Sensex, Nifty vulnerable to a short-term decline – Weekly closing report The Total Investment & Insurance Solutions

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1St july 2016

I had mentioned in last week’s closing report that Nifty, Sensex were likely to move sideways. After some hesitation in the early part of the week, following Brexit vote, the major indices of the Indian stock markets rallied to make some gains. The weekly gains were around 3%. The trends of the major indices in the course of the week’s trading are given in the table below:

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On Monday, taking cues from their Asian peers, Indian equity indices were trying to recover from the hangover of last week's Brexit vote. Selling pressure was witnessed in information technology stocks. The BSE market breadth was tilted in favour of the bulls -- with 1,813 advances and 795 declines. Initially on Monday, the key indices opened on a flat note -- marginally in the red -- as investors' sentiments remained weak on account of the volatility caused in the global markets due to Britain's vote to exit the EU. This had also resulted in a sharp drop in the rupee's value and dried up foreign fund inflows. However, the Indian markets gained some momentum shortly after to trade in the green as the Asian markets, especially the Nikkei, showed a considerable recovery by shrugging off the global selloff stimulated by the Brexit. 

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The National Stock Exchange of India Ltd (NSE) on Monday said it plans to list on bourses as its board had expressed a desire to file the Draft Red Herring Prospectus (DRHP) latest by January 2017 for domestic listing and by April 2017 for overseas listing, "after addressing restructuring needs of the exchange and the regulatory requirements for listing," the exchange said in a statement. The exchange said that the board had re-constituted the current listing committee as an empowered sub-committee of the board to accelerate the listing procedures. The committee would take decisions within a stipulated time line. All these decisions were taken during the last meeting of board of directors on June 23," it said.

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A sharp rise in US futures markets, a rise in European indices, and a rebounding rupee led key Indian equity indices to trade in the green on Tuesday, while recovering considerably from the Brexit hangover. Healthy buying was witnessed in stocks of fast moving consumer goods (FMCG) and healthcare. The BSE market breadth was tilted in favour of the bulls -- with 1,596 advances and 999 declines.

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On Tuesday, the US dollar continued to climb against most major currencies after Britain voted to leave the European Union in a historic referendum. In late New York trading on Monday, the euro fell to $1.1019 from $1.1144 of the previous session, and the British pound decreased to $1.3192 from $1.3696. The Australian dollar went down to $0.7343 from $0.7508. The dollar bought 101.99 Japanese yen, lower than 102.24 yen of the previous session.  The dollar rose to 0.9776 Swiss francs from 0.9724 Swiss francs, and it climbed to 1.3092 Canadian dollars from 1.2936 Canadian dollars. Currency movements are considered important by stock market analysts in India, as a substantial portion of the investments come from foreign institutional investors into emerging markets like India. However, international interest rates in the banking sector are expected to be stable and not contribute to volatility.

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Positive global indices, along with a rise in crude oil prices and a firm rupee, buoyed the Indian equity markets on Wednesday. Consequently, the key indices closed the day's trade with appreciable gains, as healthy buying was witnessed in automobile, information technology (IT) and consumer durables sectors. The BSE market breadth was skewed in favour of the bulls -- with 1,848 advances and 752 declines.

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On Wednesday, state-run Allahabad Bank said that it aimed at 10% business growth in the current fiscal (2016-17) year. "Business growth target is 10% this fiscal. It grew about 3.4% in the last fiscal," bank's Chairman and Managing Director Rakesh Sethi told IANS after the 14th Annual General Meeting. The total business of the bank stood at Rs358,352 crore as of March 31, 2016 as compared to Rs346,519 crore the previous year. Going forward, the bank was looking at a growth of 20% in the retail credit portfolio. Also, a major thrust will be given to loans having low capital requirement such as housing loans and gold loans, Sethi told shareholders during the meeting. The shares of the bank closed at Rs68.35, up 0.22% on the BSE on Wednesday.

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Key Indian equity market indices opened higher on Thursday in line with global peers and taking positive cues from implementation of the Seventh Pay Commission. Asian markets on Thursday were trading in the green. Tokyo shares opened higher after anxiety over Japanese economy on account of Brexit and the weakening yen started declining. The Nikkei however, ended flat. Other international markets were also in the green. US stocks closed higher, buoyed by gains in oil prices, as global markets continued to rebound from previous sharp losses after Britain's vote to leave the European Union (EU).

