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7 November 2016

OVERNIGHT MARKETS AND NEWS

Dec E-mini S&Ps (ESZ16 +1.35%) are up sharply by +1.37% and European stocks are up +1.69% after U.S. presidential candidate Clinton's prospects improved when FBI Director Comey said in a letter to Congress that the FBI was sticking to its conclusion that Clinton's handling of her e-mails as secretary of state wasn't a crime. Stock prices have recently been whipsawed on Clinton's presidential prospects as the race tightened with challenger Trump. Raw-material producers and mining stocks are higher as well as the price of copper (HGZ16 +0.95%) jumped +1.13% to a 7-3/4 month high on signs of tighter supplies after LME copper inventories fell -6,600 MT to a 2-1/4 month low. Energy producing stocks caught a bid as well with crude oil (CLZ16 +1.45%) up +1.75% after a magnitude 5.0 earthquake struck near Cushing, OK, delivery point of WTI futures, which prompted some pipeline operators to shut operations at the site as a precaution. European stocks also found support on the stronger-than-expected Eurozone Sep retail sales along with the jump in the Sentix Nov investor confidence to an 11-month high. Asian stocks settled higher: Japan +1.61%, Hong Kong +0.70%, China +0.26%, Taiwan +1.34%, Australia +1.35%, Singapore +0.44%, South Korea +0.80%, India +0.68%.

The dollar index (DXY00 +0.53%) is up +0.59%. EUR/USD (^EURUSD) is down -0.67%. USD/JPY (^USDJPY) is up +1.13%.

Dec 10-year T-note prices (ZNZ16 -0.19%) are down -8.5 ticks.

Eurozone Sep retail sales fell -0.2% m/m, stronger than expectations of -0.3% m/m.

Eurozone Nov Sentix investor confidence rose +4.6 to 13.1, stronger than expectations of +0.1 to 8.6 and the highest in 11 months. The Total Investment & Insurance Solutions

U.S. STOCK PREVIEW

Key U.S. news today includes: (1) Sep consumer credit expected +17.50 billion, Aug +$25.873 billion, (2) USDA weekly grain export inspections, (3) USDA Weekly Crop Progress.

Notable S&P 500 earnings reports today include: News Corp (consensus 0.00), Sysco (0.59), Rockwell Automation (1.49), Cognizant Technology (0.84), Scripts (0.96), WestRock (0.62), Intl Flavors and Fragrances (1.42), Priceline (29.88), Marriott (0.89), PerkinElmber (0.66), Microchip Technology (0.87), Albemarle (0.82).

U.S. IPO's scheduled to price today: none.

Equity conferences this week include: Credit Suisse Health Care Conference on Mon-Tue, Bernstein Technology Innovation Summit on Mon-Tue, Robert W. Baird Global Industrial Conference on Mon-Thu, Daiwa Investment Conference on Tue, EEI Financial Conference on Tue, Evercore Technology Conference on Tue, Stephens Fall Investment Conference on Tue, Hart Energy Publishing LLLP Executive Oil Conference on Tue, Baird Global Industrial Conference on Wed, RBC Technology Internet Media and Telecommunications Conference on Wed-Thu, Wells Fargo Technology, Media & Telecom Conference on Wed-Fri, Citi Financial Technology Conference on Thu, SunTrust Robinson Humphrey Financial Technology, Business & Government Services on Thu. The Total Investment & Insurance Solutions

OVERNIGHT U.S. STOCK MOVERS

NetSuite (N -3.89%) surged 20% in pre-market trading after shareholders endorsed Oracle's bid for the company

Cummins (CMI +2.10%) was raised to 'Buy' at Evercore ISI with a price target of $133.

Physicians Realty Trust (DOC +2.15%) was upgraded to 'Strong Buy' form 'Marker Perform' at Raymond James with a 12-month target price of $22.

Hostess Brands (TWNK) was rated a new 'Buy' at SunTrust with a price target of $15.

Macerich (MAC +0.72%) was upgraded to 'Buy' from 'Neutral' at Mizuho Securities with a target price of $84.

Biogen (BIIG) was upgraded to 'Overweight' from 'Neutral' at Piper Jaffray with a 12-month target price of $335.

Healthcare Trust of America (HTA +0.35%) was upgraded to 'Outperform' from 'Market Perform' at Raymond James with a 12-month target price of $33.

Compass Point Research & Trading initiated a 'Sell' recommendation on Alliance Data Systems (ADS -0.12%) with a price target of $168.

Berkshire Hathaway (BRK) reported Q3 operating EPS of $2,961, below consensus of $3,058.

