. The subsidies are applicable with retrospective effect from April 1, 2016.

Tata Power finished the day on an encouraging note (up 1.2) on the BSE.

Moving on to news from the mining sector. According to a leading financial daily, Vedanta Limited is planning to produce 1.7 million tonne of aluminum this fiscal through a capacity ramp-up at Balco and Odisha's Jharsuguda plants. This would be a substantial increase in aluminum production as compared to 900,000 tonnes last year. The company plans to ramp up the alumina refining capacity at the Lanjigarh alumina refinery. The company plans to commission pot lines five and six at the Odisha facility.

Vedanta has produced robust results in a volatile market with relentless focus on cost discipline and improved productivity, leading to strong earnings and record cash flow according to the company's Chairman. During 2015-16, driven by open and capex optimization, Vedanta generated free cash flow of over Rs 110 billion, around three times higher than last year. He also stated that the liquidity for the group remains strong with over Rs 520 billion of cash and cash equivalents.

Meanwhile, the company's subsidiary Hindustan Zinc announced a historic dividend of over Rs 120 billion, of which around Rs 65 billion flowed to Vedanta Limited and approximately Rs 50 billion to the Indian government. Vedanta finished the day up by 3.7% on the BSE.

Mining stocks finished on a positive note with Hindustan Zinc and MMTC leading the gains. After much deliberation and delay, the Mines and Minerals (Development and Regulation) Act, 1957 had been recently revised and Rajya Sabha approved the amended Mines and Minerals Development and Regulation (MMDR) Bill, 2016. In a recent edition of The 5 Minute WrapUp Premium, we looked at the impact of the Act on various mining and metal companies (Subscription Required).

This article (Markets Continue to Rally) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.]]>
Thu, 30 Jun 2016 10:30:00 GMT
Realty & Auto Stock Lead Gains
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After opening the trading day on a positive note, the Indian Indices continued to trade firm during the post-noon trading session. Most of these gains were seen on the back of positive global cues. Major sectoral indices are trading in the green with stocks from the realty and auto leading the gains.

The BSE Sensex is trading higher by 159 points (up 0.6%) and the NSE Nifty is trading up by 48 points (up 0.6%). The BSE Mid Cap index is trading higher by 0.7% while the BSE Small Cap index is trading higher by 0.8%. Gold prices, per 10 grams, are trading at Rs 31,215 levels. Silver price, per kilogram, is trading at Rs 43,310 levels. Crude oil is trading at Rs 3334 per barrel. The rupee is trading at 67.60 to the US$.

Stocks in the auto sector are trading on a mixed note with Tata Motors Ltd and TVS Motors trading in the green. As per an article in The Economic Times, the Supreme Court is considering to lift the ban on sale of diesel vehicles in Delhi and NCR (national capital region). However, it stated that the decision will be subject to a levy of one-time environment compensation cess.

Apparently, this will be a major relief to auto makers and those seeking to buy diesel SUVs and cars with engine capacity of more than 2000cc.

Further, it was reported that Automotive Research Association of India (ARAI) will test the prototype of cars for compliance with various norms prior to permission for their sale.

Unveiling a slew of measures to curtail alarming pollution levels in Delhi and NCR, the apex court had on December 16 last year banned registration of diesel-run sports utility vehicles and high-end private cars till 31st March 2016. Later, the ban on registration was extended till further orders.

In one of our editions of The 5 Minute Wrapup, we have highlighted how diesel deregulation will impact the auto-makers.

Moving on to the news from pharmaceuticals sector. According to a leading financial daily, Dr Reddy's Laboratories has bought back nearly 5.08 million shares. The company has deployed Rs 15.7 billion against the maximum buyback size.

Reportedly, the company bought back 5.08 million equity shares at an average price of Rs 3,090.92 per share.

One must note that, the company's board had approved a proposal to buy back shares not exceeding 25% of the total paid-up equity capital of the company earlier.

The share buyback offer comes at a time when the company is facing heat from the USFDA (United States Food and Drug Administration) for violating manufacturing norms at three of its plants. The company had received a warning letter in November from the USFDA for several violations with regard to current good manufacturing practices in Andhra Pradesh and Telangana, as well as in oncology formulation manufacturing facility in Visakhapatnam.

On a separate note, the company recently announced a deal with Teva in which it bought a portfolio of eight drugs for US$350 million. One of our premium editions of The 5 Minute WrapUp offers an insight into the deal and states the upside for Dr Reddy's from this development (subscription required).