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By the end of trading on Thursday, market analysts pointed out that short covering on the back of latest key economic decisions, combined with positive global cues and a firm rupee, propelled the Indian equity markets into making healthy gains. Sector-wise, all the sub-indices witnessed healthy buying which was led by banking, automobile and capital goods stocks. The gains, on Thursday, in the major indices were around 1% over Wednesday’s close. The BSE market breadth was tilted in favour of the bulls -- with 1,598 advances and 1,011 declines. 

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Continuing the upward trend evinced all week, healthy macro-economic data and positive global cues lifted the Indian equity markets higher on Friday. The key indices provisionally closed the day's trade with appreciable gains, with healthy buying witnessed in capital goods, oil and gas, and health care stocks. The BSE market breadth was tilted in favour of the bulls -- with 1,572 advances and 1,137 declines. The gains on Friday in the major indices were around 0.50%.

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Domestic demand pushes manufacturing activity in June

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1St july 2016

The manufacturing Purchasing Managers' Index or PMI rebounded to 51.7 in June from 50.7 in May. The upturn is significant when compared to the average 0.5-point decline between May and June over the last 10 years. Moreover, it reinforces our view that the weakness in the preceding two months (April-May) was partly driven by transitory factors, like elections in five states, says Nomura in a report.

It says, "The PMI data suggest that external demand remains lacklustre, even as domestic demand continues to support growth, led by consumption. Meanwhile, margins are starting to be squeezed. The manufacturing PMI averaged 51 in Q2 2016, down from 51.5 in Q1, although Q2 ended on a positive note. In our base case, we expect gross domestic product (GDP) growth at market prices to pick up to 7.3% in 2016 from 7.2% in 2015, largely driven by private consumption and public investment."

During June, both output and new orders rose to a three-month high. The new orders index picked up to 52.9 from 51.3 in May, mainly led by an improvement in domestic demand, while the export orders sub-index improved to 50.6 from 49.6 in May, but the payback was quite weak. Backed by rising new orders, the output index rose to 52.7 from 50.7 in May, with consumer goods remaining the best performing sector, Nomura says.

Finished goods inventories inched up to 46.9 in June compared with 46.0 in May, but persisted below the 50 threshold for the twelfth consecutive month. This suggests that, even while firms are expanding output, they continue to dip into inventories to fulfil demand, the report points out. 

With rising new orders, the new orders to inventory ratio remained elevated at 1.13 as against 1.12 in May. At the same time, the backlog of work sub-index also rose to a 15-month high of 51.8 from 49.5 in May, which indicates that the pace of expansion in output should accelerate in coming months.

According to Nomura, during June, both input and output prices eased, however margins were under pressure. The input price index moderated to 53.8 from 54.3 May, but remained above 50 on higher costs of metals, chemicals, petrol, food etc. The output price index moderated as well, to 50.1 from 50.5. As a result, the ratio of output to input price indices – a proxy for profit margins – stood at 0.93 in June, unchanged from May but down from a peak of about 1.00 in mid-2015. This suggests that profit margins are being squeezed from rising input costs amid a rather gradual recovery in demand, it concluded.

Significant part of bank NPAs are fraud: CAG

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1St july 2016

A "significant" part of the banks' non performing assets (NPAs) were a result of loans obtained by fraudulent methods, the Comptroller and Auditor General (CAG) of India, Shashi Kant Sharma said here on Friday.

"There is a significant part of NPAs that amounts to fraudulently obtained advances," Sharma said at the Assocham (Associated Chambers of Commerce and Industry of India) conference on financial and corporate frauds.

Sharma also added that a large part of these loans may now be irretrievable as they are likely to have been transferred abroad.

"There is also the belief that a large part of these advances may have been transferred abroad and may never be recovered," he said.