Knoll Capital reported a 6.1% passive stake in Abeona Therapeutics (ABEO -2.63%) .

Total System Services (TSS +0.91%) fell nearly 1% in after-hours trading after the company said it is in talks with the FTC on a potential settlement over certain marketing practices with its NetSpend unit that was investigated by the FTC. The Total Investment & Insurance Solutions

MARKET COMMENTS

Dec E-mini S&Ps (ESZ16 +1.35%) this morning are up sharply by +28.50 points (+1.37%). Friday's closes: S&P 500 -0.17%, Dow Jones -0.24%, Nasdaq -0.40%. The S&P 500 on Friday fell to a 4-month low and closed lower on strength in wages in the U.S. unemployment report that bolstered the case for the Fed to raise interest rates next month after U.S. Oct avg hourly earnings rose +2.8% y/y, stronger than expectations of +2.6% y/y and the largest year-on-year increase in 7-1/3 years. Stocks also continued to suffer from uncertainty ahead of Tuesday's U.S. presidential election that sent the VIX volatility index up to a 4-1/4 month high and spurred long liquidation in stocks.

Dec 10-year T-notes (ZNZ16 -0.19%) this morning down -8.5 ticks. Friday's closes: TYZ6 +7.0, FVZ6 +3.5. Dec 10-year T-notes rallied to a 1-1/2 week high and closed higher on increased safe-haven demand caused by stock market weakness and by uncertainty about Tuesday's U.S. presidential election. T-notes were also boosted by the slide in crude oil prices to a 1-1/2 month low, which undercuts inflation expectations as the 10-year T-note breakeven inflation rate fell to a 2-week low. The Total Investment & Insurance Solutions

The dollar index (DXY00 +0.53%) this morning isup +0.572 (+0.59%). EUR/USD (^EURUSD) is down -0.0075 (-0.67%). USD/JPY (^USDJPY) is up +1.17 (+1.13%). Friday's closes: Dollar index -0.0921 (-0.09%), EUR/USD +0.0036 (+0.32%), USD/JPY +0.14 (+0.14%). The dollar index on Friday sold off to a 3-week low and closed lower on uncertainty ahead of Tuesday's U.S. presidential election and on strength in EUR/USD which climbed to a 3-week high after Eurozone Sep PPI was stronger than expected, which may keep the ECB from expanding stimulus. The Total Investment & Insurance Solutions

Dec crude oil prices (CLZ16 +1.45%) are up +77 cents (+1.75%) and Dec gasoline (RBZ16 +0.04%) is up +0.0007 (+0.05%). Friday's closes: Dec crude -0.59 (-1.32%), Dec gasoline -0.0365 (-2.56%). Dec crude oil and gasoline on Friday closed lower with Dec crude at a 1-1/2 month low and Dec gasoline at a 5-week low. Crude oil prices were undercut by skepticism that OPEC will be able to reach and enforce any meaningful cuts in crude production. Crude oil also took a hit on a Reuters report saying that Saudi Arabia threatened to raise its oil production to 11 million bpd or 12 million bpd if Iran doesn't limit its supply.The Total Investment & Insurance Solutions

Hike in imported coal prices to negatively impact the power value chain: Report -The Total Investment & Insurance Solutions

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7 November 2016

 

Coal (The Total Investment & Insurance Solutions)

The 60% rise in imported coal prices (Richard Bay Index) between April and October 2016 is likely to negatively impact the power sector value chain, says India Ratings and Research (Ind-Ra). 

In a research note, Ind-Ra says, "The increase in imported coal prices was more pronounced in October 2016, where prices rose by 25% to around $85 per tonne from $68 per tonne in September 2016. The distribution companies (discoms), independent power producers (IPPs) with non-escalable fuel cost, merchant IPP's and ports relying on imported coal for the bulk of their volumes will face volume and profitability pressures." The Total Investment & Insurance Solutions

According to Ind-Ra, historically the ability of the distribution companies (discoms) to pass on fuel cost increases to the end-consumers has been limited and delayed due to the political intervention in the tariffs. The regulatory commissions can allow a pass-through of such costs, by way of power purchase and fuel cost adjustment (PPFCA), since power purchase cost is an uncontrollable expense for the discoms. However, anecdotal evidence suggests that most state regulatory commissions have not allowed for such PPFCA adjustments on an actual and timely basis, which has led to an escalation in the power purchase cost of discoms, without a commensurate increase in revenues, the report says.