The scrip of Dr Reddy's Laboratories was trading up by 0.7% at the time of writing.

This article (Realty & Auto Stock Lead Gains) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.]]>
Thu, 30 Jun 2016 08:00:00 GMT
Indian Markets Trade in the Green
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After opening the day on a positive note, the Indian stock markets continued to trade in the green. Sectoral indices are trading on a positive note with stocks from the banking, auto and realty sectors leading the gains.

The BSE Sensex is trading up 208 points (up 0.8%) and the NSE Nifty is trading up 60 points (up 0.7%). The BSE Mid Cap index is trading up by 0.8%, while the BSE Small Cap index is trading up 0.9%. The rupee is trading at 67.59 to the US$.

Stocks in the mining space are trading on a mixed note with Hindustan Zinc and National Mineral Development Corporation (NMDC) leading the gains. As per a leading economic daily, India's coal imports fell by about 5% in April-May to 35.85 million tonnes (MT). This was due to rise in domestic production.

The fall in imports during the above two months helped the government save around Rs 43 billion equivalent of foreign exchange.

Coal is a primary fuel used for electricity generation. Although the state owned Coal India has a monopoly in mining and related activities, it is not able to meet the growing energy needs of the country. And as a result, India still needs to import thermal coal.

As per the industry body Indian Chamber of Commerce, coal and allied industries in India would need an investment of over 10,000 billion to achieve the coal production target of 1.5 billion tonne by 2019-20. An addition of 700 million tonne (MT) of coal production capacity by the above period would require an investment between Rs 130-150 billion on coal mines itself.

One must note that the ministry has taken initial steps towards commercial mining and sale of coal in India. The ministry has declared to allot the mines to states that would be free to sell the mined coal to interested industries. For this, the Centre has identified 16 coal mines with an estimated annual capacity of around 40 MT.

A state would be able to own a mine in other states as well and use it for commercial purposes. The coal ministry has already invited applications from state utilities with allotments expected to be made in August after the coal ministry scrutinizes the applications and makes the allocations.

We think commercial mining of coal is a step in the right direction. The move, coupled with the above projected investments, could open up many avenues in the mining sector and will pave way for further reforms.

Most of the stocks in the energy space are trading on a positive note with Mangalore Refinery and Petrochemicals Limited (MRPL) and Castrol India witnessing maximum buying interest. As per a leading financial daily, GAIL India has begun supplying gas to the Indian unit of the world's largest automotive aluminum wheel producer Wanfeng Group.

The gas supplied is imported liquefied natural gas (LNG). The company is supplying this gas to Wanfeng Group through Sultanpur-Neemrana gas pipeline. Reportedly, it will supply 25,500 standard cubic meters per day of gas for five years.

As per the sources, gas supplies to Wanfeng Group is provided as a part of government's programme to push for manufacturing in the country through the 'Make-in-India' initiative.

GAIL (India) Ltd is India's flagship natural gas company. It is an integrated energy company along the natural gas value chain with global footprints. In its results for the quarter ended March 2016 the company reported 18.3% year on year (YoY) decline in sales and 50.8% YoY growth in the bottom-line for the quarter. To know our latest view on GAIL, you can read our result analysis (subscription required).

Presently the stock of the company is trading up by 0.7%.

This article (Indian Markets Trade in the Green) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.]]>
Thu, 30 Jun 2016 06:00:00 GMT
Indian Indices Open Firm
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Barring China, major Asian stock markets have opened the day on a positive note. Stock markets in Singapore and HongKong are trading higher by 1.6% and 1.7% respectively.

Benchmark indices in Europe and the US ended their previous session on a robust note with stock markets in the UK and the US ending the day higher by 3.5% and 1.7% respectively. The rupee is trading at 67.74 per US$.

Indian stock markets have opened the day on a strong note. The BSE Sensex is trading higher by 210 points (up 0.8%) and the NSE Nifty is trading higher by 58 points (up 0.7%). While, BSE Mid cap and BSE Small cap are trading higher by 0.5% and 0.7% respectively.

Major sectoral indices have opened the day in the green. Stocks from metal, automobile and realty sector are witnessing buying interest.

As per an article in Livemint, Union Cabinet has approved the recommendation of the Seventh Pay Commission. The Commission had recommended an overall increase of 23.6% in the salary of the central government employees and the pensions of those who have retired from central government jobs.

