Sunday, August 14, 2016

THE WEEK THAT WAS

Key indices witness divergent trend


A divergent trend was witnessed on the bourses in the week ended Friday, 12 August 2016 as the barometer index, the S&P BSE Sensex settled with modest gains while the Nifty 50 index settled with small losses. The Sensex managed to settle above the psychological 28,000 mark after falling below that mark during the week. The Sensex had regained that mark at the start of the week. Firmness in global stocks provided support to the domestic bourses. Data showing sustained buying of Indian stocks by foreign portfolio investors (FPIs) and good rains so far during this monsoon season also aided sentiment on the bourses.

The Sensex rose 74.05 points or 0.26% to settle at 28,152.40, in the week ended Friday, 12 August 2016. The Nifty 50 index dropped 11 points or 0.12% to settle at 8,672.15. The BSE Mid-Cap index rose 0.43%, outperforming the Sensex. The BSE Small-Cap index dropped 0.75%, underperforming the Sensex.

Trading for the week started on a positive note. Key benchmark indices logged gains on Monday, 8 August 2016 as positive cues from global stocks aided the upmove on the domestic bourses. The Sensex rose 104.22 points or 0.37% to settle at 28,182.57, its highest closing level since 28 July 2016.

Key benchmark indices registered small losses on Tuesday, 9 August 2016 after the Reserve Bank of India (RBI) kept its benchmark lending rate viz. the repo rate unchanged after a policy review on that day. The Sensex fell 97.41 points or 0.35% to settle at 28,085.16, its lowest closing level since 5 August 2016.

Auto, pharma stocks and index heavyweights Reliance Industries and HDFC Bank led losses for the key benchmark indices on Wednesday, 10 August 2016 as weakness in global stocks weighed on sentiment. The Sensex lost 310.28 points or 1.1% to settle at 27,774.88, its lowest closing level since 4 August 2016.

Key benchmark indices registered small to modest gains after seeing intraday volatility on Thursday, 11 August 2016. The Sensex rose 84.72 points or 0.31% to settle at 27,859.60, its highest closing level since 9 August 2016.

Banking stocks and index heavyweights Reliance Industries (RIL) and HDFC led gains for the two key benchmark indices on Friday, 12 August 2016. The Sensex gained 292.80 points or 1.05% to settle at 28,152.40.

From the 30-share Sensex pack, 16 stocks fell and 14 rose.

Bharti Airtel declined 4.58%. The company said that the transaction to acquire rights to use 20 megahertz (MHz) 2300 band BWA spectrum from Aircel has been successfully concluded for the Orissa circle following the receipt of all necessary approvals and satisfying all the conditions (including conditions stated in the Spectrum Trading Guidelines). With this, the company has completed the transaction to acquire right to use spectrum in 7 out of 8 circles from Aircel. The announcement was made after market hours on Thursday, 11 August 2016.

Bank stocks were mixed. The BSE Bankex rose 0.52%, outperforming the Sensex. Axis Bank gained 4.47%. ICICI Bank (down 0.06%) and HDFC Bank (down 1.65%) declined.

State Bank of India (SBI) rose 4.47%. The bank reported smaller-than-expected decline in net profit in Q1 June 2016 and also reported less than expected increase in bad loans. The bank's net profit fell 31.72% to Rs 2520.96 crore on 9.38% rise in total income to Rs 48928.60 crore in Q1 June 2016 over Q1 June 2015. The result was announced during market hours on Friday, 12 August 2016. The bank's gross non-performing assets (NPAs) stood at Rs 101541.18 crore as on 30 June 2016 as against Rs 98172.80 crore as on 31 March 2016 and Rs 56420.77 crore as on 30 June 2015. The ratio of gross NPAs to gross advances stood at 6.94% as on 30 June 2016 as against 6.50% as on 31 March 2016 and 4.29% as on 30 June 2015. The ratio of net NPAs to net advances stood at 4.05% as on 30 June 2016 as against 3.81% as on 31 March 2016 and 2.24% as on 30 June 2015.

The bank's provisions and contingencies rose 85.34% to Rs 7413.10 crore in Q1 June 2016 over Q1 June 2015. Provisions for non-performing assets jumped 88.76% to Rs 6339.56 crore in Q1 June 2016 over Q1 June 2015. Provision coverage ratio of the bank was at 61.57% as on 30 June 2016.

Index heavyweight Reliance Industries (RIL) rose 2.01%. Index heavyweight and housing finance major HDFC gained 2.85%.

IT stocks were mixed. Index heavyweight and software major Infosys declined 0.38%. TCS (up 3.15%) and Wipro (up 0.03%) gained. The BSE IT index rose 0.27%, outperforming the Sensex.

Most auto stocks declined. The BSE Auto index declined 1.21%, underperforming the Sensex. Tata Motors (down 0.21%), and Maruti Suzuki India (down 1.04%) declined. Bajaj Auto rose 0.27%.

Mahindra & Mahindra (M&M) shed 2.11%. The company's net profit rose 12.37% to Rs 955.21 crore on 14.33% rise in total income to Rs 12159.73 crore in Q1 June 2016 over Q1 June 2015. The result was announced on 10 August 2016.

Hero MotoCorp (HMCL) declined 3.52%. The company's promoter group entities have realigned their holding in the company via bulk deal mechanism on the NSE on 11 August 2016. Brij Mohan Lal Om Prakash sold 57.54 lakh shares of HMCL at an average price of Rs 3,319 per share in a bulk deal on the NSE on 11 August 2016. Two other promoter group entities were the buyers in the bulk deal. Bahadur Chand Investments bought 48.80 lakh shares at Rs 3,319 per share and Hero Investcorp bought 8.73 lakh shares at Rs 3,319 per share. The total holding of promoters in HMCL stood at 34.64% as on 30 June 2016.

Adani Ports and Special Economic Zone (APSEZ) surged 10.03%. APSEZ's consolidated net profit rose 30.8% to Rs 835.71 crore on 6.3% growth in net sales to Rs 1817.23 crore in Q1 June 2016 over Q1 June 2015. The company's consolidated cargo volumes increased by 7% to 42.33 million metric tonne (MMT) in Q1 June 2016 over Q1 June 2015. The result was announced on 9 August 2016.

Sun Pharmaceutical Industries dropped 4.81%. The company's consolidated net profit surged 265.84% to Rs 2033.71 crore on 21.29% growth in total income to Rs 8400.09 crore in Q1 June 2016 over Q1 June 2015. The strong growth in bottom line in Q1 June 2016 was due to base effect. The company's bottom line in Q1 June 2015 was adversely impacted by exceptional expense of Rs 685.17 crore. The result was announced on Friday, 12 August 2016.

Lupin dropped 5.71%. Lupin's consolidated net profit rose 55.1% to Rs 882 crore on 40% growth in net sales to Rs 4313.60 crore in Q1 June 2016 over Q1 June 2015. The result was announced on 9 August 2016.

Separately, the company announced that its US subsidiary Gavis Pharmaceuticals LLC, USA has received final approval for its Potassium Chloride Extended-Release Tablets USP, 8 mEq (600 mg) and 10 mEq (750 mg) from the United States Food and Drug Administration (USFDA). The drug is a generic equivalent of Upsher-Smith Labs' Klor-Con Extended-Release Tablets, 8 mEq and 10 mEq. It is an electrolyte replenisher indicated for the therapeutic use of patients with hypokalemia, with or without metabolic alkalosis; in digitalis intoxication; and in patients with hypokalemic familial periodic paralysis. Klor-Con Extended-Release Tablets, 8 mEq and 10 mEq had annual US sales of $101.3 million as per IMS MAT June 2016 data. The announcement was made on 10 August 2016.

ONGC (up 3.23%), Coal India (up 2.6%) and Dr Reddy's Laboratories (up 0.1%) gained.
Meanwhile, the Reserve Bank of India (RBI) kept its benchmark lending rate viz. the repo rate unchanged at 6.5% after a monetary policy review on 9 August 2016. The RBI also kept the cash reserve ratio (CRR) of scheduled banks unchanged at 4% of net demand and time liabilities (NDTL). The central bank said it will continue to provide liquidity as required and will progressively lower the average ex ante liquidity deficit in the system from 1% of NDTL to a position closer to neutrality.

The RBI said that the recent sharper-than-anticipated increase in food prices has pushed up the projected trajectory of inflation over the rest of the year. The central bank also said that the strong improvement in sowing on the back of the monsoon's steady progress, along with supply management measures, augers well for the food inflation outlook. According to the central bank, risks to the inflation target of 5% for March 2017 continue to be on the upside.

The RBI has retained the projected GVA growth projection for 2016-17 at 7.6%. According to the central bank, the risk to this projection is evenly balanced. The central bank expects the momentum of growth to be quickened by the normal monsoon raising agricultural growth and rural demand, as well as by the stimulus to consumption spending that can be expected from the disbursement of pay, pension and arrears following the implementation of the 7th CPC's award. The passage of the Goods and Services Tax (GST) Bill augurs well for the growing political consensus for economic reforms. While timely implementation of GST will be challenging, its implementation will raise returns on investment across much of the economy and also strengthen government finances over the medium-term, according to the central bank.

The RBI said that the stance of monetary policy remains accommodative and will continue to emphasise the adequate provision of liquidity. According to the central bank, easy liquidity conditions are already prompting banks to modestly transmit past policy rate cuts through their MCLRs (Marginal Cost of Funds based Lending Rate) and pro-active liquidity management should facilitate more pass-through.
Meanwhile, the government in consultation with the Reserve Bank of India (RBI) has notified consumer price inflation target of 4% with upper tolerance level of 6% and lower tolerance level of 2% to be achieved by the Reserve Bank of India (RBI). The government notified the inflation target range of 2% to 6% in the Official Gazette on Friday, 5 August 2016 and it will be valid until 31 March 2021. The inflation target is to be fixed by the central government in consultation with the RBI once in every five years. According a statement from the finance ministry, the key advantage of a range around a target is that it allows the Monetary Policy Committee (MPC) to recognise the short run trade-offs between inflation and growth but enables it to pursue the inflation target in long run over the course of business cycle. The range also accommodates data limitations, projection errors, short-run supply gaps and instability in the agriculture production, an important factor for CPI inflation, as food articles have a major weight in the CPI indices. It also allows to accommodate unanticipated short-term shocks even while nudging public inflation expectations on the centre of the range, to which the monetary policy will return the economy over the medium term, leading to transparency and predictability.

If the average inflation is more than the upper tolerance level of 4% + 2%, that is, 6%, or less than the lower tolerance level of 4% – 2%, that is 2%, for any three consecutive quarters, it would mean a failure to achieve the inflation target. Where RBI fails to meet the inflation target, in terms of the provisions of RBI Act, it shall set out a report to the Central Government stating the reasons for failure to achieve the inflation target, remedial actions proposed to be taken by RBI and an estimate of the time-period within which the inflation target shall be achieved pursuant to timely implementation of proposed remedial actions.

The government has initiated the process of shifting to a framework of Monetary Policy Committee (MPC) for deciding interest rates. RBI currently sets the rates.
Meanwhile, the amended goods and services tax (GST) constitutional amendment bill was passed by the Lok Sabha on 8 August 2016. The bill was passed by the Rajya Sabha last week. The government plans to implement the nationwide GST from 1 April 2017. The main objective of the GST is to eliminate excessive taxation. GST is a uniform indirect tax levied on goods and services across a country. The measure would harmonize 11 state and central levies into a national sales tax, reducing business transaction costs.

Meanwhile, the India Meteorological Department (IMD) in its weekly monsoon update issued on 11 August 2016, said that for the country as a whole, cumulative rainfall during this year's monsoon season was 3% above the long period average (LPA) until 10 August.

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