Ind-Ra expects merchant IPP's, which sell power through the merchant route, to be impacted significantly since the prices on the exchanges/bilateral trades have not moved up at the same rate (2% mom, see figure below), as the rise in variable cost of generation (25%) in October 2016, on account of the imported coal price increases. Thus leading to a significant compression in their gross margins, which have fallen to zero in October 2016. Hence, it says, the viability of merchant IPPs on imported coal is doubtful in the current price scenario. The Total Investment & Insurance Solutions

 

Coal Chart(The Total Investment & Insurance Solutions)

According to Ind-Ra the hike in fuel costs would be credit neutral for the power generators, which operate their plants on the cost plus return on equity (ROE) model. The plants running on cost plus ROE are allowed a complete pass-through of such costs to the consumers by way of the monthly fuel cost adjustment in the bills, thus insulating these plants from any adverse movement in coal prices.

"However, with higher fuel costs, the impact of under-recovery/over-recovery, if any, on the variable cost due to lower/better performance than the operating normative parameters (station heat rate, auxiliary consumption) is likely to lead to a higher level of absolute disincentives or incentives, respectively," it added. The Total Investment & Insurance Solutions

The overall dependence of imported coal in India declined during FY16, as the output from Coal India Ltd increased significantly over FY15 and FY16, leading to a 10% decline in the overall non-coking coal imports in India to 156.4mt in FY16. The Total Investment & Insurance Solutions

 

Coal Chart 2(The Total Investment & Insurance Solutions)

Ind-Ra says that the volume de-growth of non-coking coal was not as sharp in FY16, despite the lower prices, because other end-user industries namely cement and non-ferrous metals found it cheaper to use imported coal to fire their kilns/boilers. However, with the rise in prices of imported coal, these end-user industries are looking at alternative fuel sources, which could pressurise imported coal volumes from these players. Moreover, in a scenario of power surplus with adequate domestic coal availability, the use of imported coal for the power generation purpose is likely to remain benign, it added.

As per the ratings agency, decline in coal costs, the stress on imported coal based plants like Adani Power's 1980MW plant in Mundra and Tata Power Ltd's 4000MW plant in Mundra under its subsidiary Coastal Gujarat Power Ltd had reduced, despite the absence of compensatory tariff. "However, with the prices of imported coal rising again and judgement awaited on the applicability of the force majeure clause in the power purchase agreement, the stress levels would start building up again on these generators with non-escalable fuel costs," the research note concluded.The Total Investment & Insurance Solutions

India, Britain sign MoUs on IPR, ease of doing business -The Total Investment & Insurance Solutions

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7 November 2016

India and Britain on Monday signed memoranda of understanding (MoUs) on intellectual property rights (IPR) and ease of doing business following delegation-level talks led by Prime Ministers Narendra Modi and Theresa May here. The Total Investment & Insurance Solutions

"Advancing business through agreements. The two leaders witness exchange of MoUs in Intellectual Property and Ease of Doing Business," External Affairs Ministry spokesperson Vikas Swarup tweeted.

The MoU on IPR envisages establishing a mechanism for furthering cooperation between the intellectual property offices of India and Britain in the field of intellectual property and related information technology services, according to the External Affairs Ministry.

It will include exchange of best practices, experience and knowledge of intellectual peoperty awareness among the public, businesses, industry, research and development organisations and educational institutions, as well as on processes for disposal of applications for patents, trademarks, industrial designs and geographical indications. The Total Investment & Insurance Solutions

The MoU on ease of doing business intends to make expertise from different departments of the British government which have led the ease of doing business drive in the Britain available to the relevant departments and agencies of the Indian government, according to the ministry. 

It includes exchange between the officials, sharing of best practices and technical assistance for effective implementation of the initiatives of GOI to improve its ranking in the ease of doing business. 

Important areas of cooperation include support to businesses and start-ups, tax administration, regulatory regimes, and competition economics. The Total Investment & Insurance Solutions

Earlier on Monday, Modi and May addressed the India-UK Tech Summit here.

This is May's first bilateral visit outside of Europe since she assumed the Prime Minister's office in July this year. The Total Investment & Insurance Solutions

She took over the prime ministership after David Cameron resigned following the historic referendum in June in which Britain voted to exit from the European Union. Cameron rooted for Britain to stay in the EU. The Total Investment & Insurance Solutions

May's visit comes a little less than a year after Modi's visit to Britain in November last year.

