Todays Market from Equitymaster The happenings in the stock markets, including a pre-open and closing commentary. Todays Market from Equitymaster Flattish Start to the Week; Oil & Gas Stocks Underperform
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The Indian share markets finished the day on positive note amid buying interest supported by realty and consumer durable stocks. IT, oil & gas stocks however finished the day in red. At the closing bell, the BSE Sensex closed higher by 50 points, whereas the NSE Nifty finished higher by 12 points. The S&P BSE Midcap ended up by 0.3%while the S&P BSE Small Cap finished up by 0.6%.

Asian markets finished lower as of the most recent closing prices. The Hang Seng was down 0.96%, while the Nikkei 225 led the Shanghai Composite lower. They fell 1.01% and 0.32% respectively. European markets are also trading in red. The FTSE 100 is lower by 0.05%, while France's CAC 40 is off 0.57%. Shares in Germany are down with the DAX at 11,568.70.

The rupee was trading at Rs 68.16 against the US$ in the afternoon session. Oil prices were trading at US$ 52.46 at the time of writing.

Energy stocks ended the day on a mixed note with Gulf Oil Lubricants and Hindustan Oil Exploration Co leading the gainers. According to an article in the Livemint, Hindustan Petroleum Corp. Ltd., (HPCL) is in talks with six foreign suppliers to source liquefied natural gas (LNG) for its Rs 54 billion LNG terminal coming up at the Chhara Port in Gujarat.

One must note that, HPCL has an equal joint venture agreement with Shapoorji Pallonji Port Pvt. Ltd to build the 5 million tonnes per annum (mtpa) LNG terminal at Chhara Port. The terminal is expected to be commissioned by 2019.

Reportedly, LNG aggregators and fleet operators such as BP Plc. and Royal Dutch Shell Plc., are among the companies providing access to spot natural gas to interested buyers. However, the names of six suppliers were not disclosed. Commissioning the terminal will help HPCL source LNG for its own refineries as well as to market natural gas for customers connected through gas pipelines.

HPCL is likely to market LNG cargoes of 60,000-70,000 metric tonnes. This will help the company establish itself in the gas business before it commissions its LNG terminal. According to Bloomberg, spot LNG prices for Singapore as on 3 January stood at US$9.062 per million British thermal unit (mBtu) against US$8.82 per mBtu, the reports noted.

HPCL share price ended the day flat.

In the meanwhile, as Indian government pushes ahead with a controversial plan to move the country away from physical cash, a group of researchers backed by RBI had called for an investigation into how block chain could achieve that goal. Blockchain is a public ledger that enables historical recording of all transactions that has occurred in a network in a way that it cannot be altered.

However, recently The Economic Times reported that the RBI's research arm has completed the first ever end-to-end test of the technology behind Bitcoin. The RBI's arm, Institute for Development and Research in Banking Technology (IDRBT), conducted the project using the technology behind Bitcoin in a trade application and roped in private and public sector banks, National Payments Corporation of India (NPCI) and took the help of IT majors such as Infosys, TCS and IBM Research to prepare the white paper.

The technology has huge scope in trade, banking, finance and revenue sectors. To give an analogy, if one applies for a home loan, it involves different arms within the banking system to process it, with each of them talking to one another. Moreover, Yes Bank announced their multi-nodal blockchain transaction feature not too long ago. Axis Bank became the nation's third lender to use blockchain technology for their operations.

Sharp Surge in Value of Bitcoins

For the full year 2016, Bitcoins were up by 121%. That made Bitcoin the best performing of all the asset classes in 2016.The RBI's new plan involves using blockchain technology to issue a digital rupee. A new report by the bank's research arm states how "the time is ripe" for blockchain technology adoption in the country. In one of our recent editions of The 5 Minute WrapUp, we have shared every bit of details about Bitcoins and the man who invented it. Don't miss reading this interesting piece.

Moreover, using the blockchain allows for India to become a cashless society. It remains unclear if new initiatives will be launched to push this technology into the mainstream in India.

And here's a note from Profit Hunter:

As we mentioned in an earlier note, the S&P BSE Oil & Gas index was among the best performers in 2016. It generated a 50% return, while the Nifty-50 index generated only 17% (both from February 2016 lows).

Today let's take a deeper the oil marketing companies (OMCs), which are the components of this index - Bharat petroleum (BPCL), Indian Oil Corporation (IOC), and Hindustan Petroleum (HPCL), all of which are the major OMCs in India.

With S&P BSE Oil & Gas index generating such a phenomenal return, one stock among the OMCs that was very generous to its investors was HPCL. The stock generated over 128% returns in the corresponding period. While the other two, BPCL and IOC, generated only 75% and 93% respectively.

Being in the best sector and the best stock can generate exceptional returns. HPCL is one such example.

And that's the takeaway for today!

HPCL, the best performer among the OMCs
HPCL, the best performer among the OMCs 

This article (Flattish Start to the Week; Oil & Gas Stocks Underperform) 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.]]>
Mon, 16 Jan 2017 10:30:00 GMT
Sensex Stays Flat; IT Stocks Drag
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After opening the day on a flat note, the Indian share markets have continued to remain dull and are trading marginally above the dotted line. Sectoral indices are trading on a mixed note, with stocks in the realty sector and metal sector witnessing maximum buying interest. Stocks in the IT sector are trading in the red.

The BSE Sensex is trading up by 61 points (up 0.2%) and the NSE Nifty is trading up 14 points (up 0.2%). Meanwhile, the BSE Mid Cap index is trading up by 0.3%, while the BSE Small Cap index is trading up by 0.6%. The rupee is trading at 68.18 to the US$.

The Goods and Services tax (GST) council is set to convene for its ninth meeting today as the central government looks to break the deadlock between the centre and the states regarding various issues delaying the GST rollout.

A fortnight ahead of the start of the Budget session of Parliament, GST Council will try to find the resolution to issue of administrative control between the centre and states, as well as definition of coastal states.

Some states are seeking administrative control over all taxpayers who have an annual revenue threshold of less than Rs 15 million and equal division between the Centre and the states for those above this level.

The Central government is unwilling to yield to this demand as it will leave it only a small taxpayer base of around 700,000 to administer. The other option being discussed is to only divide the small pool of taxpayers that are likely to be audited under the GST.

Resolution of this issue will be crucial to finalize the integrated GST bill that deals with taxation of inter-state movement of goods.

The issue of taxation powers of states to levy taxes in territorial waters up to 12 nautical miles is also set to be discussed in the meeting today after it was referred to the law ministry for legal opinion in the last meeting.

Finding a middle path to these major issues will go a long way in finalizing the rollout date for this ambitious tax reform. The government was targeting to roll out GST from 1 April 2017 but with a delay in finalising supporting legislations, it is likely the deadline will be missed.

The date for the rollout of the GST is likely to be announced in today's meeting. GST, when implemented will bring in a host of regulations to enable transparency in the tax regime.

This will no doubt lead to added costs for implementation of regulations. Unorganized players may bear the brunt of added costs of compliance and may find it difficult to comply with the GST norms and compete with the well-established organised players.

Sectors that can benefit from GST

Sectors that can benefit from GST

The implementation of GST is bound to bring more companies under the new tax regime, thus providing a level playing field to organized players forming part of sectors having a high proportion of the unorganized segment.

Moving on to news from the Oil & Gas sector. According to a leading financial daily, the government is set to announce that Public sector oil marketing companies (OMCs) will bear the entire Merchant Discount Rate (MDR) levy on credit/debit card transactions at petrol pumps.

This decision puts an end to the controversy surrounding the MDR levy by banks on debit card credit card transactions at fuel pumps post demonetisation. While the government cannot mandate private OMCs to follow course, it expects that they too will implement the same to protect market share.

MDR is an interchange fee paid to the bank that issues the credit or debit card used in each transaction. This charge was passed on to consumers but post-demonetisation, the government, in a bid to promote digital payments, waived it till December 30. Banks, after that date, decided to pass on the MDR to petrol pump operators.

According to the All India Petroleum Dealers' Association (AIPDA), banks charged 1% on all credit card transactions and between 0.25% and 1% on debit card transactions at fuel outlets.

The issue emerged when the AIPDA refused the levy of the MDR by banks from 9 January, citing reduced margins. The fuel retailers then immediately decided not to accept any debit or credit cards for fuel purchases.

Even though the government decided to incentivise plastic transactions through a 0.75% discount on fuel purchases, a corresponding MDR levy on them strained margins for dealers. As the sales from cash started shifting to plastic money, the dealers started feeling the pressure on their margins because of the additional levy.

The transition to digital transaction has been almost immediate. Sales through this mode increased to almost 25% from 10% of the total sales earlier.

Additional burden of MDR will surely strain profits of OMCs in the short run. It would be interesting to see how the OMCs cope up with absorbing the costs of the MDR levy.

This article (Sensex Stays Flat; IT Stocks Drag) 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.]]>
Mon, 16 Jan 2017 08:00:00 GMT
Sensex Trades Marginally Higher; Realty Stocks Witness Buying
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After opening the day on a flat note, the Indian share markets have continued to trade marginally higher. Sectoral indices are trading on a mixed note with stocks in the realty sector and consumer durables sector witnessing maximum buying interest.

The BSE Sensex is trading up 32 points (up 0.1%) and the NSE Nifty is trading flat. The BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up by around 0.6%. The rupee is trading at 68.15 to the US$.

As per an article in the Economic Times, the government is looking to tweak the definition of the infrastructure sector in the upcoming budget to include low-cost or affordable housing. This change is being proposed about a month after Prime Minister Narendra Modi announced concession on interest rates for low-cost housing loans under the Pradhan Mantri Aawas Yojana.

Mr Modi, in his address to the nation on December 31, 2016, announced an interest rate subvention of 3% and 4% for loans up to Rs 12 lakh and Rs 9 lakh under the Prime Minister Awas Yojana.

This may seem positive for affordable housing and realty sector after the blow of demonetisation. However, there remain many challenges before India will see affordable housing picking up, such as high land prices, high state-level taxes, and lack of builders for affordable housing. Right now the "Housing for All" initiative by the government still seems a distant dream.

For affordable housing to gain traction, the cost of constructing homes needs to fall. For this to happen, first and foremost, the cost of land in and around cities needs to fall.

For the cost of land to fall, the government needs to increase supply. This can be done by increasing the FSI allowed on buildings. Further, the government needs to increase supply of land by trying to sell some of the land that it owns in and around cities, land that it inherited from the British colonial administration.

Furthermore, as Vivek Kaul said, there should be a formal rental market for the above initiatives to succeed.

These will be the first few steps towards affordable housing and the government's dream of "Housing For All By 2022".

Apart from the above, the upcoming budget is also said to bring cheer to both individuals and corporate taxpayers. This comes as the government looks to lift sentiment in the wake of demonetisation.

On the cards is a revamp of the income-tax framework for individuals and a reduction in the corporate tax rate to encourage companies to invest.

As of now, our corporate tax rate stands at almost 35%, which is the second highest in the world. This can be seen in the chart below:

Indian Corporate Tax Rate Amongst Highest in the World

Indian Corporate Tax Rate Amongst Highest in the World

That said, one must also note companies get a whole raft of exemptions. As per the government claims, these exemptions bring the effective tax rate of India Inc. down to just 23%.

This being the case, as we look towards the upcoming Union Budget for 2017-18, the need of the hour is to get rid of the complicated layers of exemptions and to have a simple and uniform tax rate much lower than the current one. This will not only make for better tax compliance by companies, but also make it easier for the tax department to administer appropriate tax collections as well as reduce tax litigation.

This article (Sensex Trades Marginally Higher; Realty Stocks Witness Buying) 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.]]>
Mon, 16 Jan 2017 06:00:00 GMT
Sensex Opens Flat; Coal India Down 1%
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Asian markets are lower today. The Nikkei 225 is down 1.07% while the Hang Seng is down 1.13%. The Shanghai Composite is trading down by 1.42%. Stock markets in the US & Europe ended their previous session on a positive note.

Meanwhile, Indian share markets have opened the trading day on a flat note with a negative bias. The BSE Sensex is trading lower by 35 points while the NSE Nifty is trading lower by 17 points. The BSE Mid Cap index and BSE Small Cap index both have opened the day down by 0.1%. The rupee is trading at 68.23 to the US$. Sectoral indices have opened the day mixed with consumer durables and realty stocks witnessing maximum buying interest. While, IT and capital goods stocks are trading in the red.

Mining stocks have opened the day on a mixed note with GMDC and Moil Ltd trading in the red. According to an article in a leading financial daily, Coal India Ltd (CIL) announced that its subsidiary Central Coalfields Ltd (CCL) has increased its coking coal prices and will earn additional revenue of Rs 899.8 million for the remaining period of the current fiscal. CIL's arm Bharat Coking Coal Limited (BCCL) raised coking coal price by about 20%, which is likely to help the PSU earn an additional revenue of Rs 7 billion for the remaining part of 2016-17 and Rs 29.9 billion in 2017-18.

Reportedly, as per the Coal Consumers Association of India (CCAI), hike in coal prices by CIL's subsidiaries will impact power consumers as energy cost will firm up by Rs 0.20-0.40 per unit while the increase in coking coal and washery grade prices by Central Coalfields will affect the sluggish steel sector.

One must note that, power producers such as NTPC, DVC, West Bengal Power Development Corporation Ltd and the state boards of Punjab, Haryana and Uttar Pradesh all source coal from these subsidiaries. They also also supply coal to SAIL, besides fertiliser units and coal washeries.

Moreover, for the first time in the history of CIL, a particular quality has been linked to the import parity price and it has been increased by 99% at one go. However, in its observation, CCAI said, though the Centre is discouraging import of coal, consumers are compelled to import the dry fuel due to pricing reasons.

The overall impact is huge on power houses buying coal from BCCL as well as steel industry which is reeling under dampening demand. The government is discouraging imports, while Coal India is providing import substitute from domestic sources. However, power utilities along with steel and related industries buying coal from BCCL and CCL will now be compelled to source from imported options.

Coal India ltd share price opened the day down by 1%.

In another news update, it was reported that, India's gold imports registered a sharp fall of 55% by value (in dollar terms) in the month of December 2016 as compared to the previous month.

In November, gold imports spurted 23.24% to US$4.36 billion from US$3.54 billion in November 2015 and US$3.50 billion in October this year. The November spike was widely believed to rise in gold purchases in the initial days of demonetisation.

A decline in gold imports pushed down the trade deficit to US$ 10.4 billion during the month under review as against US$ 11.5 billion in December 2015. The country's total official gold imports declined to 60 tonnes in April-July of this fiscal, much lower than 250 tonnes in the year-ago period. Overall, India imported 650 tonnes of the precious metal in 2015-16.

Gold forms a significant part of India's total import bill and the sharp drop in demand in that segment meant that overall imports rose just 0.45% on a year-on-year basis.

There isn't much gold production in India. We import almost all of it. How much? In the financial year 2015-16, India imported about 750 tonnes. This puts pressure on our trade balance. Also, the imported gold isn't put to productive use in the economy.

Gold Outshine Equities in 2016

Gold Outshine Equities in 2016

However, considering the turmoil in the global markets, gold prices have seen a steady rise with increasing demand for physical gold as an investment. It remains to be seen if the rally in gold can continue its steep climb up going forward.

This article (Sensex Opens Flat; Coal India Down 1%) 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.]]>
Mon, 16 Jan 2017 04:00:00 GMT
Will Jaitely Introduce Universal Basic Income in Budget?
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After the disruption of the demonetisation, the central government is expected to play some trump cards in the Union Budget. The budget is the only hope for revival in the economy after the demonetisation shock.

In addition to the tax limits, there are more expectations build in for the budget. One of the interesting concept is Universal Basic Income (UBI). It is generally used for social welfare schemes.

Simply put, a UBI is a sum of money provided by the State to all citizens to take care of the bare necessities of life. Mind you, this would work on the same premises of the Direct Benefit Transfer Scheme. The measure is intended to provide a safety net preventing any citizen from sinking below a basic minimum standard of living or poverty line.

The question - Why UBI?

It is widely seen that there is always a big disconnect between the intent and application. And specially when it comes to social welfare policies there are numerous loopholes. For instance, public distribution system (PDS) is a very well-intended, but it gets distorted as far as application is concerned.

UBI would help avoid most of these problems as minimum deposits at regular intervals in bank accounts of every citizen would do away with the inefficiency and corruption that mars the current social welfare infrastructure.

However, implementation of a UBI in a country as vast as India is no mean task. Reaching out to all of the potential beneficiaries of this scheme would mean an overhaul of the existing social welfare infrastructure and not to mention additional financial burden on the exchequer.

Arguments against UBI of course include the cost factor in providing a subsistence income for those who have no need for it, particularly the rich and the middle class.

While in countries like Finland - where UBI is currently being experimented - there is a relative homogeneity among the demographic, with all of the classes grappling with a post industrialization slowdown in an already prosperous society. It may not be feasible in a country with a demographic as varied as India.

Implementation of UBI in India would cost the exchequer as much as 11% of the nation's GDP.

Currently the government spends about 4% of the GDP on welfare, healthcare and education expenses.

UBI may also discourage people from working and even lead to high rates of inflation due to an increased money supply in the system.

A guaranteed universal basic income for all sounds like a good idea, especially for a country with a significant amount of its population below the poverty line.

However, implementation of the same is an uphill task with fundamental, structural and financial challenges. And even after a successful implementation, it carries no guarantee that it will help lift majority of India's poor out of the poverty trap.

This article (Will Jaitely Introduce Universal Basic Income in Budget?) 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.]]>
Mon, 16 Jan 2017 03:00:00 GMT