Nifty, Sensex to pause for breath – Thursday closing report

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30 June 2016 

I had mentioned in Wednesday’s closing report that Nifty, Sensex were likely to head higher. The major indices of the Indian stock markets rallied on Thursday and closed around 1% higher than Wednesday’s close. The trends of the major indices in the course of Thursday’s trading are given in the table below:

Key Indian equity market indices opened higher on Thursday in line with global peers and taking positive cues from implementation of the Seventh Pay Commission. Asian markets on Thursday were trading in the green. Chinese stocks opened mixed on Thursday, with the benchmark Shanghai Composite Index opening flat at 2,931.48 points Shanghai Composite closed at 2,929.61, down 0.07%. Tokyo shares opened higher after anxiety over Japanese economy on account of Brexit and the weakening yen started declining. The Nikkei however, ended flat. Other international markets were also in the green. US stocks closed higher, buoyed by gains in oil prices, as global markets continued to rebound from previous sharp losses after Britain's vote to leave the European Union (EU).

By the end of trading on Thursday, market analysts pointed out that short covering on the back of latest key economic decisions, combined with positive global cues and a firm rupee, propelled the Indian equity markets into making healthy gains. Sector-wise, all the sub-indices witnessed healthy buying which was led by banking, automobile and capital goods stocks. The BSE market breadth was tilted in favour of the bulls -- with 1,598 advances and 1,011 declines. The equity markets gained on the back of reduced uncertainty over the modalities of Britain's exit from the European Union (Brexit). Investors were also hopeful that international central banks might go in for major stimulus measures to protect growth as a result of Brexit. Further, higher global crude oil prices and a firm rupee enhanced investors' risk-taking appetite.

The hardcopy peripherals market in India dropped 2.2 per cent sequentially in the first quarter of this year and reached 795,451 units in terms of shipments, says market research firm International Data Corporation (IDC). Hardcopy peripherals (HCP) includes printers, multifunction peripheral (MFP), and digital copiers. However, the market for laser printers witnessed a remarkable sequential growth of 15.9% in the same quarter, the report said. "In the absence of substantial demand from government and consumers in Q1 2016, the overall HCP market witnessed weak buying as the sentiments were not positive. However, the enterprise segment witnessed some growth and is expected to pick up pace in the coming quarters,” Maninder Singh, Market Analyst at IDC India, said in a statement. Among major vendors, HP managed to achieve 44.7% shipment share and remained as the market leader in India.  HP was followed by Epson and Canon with 19.1% and 16.6% share respectively, the report said. The IT market which is dependent on exports (and imports for domestic sales) is likely to face uncertainty with currency markets swinging in the wake of the Brexit. Attractive pricing and maintaining real operating margins are likely to be challenging issues for IT vendors in India.

The top gainers and top losers of the major indices are given in the table below:

The closing values of the major Asian indices are given in the table below:

  

No relief in sight from high prices of pulses

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30 June 2016 

There seemed to be no respite from high prices of pulses like Urad and gram on Thursday as paucity of stocks and restricted supply continued to push up the wholesale prices.

At the bulk purchase markets in New Delhi and parts of northern India, there have been reports of overall rise in prices of Urad and Urad Chilka dal by about Rs 100 per quintal.

The prices of Urad on Thursday shot up to Rs 10,800-Rs 12,300 per quintal depending on varieties, a source in the Union Food Ministry said.

Last week, there was a modest drop in wholesale prices of pulses, the source said.

The wholesale price of gram and Kabuli gram also ended higher and advanced on average by Rs 200 per quintal on the backdrop of strong demand from retailers.

At the retail market, prices of pulses were Rs 190-200 per kg.

In the national capital, gram bulk price rose further by Rs 200 to Rs 7,600, sources said.

The prices of Masoor dal small stood around Rs 6,350 per quintal while Masoor local was about Rs 6,600.

However, easing demand resulted in drop in prices of maize by about Rs 50 per quintal. Traders also feel there are ample stocks of maize.

In New Delhi and other parts of north India, bulk price of maize fell by Rs 50 to around Rs 1,675 per quintal, sources added.

Faced with recurring demand-supply issues vis-a-vis pulses, India has requested Mozambique to consider if it can supply Tur dal (or Arhar) for the next five years on a government-to-government basis.

India has offered to buy Tur dal from Mozambique at a minimum support price (MSP) plus carrying and transportation cost, the source said.

The MSP of Tur dal has been fixed at Rs 5,050 per quintal, which includes a bonus of Rs 200 for 2016-17 crop year (July-June).

Mozambique produces around 70,000 tonnes of pulses, including Tur, in a year.