May, who arrived here late on Sunday night on a three-day official visit to India, will also visit Bengaluru on Tuesday.The Total Investment & Insurance Solutions

AirAsia audit reveals dubious transfer of funds -The Total Investment & Insurance Solutions

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7 November 2016

Air Asia (The Total Investment & Insurance Solutions) 

After Cyrus Mistry's letter to the directors of Tata Sons, which mentioned fraudulent transactions of Rs22 crore involving non-existent parties in India and Singapore, much more information has begun to spill into public domain. For starters, some details about the forensic audit carried by Deloitte Touche Tohmatsu India into the affairs of AirAsia India Ltd (AAIL) are available. The audit found several payments to entities that have not provided any services to the carrier as well as personal expenditure of its former chief executive Mittu Chandilya being billed to the airline. AAIL is a joint venture between Tata Sons Ltd and AirAsia Investment Ltd. The Total Investment & Insurance Solutions

Documents reviewed by Moneylife reveal a possible nexus between Chandilya and one Rajendra Dubey, who allegedly assisted the CEO since August 2013 in liaison activities "...in setting up meetings with Chief Ministers (CMs) and politicians across the country."  

There was no direct contract or payment between Dubey and AirAsia India, we learn. Moreover, Deloitte reports that "Payments amounting to Rs12.28 crore made against invoices of HNR Trading, a Singapore-based entity where Dubey is a director, for government or regulatory framework. No evidence of actual services provided." The Total Investment & Insurance Solutions

AAIL had just a 'plain paper agreement' with HNR with various invoice formats, and one instance of invoice contents being revised based on inputs from Venkatesan S (finance), the report says. 

It says, "Anomalies in appointment process of two other entities where Dubey is a director (ECS Cargo and RRT), which provide services to AAIL. We have been provided with a mail from Amar Abrol dated 8 September 2016 that the contract with ECS has been terminated with immediate effect."

"Payments to HNR were reportedly made by the finance team on the direction of Mittu Chandilya, though Venkatesan S mentioned he was not comfortable releasing the payments."

Dubey was, however quoted in a report by Economic Times referring to the findings as "baseless information". An email sent to Mr Debashis Ray, who is heading communications for the Tatas had not been responded to at the time of publishing this report. We had asked Mr Ray if the Tatas have any comments to make on reports about Air Asia; we will update this report if and when we hear from them. 

The Deloitte report also exposes a payment of Rs10.05 crore to Link Media Immigration Services Pvt Ltd, allegedly for rendering 'media services'. However, the company apparently "does not feature in the database of Registrar of Companies (RoC)". "Even site visits to three addresses of Link Media Immigration Services revealed no business establishment. The entity closed down its tuition centre and visa consultancy two years ago. Payments made on the direction of Mittu Chandilya. Enquiries revealed there were significant financial transactions between father of Mittu (Chandilya, the then CEO) and Link", said sources with access to the report. The Total Investment & Insurance Solutions

Mittu Chandilya is understood to have billed an amount of Rs1.63 crore in personal expenses to the company, is one of Deloitte's findings. These expenses included family travel and stay, personal expenses, the lease of cars, appointment of two drivers, payment of road tax on a personal vehicle, purchase of designer clothes and furniture and for buying iPhones.

AirAsia Berhad's CEO approved claims (of Chandilya) of about Rs48 lakh, while other expenses like that of drivers, car lease, purchase of clothes were directly approved by Chandilya, finds Deloitte.

Sources tell us that several airline employees were interviewed by the forensic auditor. These included employees who had attempted to blow the whistle on the goings-on at AirAsia. The employees are understood to have expressed fear of retaliation, which was strengthened by sudden exit of various head of departments at AAIL, said the auditor. The vitiated atmosphere at the airline is indicated by references to certain 'poison pen' letters (anonymous escalations) had gone to the management, but no one reacted, nor was any action taken." The Total Investment & Insurance Solutions

In April 2016, AAIL replaced Chandilya by naming Amar Abrol as its CEO. 

Initially, AirAsia Investment owned a 49% stake in the budget airline, followed by 30% by Tata Sons and the remaining 21% was held by Telstra Tradeplaces Pvt Ltd owned by Delhi-based Arun Bhatia. Last year, Tata Sons bought 11% of Telstra's stake, taking its total holding in the low cost carrier (LCC) to 41%. The Total Investment & Insurance Solutions 

Earlier this year, Bhatia had decided to exit the joint venture altogether. In an interview that appeared in The Economic Times on 11 December 2015, Bhatia was quoted as saying that the airline was being controlled by its Malaysian partner, and that he would take up the matter legally.

Bhatia's son Amit is the son-in-law of LN Mittal, the owner of ArcelorMittal. Amit is married to Vanisha Mittal, the only daughter of billionaire LN Mittal. The Total Investment & Insurance Solutions

Tata Sons increased its stake to 49% by buying 7.94% of the equity from Telstra. The Air Asia website reveals R Venkataramanan (a former executive assistant of Ratan Tata and a trustee on every one of the Tata Trusts) who is also a director on AAIL, holds a 1.5% stake in the company in his individual capacity while former TCS chief, S Ramadorai holds another 0.5% in his individual capacity. Ramadorai is Chairman of AAIL. The Total Investment & Insurance Solutions

The airline currently operates flights from its current base in Bengaluru and Delhi to Chandigarh, Goa, Guwahati, Imphal, Jaipur, Kochi, Pune and Visakhapatnam.The Total Investment & Insurance Solutions

Nifty, Sensex to be directionless – Monday closing report-The Total Investment & Insurance Solutions

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7 November 2016

I had mentioned in Friday’s closing report that Nifty, Sensex would remain under pressure. The major indices of the Indian stock markets rallied on Monday and closed with gains of around 0.68%-0.75% over Friday’s close. However, the rally was small, as NSE turnover was on the lower side. The trends of the major indices in the course of Monday’s trading are given in the table below: The Total Investment & Insurance Solutions

 

Major Indices (The Total Investment & Insurance Solutions)

Short covering, value buying and lower chances of a US rate-hike lifted the Indian equity markets on Monday.  The key indices closed the day's trade with gains of over half a per cent each as buying was witnessed in banking, healthcare and metal stocks. On the NSE, there were 1,097 advances, 392 declines and 46 unchanged. On the BSE, there were 2,020 advances, 861 declines and 129 unchanged. The Total Investment & Insurance Solutions

IT (information technology) stocks faced resistance at higher levels due to profit booking. However, banking, pharma, auto, oil-gas, textile and aviation stocks traded firm on buying support, pointed out market analysts. Media-entertainment, FMCG (fast moving consumer goods), power and cement stocks traded with firm sentiments on lower level buying.

Global cues such as the US presidential election, trends in dollar strength and crude oil prices are expected to drive investors' sentiments during the week. Besides, the direction of foreign fund flows, along with the ongoing quarterly results will be other major themes to look out for during the week starting November 7, market analysts said. On the domestic front, the ongoing second quarter earnings results will be watched for sector specific developments. Major firms like BHEL, Britannia Industries, State Bank of India (SBI), Bharat Forge and ICICI Bank are expected to come out with their Q2 results during the week.

The government-owned-United Bank of India on Monday said it would raise Rs300 crore through preferential allotment of equity shares to Life Insurance Corporation (LIC). In a regulatory filing in BSE the bank said its Board of Directors has approved preferential allotment of equity to LIC or any fund(s) thereof up to Rs300 crore. Meanwhile, the bank closed the second quarter of the current fiscal with a lower net profit of Rs43.53 crore down from Rs61.86 crore posted during the comparable period in 2015. The bank had earned a total income of Rs2,893.31 crore for the quarter ended September 30, 2016, down from Rs2,927.19 crore earned during the quarter ended September 30, 2015. The bank’s shares closed at Rs21.50, up 3.61% on the BSE. The Total Investment & Insurance Solutions

The National Stock Exchange of India (NSE) on Monday said it has launched Nifty 50 based futures on Taiwan Futures Exchange (TAIFEX). According to NSE, TAIFEX Nifty 50 futures is a "New Taiwan Dollar" (TWD) denominated contract and the first Indian equity index futures product to be introduced in Taiwan. "Nifty 50 represents one of the fastest growing economies in the world. It's an inevitable choice for global investors who want to invest in India," said Chitra Ramkrishna, IISL (India Index Services and Products Limited) Chairperson, and Managing Director and Chief Executive of the NSE. "Going forward, investors from Taiwan can take a view on the top 50 Indian companies representing multiple sectors in India by investing in TAIFEX Nifty 50 futures," Ramkrishna was quoted as saying in a statement. The stock exchange platform said the TAIFEX Nifty 50 futures is TWD 50 per index in contract size, and will trade from 8:45 a.m. to 6:15 p.m. Taiwan time, covering the entire trading session of the Indian market. "These contracts provide useful hedging tools for investors who have India market exposure and need to manage risk from market fluctuations," the statement said.

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

 

Top Gainer (The Total Investment & Insurance Solutions)

The closing values of the major Asian indices are given in the table below:The Total Investment & Insurance Solutions

Asian Indices (The Total Investment & Insurance Solutions)