Reportedly, entry-level basic pay will more than double to Rs 18,000 per month from Rs 7,000 at present. While at the level of cabinet secretary, the topmost civil servant, the pay will rise to Rs 2.5 lakh per month from the current Rs 90,000.

An aggregate outflow of Rs 1020 billion would flow from the government's kitty to 10 million central government employees and pensioners in the current fiscal year. As the increase will take place retrospectively from January 2016, an additional Rs 121.3 billion is expected to land in the hands of the central government employees.

The wage hike is expected to deliver a potential boost to the consumer economy. Further, the auto, consumer durables and fast moving consumer goods (FMCG) sectors too would witness a much higher demand. However, the Finance Minister, Mr Jailtley cautioned that while stimulating demand and boosting savings, the move may also push up inflation.

Though, Vivek Kaul is of the opinion that the implementation of the Seventh Pay Commission won't have a significant impact on the inflation levels. He has justified the same by making solid points in one of his many articles on the Seventh Pay Commission. Click here to get Vivek's insights on this interesting topic.

In another news update, State Bank of India stated that the company would raise long term capital of over Rs 100 billion by issuing bonds in US dollars or other convertible currencies.

Further, the company stated that the fund raising will take place through a public offer or private placement of senior unsecured notes in US dollars or any other convertible currency during the current financial year 2016-17. The move comes a couple of months ahead of US$ 25 billion redemption of FCNR (B) deposits.

Recently, the company had announced plans to merge five of its associate banks and Bharatiya Mahila Bank with itself in order to form a giant bank that would raise its ranking to 55th position among global banks. The stock of SBI is trading up by 1.4%.

This article (Indian Indices Open Firm) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.]]>
Thu, 30 Jun 2016 04:00:00 GMT
India Inc's Balance Sheet Is Deleveraging...
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Over the past few years, India Inc. has been grappling with rising debt. In order to reduce this debt, companies have resorted to asset sales. Some companies have sold their non-core assets and restructured to help them repay debt on their books. The Reserve Bank of India (RBI) in its bi-annual Financial Stability Report (FSR) provided data on the performance of the corporate sector. Overall, the performance has improved with a fall in the number of leveraged companies as well as the amount of debt these companies were servicing. India's financial system remains stable, although the banking sector is facing significant challenges.

The RBI's sample size was around 1,800 and 2,600 non-government and non-financial listed companies respectively. The number of companies which had a debt to equity of 2x or greater dropped to 14% of the RBI sample size from 19% in March last year. Importantly the debt of these companies dropped to 20.6% of the total corporate debt compared with 33.8% earlier. Both sales and profitability of these firms improved over the year. The survey found the percentage of weak companies that were leveraged to be higher for electricity, construction, iron and steel, real estate and textile sectors.

The leveraged weak companies with lower debt servicing capacity and high leverage will exert further pressure on an already deteriorated asset quality of banks. The banking sector continues to get impacted by lower credit growth with stressed loans being the major reasons for the same. Infrastructure, metals and textile sector have contributed most to stressed loans in the banking sector, while retail sector continues to be least stressed. While the share of gross NPAs has seen a sharp rise over the past year, this has been due to the asset quality review which was undertaken by the RBI. Public sector banks have 14.5% of stressed loans on their total loan book, while that of private and foreign banks was 4.5%. A matter of concern is the data for textile industry, as the industry had the highest number of standard accounts slipping into NPA category. This was followed by the cement industry.

Corporate loan growth has slowed down. Plus, the banking sector has a lot on its plate firefighting bad loans and conducting balance sheet repairs. Thus, there is an increased need for non-banking financial companies to help provide easy access to credit and financing for economically viable projects.

For a recovery, the key data points to watch out for would be the capacity utilization levels. An increase in the utilization levels would help improve the currently depressed profit margins and provide a fillip to earnings. This in turn would ease the debt burden of already leveraged companies and help improve their balance sheets further. Improving financial position of these companies are positive signs of a slow and gradual recovery.

Indeed, we recently explained how capacity utilisation levels could impact the 70% upside in Sensex earnings. Here is what we wrote...

  • Healthy levels of capacity utilisation are, however, necessary to make the Sensex upside a reality. Therefore, the most important data point that I will be tracking is the capacity utilisation of companies that have recently added capacity. We will be wary of businesses in sectors that are more likely to face overcapacity in the next few years.

This article (India Inc's Balance Sheet Is Deleveraging...) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.]]>
Thu, 30 Jun 2016 03:00:00 GMT