India, meanwhile, is also negotiating with Myanmar for long-term supply of Tur dal.

Banks need to write off losses between 40% and 70% in 240 firms: Study

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30 June 2016 

Banks would need to write off their losses between 40 and 70 per cent in at least 240 companies, which are under heavy debt mostly in steel, construction, power, textiles and infrastructure, a study said.

The study, jointly conducted by Associated Chambers of Commerce and Industry of India (Assocham) and India Ratings and Research (Ind-Ra), also suggested asset reconstruction to cut their losses with the help of revamped asset reconstruction companies (ARCs) sector. 

This will help banks achieve a sustainable level of bank debts, going down as non-performing assets (NPAs), said the study, which will be released at an event here on Friday, according to an Assochamstatement.

The study noted that the gross non-performing advances rose sharply to 7.6 per cent of gross advances in March 2016 from 5.1 per cent in September 2015.

"Asset reconstruction companies need re-positioning; the issue of bad debt amounting to Rs 6 trillion would need ARCs to re-orient themselves, if they are to facilitate the resolution process,” the study said, adding that the current capital position of ARCs can at most take care of 10 per cent of the bad debt in the Indian banking system. 

“The number of ARCs has been inadequate vis-a-vis the need. However, that scenario is about to change. In the Union Budget 2016-17, 100 per cent foreign direct investment (FDI) has been allowed for ARCs which is expected to substantially improve their capital base,” said Assocham President Sunil Kannoria..

“Moreover, the introduction of the Bankruptcy Code has now positioned ARCs as a very important intermediary between lenders and borrowers,” he said.

7th pay panel to boost real estate sector: India Inc

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30 June 2016 

India Inc on Wednesday said the country's real estate sector is expected to receive a major boost due to the implementation of the 7th Pay Commission recommendations.

"The 7th Pay Commission implementation will be a positive move and raise the affordability of the government employees by increasing their home loan eligibility," said Ankur Dhawan, Chief Business Officer, PropTiger.

"The developers would come up with schemes to make it attractive for public sector employees to invest in realty sector after this approval."

According to Dhawan, cities like Pune and suburban areas like Navi Mumbai and Noida will attract a large chunk of public sector employees -- who are looking for affordable houses.

The Union Cabinet on Wednesday approved the 7th Pay Commission Report's recommendations for central government employees' pay, perks and pensions.

Finance Minister Arun Jaitley said that the government's decision to implement the recommendations of the 7th Pay Commission will benefit over one crore central government employees and pensioners.

The minister said the housing loan allowance has been hiked from Rs 7.5 lakh to Rs 25 lakh.

"The Pay Commission's decision to hike the salary of central government employees is likely to have a positive impact on the demand side of residential real estate, as it would boost sentiment for home ownership among a set of buyers who have traditionally been very conservative in matters pertaining to large financial commitments," said JLL India's CEO (Residential Services) Ashwinder Raj.

The increase in demand would be uniformly seen across India's more affordable cities. Pricier cities would not see much of an impact on this account, as this segment of potential home buyers will be looking primarily for budget homes, he said. 

Leading industry body Associated Chambers of Commerce and Industry of India (Assocham) said that acceptance of the Pay Commission's recommendations and a normal monsoon should propel consumption in the realty sector.

"A boost of Rs 1 lakh crore to the economy at a time when the global head winds are blowing right in our face would surely be a confidence building measure," said D.S. Rawat, Secretary General of Assocham.

"If the monsoon plays out as per the forecast, the increase in both urban and rural consumption should be a great help to sectors like housing.

Vineet Relia, Managing Director, SARE Homes, said: "We as developers hail the government's decision and the intent of the Pay Commission that would also help us to synergize with the growth of real estate and economic prosperity of the nation, coupled with boosting the investors sentiment to new heights."

The positive effect was also seen on realty sector's stock on the equity markets. The BSE's realty index closed the day's trade with appreciable gains.

Nifty, Sensex to head higher – Wednesday closing report

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29 June 2016 

I had mentioned in Tuesday’s closing reply that Nifty, Sensex might rally. The major indices of the Indian stock markets on Wednesday made a strong rally and closed 0.81%-0.94% over Tuesday’s close. The trends of the major indices in the course of Wednesday’s trading are given in the table below:

Positive global indices, along with a rise in crude oil prices and a firm rupee, buoyed the Indian equity markets on Wednesday. Consequently, the key indices closed the day's trade with appreciable gains, as healthy buying was witnessed in automobile, information technology (IT) and consumer durables sectors. The BSE market breadth was skewed in favour of the bulls -- with 1,848 advances and 752 declines. 

British shares and the pound continued to regain some of the ground lost in the wake of the UK voting to exit the European Union (EU). After rising 2.6% on Tuesday, the FTSE 100 share index was up 1.8% at 6,253.07 in early morning trade on Wednesday. The FTSE 250 index -- which contains more UK-focused companies -- rose 1.1%. On Tuesday it closed 3.6% higher. The pound was up 0.4% against the dollar at $1.3398, but it still remained well below levels reached before the referendum held on June 23. The pound rose as high as $1.50 on June 23 before the result of the referendum was announced the next day. On Monday, the pound hit a 31-year low against the dollar. Shares in the financial sector -- which had been particularly hard-hit in the wake of the referendum -- continued to recover, with Prudential up 5.9% and Barclays 3.6% higher.

With the Goods and Services Tax (GST) on top of the government's agenda, Parliament's monsoon session will be held from July 18 to August 12, Parliamentary Affairs Minister M. Venkaiah Naidu announced here on Wednesday. The decision was taken at a meeting of the Cabinet Committee on Parliamentary Affairs, attended among others by Prime Minister Narendra Modi, Home Minister Rajnath Singh Finance Minister Arun Jaitley and External Affairs Minister Sushma Swaraj. At the meeting External Affairs Minister Sushma Swaraj said if members raise issues concerning the Nuclear Suppliers Group (NSG) and matters concerning foreign trips of Prime Minister Narendra Modi and others, she is willing to make a statement, Naidu informed. International news and news from Parliament are likely to have a strong effect on the major indices next month.

Finance Minister Arun Jaitley on Wednesday said the 7th Pay Commission will bring a "historic rise" in the salaries of government employees and pensioners. “Congratulations to central government officers, employees and pensioners on a historic rise in their salary and allowances through the 7th CPC (Central Pay Commission),” Jaitley tweeted after the panel recommendations were approved by the Union Cabinet on Wednesday. The decision was taken at a cabinet meeting chaired by Prime Minister Narendra Modi. The recommendations will impact some 47 lakh employees in the central government and 52 lakh pensioners. Increased savings from the employees are likely to bring some more investments into the stock markets, especially through mutual funds.

State-run Allahabad Bank aims at 10% business growth in the current fiscal (2016-17) year, a top official of the bank said on Wednesday. "Business growth target is 10% this fiscal. It grew about 3.4% in the last fiscal," bank's Chairman and Managing Director Rakesh Sethi told IANS after the 14th Annual General Meeting. The total business of the bank stood at Rs358,352 crore as of March 31, 2016 as compared to Rs346,519 crore the previous year. Going forward, the bank was looking at a growth of 20% in the retail credit portfolio. Also, a major thrust will be given to loans having low capital requirement such as housing loans and gold loans, Sethi told shareholders during the meeting. The retail credit portfolio stood at Rs25,894 crore, up 19.20% against Rs21,723 crore in the previous year. The lender said it would adopt a three-pronged strategy -- recovery of overdues, achieving healthy growth in retail advances and mobilising CASA deposits on liability side with emphasis on savings bank accounts. The shares of the bank closed at Rs68.35, up 0.22%.

Oil prices gained after slumping for two sessions on Britain's surprise vote to leave the European Union. The West Texas Intermediate for August delivery on Tuesday gained $1.52 to settle at $47.85 a barrel on the New York Mercantile Exchange, while Brent crude for August delivery added $1.42 to close at $48.58 a barrel on the London ICE Futures Exchange, Xinhua news agency reported.  Oil prices suffered the biggest two-day loss since February as the Brexit vote spurred market concerns about the economic stability of the UK and euro zone, triggering massive risk aversion among investors. Crude prices recovered on Tuesday as European Union leaders gathered in Brussels for a two-day meeting to discuss Britain's decision to leave the bloc, raising speculations that policy makers may take measures to limit the economic fallout.

The top gainers and top losers of the major indices are given in the table below:

The closing values of the major Asian indices are given in the table below: