Sunday, February 28, 2016

THE WEEK AHEAD

Union Budget 2016-17 to dictate near term trend on the bourses


Macroeconomic data, Union Budget 2016-17, trend in global markets, investment by foreign portfolio investors (FPIs) and domestic institutional investors (DIIs), the movement of rupee against the dollar and crude oil price movement will dictate trend on the bourses in the near term.

The next major trigger for the stock market is Union Budget 2016-17, which will be unveiled in the Parliament by the finance minister Arun Jaitley on Monday, 29 February 2016. Finance Minister Arum Jaitley may provide a roadmap for rationalisation of the corporate tax exemptions in Budget. Jaitley in his last Budget had announced phased reduction in corporate taxes over four years to 25% from present 30%, and also simultaneous withdrawal of corporate tax exemptions. Investors want to see if the government is able to keep spending on areas such as building rural roads, houses and other infrastructure, without letting its fiscal deficit targets slip. In Union Budget 2015-16, Jaitley had stretched the fiscal deficit target to 3.9% of GDP for 2015-16 from the earlier 3.6% to address growth concerns. At that time, he had set fiscal deficit target at 3.5% of GDP for 2016-17.

According to news reports, the finance minister may bring in changes in the service tax regime and withdraw excise duty exemptions on some items in the Budget to set the stage for the rollout of the nationwide goods & services tax (GST). The list of exempted items under the GST will required to be pruned substantially so that it contains only essential items. This is key to keeping the GST rate low.

Meanwhile, the government may raise the rate of service tax to 16-17% to bridge the gap between the current service tax rate and proposed GST rates. Further, the Budget may rationalise exemptions available under service tax to align with the minimal proposed exemptions under GST, according to media reports.

For the banking sector, the key announcement to watch in the Union Budget 2016-17 is whether there is higher than proposed allocation of capital funds to public sector banks (PSU banks). As per Indradhanush framework for transforming PSU banks, the government has proposed capital infusion of Rs 70000 crore in PSU banks over four years through FY 2019, with Rs 25000 crore each for FY 2016 and FY 2017 and Rs 10000 crore each for FY 2018 and FY 2019. The government has already infused Rs 20000 crore in FY 2016 so far. A higher capital funds allocation would enable PSU banks to write off bad loans and meet with Basel III capital adequacy requirements. PSU banks continue to reel under a severe asset quality pressure, which worsened sharply in Q3 December 2015 after the Reserve Bank of India (RBI) advised banks to classify certain weak loan accounts as NPAs and make provision as a part of an Asset Quality Review (AQR) of the banking system.

For the IT sector, a key announcement to watch out for in Union Budget 2016-17 is whether the government restores the exemption from minimum alternate tax (MAT) on profit from exports for SEZ units. Due to removal of exemption from MAT for SEZ units in the 2011 Budget, the IT industry is struggling to utilize the MAT credit lying in balance sheet.

For the cement sector, analysts expect the government to continue its focus on infrastructure development in Union Budget 2016-17, which augurs well for cement demand. Like in the past, the cement industry continues to expect rationalization and simplification of the complicated excise duty structure on cement in the Budget. Currently excise duty on cement is levied in the form of 12.5% ad valorem plus specific duty Rs 125 per tonne with 30% abatement. Most of the varieties of cement are subjected to excise duty on the basis of the maximum retail price (MRP) printed on the bags. The cement industry also expects imposition of basic customs duty on cement imports into India to provide a level playing field to domestic cement manufacturers. Alternatively, the industry expects import duties on goods required for manufacture of cement to be abolished

The real estate industry expects the government to accord industry status to the sector in the Union Budget 2016-17. The industry status will help the sector access bank lending at lower interest rates. The realty sector also expects clarity to emerge on tax treatment of Real Estate Investment Trust (REITs), which may fast track the launch of REITs. It remains to be seen whether the government raises tax benefits on home loans. At present, the deduction available under section 24 of the Act is to a maximum limit of Rs 2 lakh on interest payment on loan taken for acquisition/construction of self-occupied house property. Additionally, exemption of up to Rs 1.50 lakh on principal payments for home loan under Section 80C of the Income Tax Act is available.

The Budget session of parliament began on 23 February 2016 and will continue till 13 May 2016 with recess from 17 March 2016 to 24 April 2016.

Auto companies will be in focus as these companies will start unveiling sales figures for February from Tuesday, 1 March 2016.

Public sector oil marketing companies (PSU OMCs) will be in action as the next review of fuel prices is due at the end of February. PSU OMCs undertake fuel price review at the middle of the month and at the month-end every month based on the trend in international oil market. Airline stocks also will be watched as PSU OMCs will review jet fuel prices on the last day of February. PSU OMCs review jet fuel prices on the last day of every month based on the average imported oil price for the month.

The results of private surveys providing indications of the strength of factory and services activity for the month of February will catch investors' attention in the coming week. Markit Economics will unveil Nikkei India Manufacturing PMI, which gauges the business activity of India's factories, for February on Tuesday, 1 March 2016. The seasonally adjusted Nikkei India Manufacturing Purchasing Managers' Index rose to 51.1 in January 2016 from 49.1 in December 2015. Markit Economics will unveil the result of a monthly survey on the performance of India's services sector for February on Thursday, 3 March 2016. The seasonally adjusted Nikkei India services purchasing managers' index hit a 19-month high at 54.3 in January 2016.

On global front, Markit Economics will unveil data on manufacturing PMIs for China, Japan, Eurozone and US among others for the month of February on Tuesday, 1 March 2016, which will indicate health of manufacturing activity in the respective regions. Markit Economics will unveil data on services PMIs for China, Japan, Eurozone and US among others for the month of February on Thursday, 3 March 2016, which will indicate the performance of services sector for the respective regions.

Saturday, February 27, 2016

THE WEEK THAT WAS

Market drops on caution ahead of Union Budget 2016-17


Key benchmark indices dropped in the week ended Friday, 26 February 2016, as investors maintained caution ahead of next week's Union Budget 2016-17. The Sensex regained psychological 23,000 level after falling below that mark during the week. The Nifty regained psychological 7,000 level after slipping below that mark during the week. The market fell in three out of five sessions of the week.

The barometer index, the S&P BSE Sensex, dropped 554.85 points or 2.34% to settle at 23,154.30, in the week ended 26 February 2016. The losses for the 50-unit Nifty 50 index were higher in percentage terms than those for the Sensex. The Nifty slipped 181 points or 2.51% to settle at 7,029.75.

The BSE Mid-Cap index lost 2.34%. The fall of this index in percentage terms was same compared with the Sensex's decline. The BSE Small-Cap index dropped 3.25%. The decline for this index was higher in percentage terms than the Sensex's decline.
With traders avoiding taking large bets ahead of the Union Budget 2016-17, key equity benchmark indices registered small gains on Monday, 22 February 2016.‭ The Sensex ‬rose 79.64 points or‭ 0.34% to settle ‬at‭ 23,788.79, its highest closing level since ‬9 ‬February ‬2016.‭

Losses for banking sector stocks and public sector companies led losses for key benchmark indices on Tuesday, 23 February 2016. The Sensex shed 378.61 points or 1.59% to settle at 23,410.18, its lowest closing level since 17 February 2016.

Caution ahead of Union Budget 2016-17 and negative cues from global markets pulled Indian stocks lower for the second straight trading session on Wednesday, 24 February 2016. The Sensex lost 321.25 points or 1.37% to settle at 23,088.93, its lowest closing level since 12 February 2016.

Banking stocks led losses for key benchmark indices on Thursday, 25 February 2016, as investors remained cautious ahead of the announcement of Budget. The Sensex fell 112.93 points or 0.49% to settle at 22,976, its lowest closing level since 11 February 2016.

Key benchmark indices edged higher on the last trading day of the week on Friday, 26 February 2016, on positive global stocks. The Sensex gained 178.30 points or 0.7% to settle at 23,154.30.

From the 30-share Sensex pack, 24 stocks fell and six rose.

Tata Steel declined 1.92%.

Coal India shed 0.38%. Substantial movement of coal takes places through the railways and there will be no change in existing freight rates on coal transport through railways, with the Railway Minister keeping freight rates unchanged in the Rail Budget 2016-17 announced on 25 February 2016.

Meanwhile, there is wide expectation of further increase in clean energy cess on coal in Union Budget 2016-17 as the government intends to encourage renewable energy generation. It may be recalled that in Union Budget 2015-16, the government had raised the clean energy cess on coal to Rs 200 per tonne from Rs 100 per tonne.
Bank stocks declined. HDFC Bank (down 2.85%), ICICI Bank (down 6.9%), Axis Bank (down 1.64%), and State Bank of India (SBI) (down 5.1%) dropped.

The key announcement to watch in the Union Budget 2016-17 is whether there is higher than proposed allocation of capital funds to public sector banks (PSU banks). A higher capital funds allocation would enable PSU banks to write off bad loans and meet with Basel III capital adequacy requirements. PSU banks continue to reel under a severe asset quality pressure, which worsened sharply in Q3 December 2015 after the Reserve Bank of India (RBI) advised banks to classify certain weak loan accounts as NPAs and make provision as a part of an Asset Quality Review (AQR) of the banking system.

Among pharma stocks, Sun Pharmaceutical Industries (up 0.85%) and Cipla (up 0.13%) gained. Dr Reddy's Laboratories declined 2.28%.

Auto stocks dropped. Tata Motors (down 4.82%), Mahindra & Mahindra (M&M) (down 0.09%), Maruti Suzuki India (down 4.8%), Bajaj Auto (down 8.96%), and Hero MotoCorp (down 5.36%) declined.

The commercial vehicles industry is seeking announcement in the Union Budget 2016-17 on scrappage policy that would provide incentive for replacing old commercial vehicles with new vehicles. This would be positive for commercial vehicles manufacturers, as it will result in spurt in demand for commercial vehicles.
IT stocks declined. TCS (down 4.55%) and Infosys (down 0.4%) dropped.

Wipro slipped 2.88%. The company announced after market hours on 25 February 2016, that it has collaborated with Wind River to showcase carrier grade cloud technologies.

For the IT sector, a key announcement to watch in Union Budget 2016-17 is whether the government restores the exemption from minimum alternate tax (MAT) on profit from exports for SEZ units. Due to removal of exemption from MAT for SEZ units in the 2011 Budget, the IT industry is struggling to utilize the MAT credit lying in balance sheet.

Bharat Heavy Electricals (Bhel) (down 6.67%), GAIL (India) (down 6.87%) and L&T (down 3.52%) were among the other losers from the Sensex pack.

Index heavyweight and cigarette major ITC dropped 4.54% on concerns that the government may hike tax on all tobacco products in the Union Budget 2016-17 by upto 40%. Reports suggested that tobacco products may again attract higher taxes in the upcoming Union Budget 2016-17 to be presented on Monday, 29 February 2016. Highlighting a discrepancy between the existing tobacco prices and rising income levels, the health ministry along with the World Health Organisation (WHO) and other public health groups have proposed a hike in taxes of up to 40% for all tobacco products, as per reports.

NTPC dropped 6.29% to Rs 121.35 after Government of India set the floor price for divestment of its stake in the state-run firm through the stock exchanges mechanism at a discount to the ruling market price. The offer for sale (OFS) for divestment of up to 5% Government of India (GoI) stake in the state-run firm received strong response from institutional investors. However, the OFS got poor response from retail investors.

Meanwhile, the Economic Survey 2015-16 tabled in Parliament by Finance Minister Arun Jaitley on Friday, 25 February 2016, set a wider range of 7% to 7.75% for projected GDP growth for 2016-17, with downside risks because of global economic slowdown. The annual document prepared by finance ministry's chief economic adviser Arvind Subramanian states that the country's macro-economy is stable, founded on the government's commitment to fiscal consolidation and low inflation. Major public investment has been undertaken to strengthen the country's infrastructure. The survey has expressed concern over approval of GST Bill being elusive so far and the disinvestment programme falling short of targets. The survey states that corporate and bank balance sheets remain stressed affecting the prospects for reviving private investments. The survey cautions that if the world economy remains weak, India's growth will face considerable headwinds.

The survey states that the fiscal deficit target of 3.9% of GDP for the year 2015-16 seems achievable. However, the coming year is expected to be a challenging one from the fiscal point of view as the implementation of the Pay Commission recommendations and the One Rank One Pay (OROP) scheme will put additional burden on expenditure. The survey states that the government should retain its previously stated 3.5% fiscal deficit target for 2016-17. At the same time, the survey states that the time is ripe for a review of the medium term fiscal framework. It states that a medium-term perspective to expenditure planning is necessary.

The survey states that due to the government's commitment to carry the reform process forward, conditions do exist for raising the economy's growth momentum to 8% or more in the next couple of years. The survey underlines that despite global headwinds and a truant monsoon, India registered 7.2% growth in 2014-15 and 7.6% in 2015-16, thus becoming the fastest growing major economy in the world.

Meanwhile, Railway Minister Suresh Prabhu kept freight rate and passenger fare unchanged in the Railway Budget for 2016-17 presented in the Lok Sabha on Thursday, 25 February 2015. The Railways will undertake a review of the existing freight tariff policy so as to evolve a competitive rate structure vis a vis other modes of transport. Prabhu also said that Indian Railways will increase the revenue through non-fare sources. The current revenue through non-fare sources is less than 5% and it will be increased to world average of 10% by next five years. Prabhu has proposed a plan size of Rs 1.21 lakh crore for the Railways for FY 2017. The focus is on enhanced capital expenditure with a mix of various sources of funding in order to ensure that the projects are given assured funding.

The Railways Minster announced three more dedicated freight corridors (DFCs) in the Budget. The Railways has proposed to increase the electrification budget of railways by 50% in FY 2017. The Railways will seek services of private parties in non-operational areas such as cleaning, facility management etc.

THE END SESSION ( 26 / 02 )

Benchmark indices snap 3-day losing streak


Positive lead from global markets helped Indian stocks snap a 3-day losing streak. The barometer index, the S&P BSE Sensex, gained 178.30 points or 0.78% to settle at 23,154.30. The 50-unit Nifty 50 index gained 59.15 points or 0.85% to settle at 7,029.75. The Sensex reclaimed the psychologically important 23,000 mark and the Nifty reclaimed the psychological 7,000 mark. Key benchmark indices remained in positive zone throughout the day. Meanwhile, the Economic Survey 2015-16 tabled in Parliament by Finance Minister Arun Jaitley set a wider range of 7% to 7.75% for projected GDP growth for 2016-17, with downside risks because of global economic slowdown.

ITC edged higher, with the stock recovering on bargain hunting after recent slide triggered by concerns that the government may hike tax on all tobacco products in the upcoming Union Budget by upto 40%. Coal India moved higher, with the stock extending gains registered during the previous trading session triggered by the Railway Minister keeping freight rates unchanged in the Rail Budget for 2016-17.
Shares of private sector bank stocks rose and state-run banks saw mixed trend after the Reserve Bank of India (RBI) announced changes and issued clarification on some aspects of its prudential guidelines on revitalising stressed assets in the economy. Shares of oil exploration and production (E&P) companies edged higher as crude oil prices rose.

In overseas markets, Asian and European stocks rose as a two-day gathering of G20 finance ministers and central bankers kicked off in Shanghai to discuss global growth concerns. Trading in US index futures indicated that the Dow Jones Industrial Average could gain 128 points at the opening bell. US markets closed higher yesterday, 25 February 2016, as oil prices rose.

The Sensex gained 178.30 points or 0.78% to settle at 23,154.30, its highest closing level since 23 February 2016. The Sensex jumped 251.91 points or 1.09% at the day's high of 23,227.91. The barometer index rose 45.94 points or 0.19% at the day's low of 23,021.94 .

The 50-unit Nifty 50 index gained 59.15 points or 0.85% to settle at 7,029.75, its highest closing level since 23 February 2016. The Nifty jumped 82.30 points or 1.18% at the day's high of 7,052.90 . The index rose 14.50 points or 0.2% at the day's low of 6,985.10.

The market breadth indicating the overall health of the market was negative. On BSE, 1,443 shares declined and 1,041 shares gained. A total of 170 shares were unchanged. The BSE Mid-Cap index rose 0.3%. The BSE Small-Cap index fell 0.45%. Both these indices underperformed the Sensex.

The total turnover on BSE amounted to Rs 1914 crore, lower than turnover of Rs 2319.38 crore registered during the previous trading session.

Among the sectoral indices on BSE, the S&P BSE Metal index (up 1.66%), the S&P BSE Bankex (up 1.51%), the S&P BSE Realty index (up 1.47%), the S&P BSE Finance index (up 1.27%), the S&P BSE Capital Goods index (up 1.12%), the S&P BSE FMCG index (up 1.06%), the S&P BSE Power index (up 0.87%), the S&P BSE Energy index (up 0.85%) and the S&P BSE Utilities index (up 0.83%), outperformed the Sensex. The S&P BSE Industrials index (up 0.52%), the S&P BSE IT index (up 0.48%), the S&P BSE Teck index (up 0.34%), the S&P BSE Oil & Gas index (up 0.27%), the S&P BSE Auto index (down 0.08%), the S&P BSE Consumer Durables index (down 0.16%), the S&P BSE Consumer Discretionary Goods & Services index (down 0.23%), the S&P BSE Basic Materials index (down 0.24%), the S&P BSE Healthcare index (down 0.31%) and the S&P BSE Telecom index (down 0.68%), underperformed the Sensex.

Index heavyweight and housing finance major HDFC advanced 1.45% to Rs 1,057. The stock hit high of Rs 1,058.80 and low of Rs 1,048.50 in intraday trade.

Index heavyweight and software major Infosys advanced 0.98% to Rs 1,122.15. The stock hit high of Rs 1,130.75 and low of Rs 1,113 in intraday trade.

ITC rose 1.76% to Rs 291.25, with the stock recovering on bargain hunting after recent slide triggered by concerns that the government may hike tax on all tobacco products in the upcoming Union Budget by upto 40%. Shares of ITC had fallen 6.14% in the preceding five trading sessions to settle at Rs 286.20 yesterday, 25 February 2016, from its close of Rs 304.95 on 18 February 2016. Highlighting a discrepancy between the existing tobacco prices and rising income levels, the health ministry along with the World Health Organisation (WHO) and other public health groups have proposed a hike in taxes of up to 40% for all tobacco products, as per reports.

Metal and mining stocks were mixed. Hindalco Industries (up 3.42%), National Aluminium Company (up 1.22%) rose. Hindustan Zinc fell 0.43%. Hindustan Copper was unchanged at Rs 43.45. Steel stocks were mixed. Tata Steel (up 0.28%) and Steel Authority of India (Sail) (up 0.87%) rose. JSW Steel (down 2.21%) and Jindal Steel & Power (down 2.21%) fell.

In view of dumping of steel into India from China, South Korea and Japan, the steel industry expects increase in customs duty to 25% on both long steel products and flat products in Union Budget 2016-17. At present, import duty on long steel products is 10% and that on flat products is 12.5%. Earlier this month, the government imposed a minimum import price (MIP) or floor price on 173 steel products ranging from $341 to $752 per tonne in a bid to protect the domestic steel industry from cheap imports.

The steel industry also expects withdrawal of the 2.5% customs duty on coking coal in the Budget, which will help reduce input cost for steel makers.

Iron ore makers were mixed. Vedanta rose 3.38%. NMDC lost 1.3%. Given the decline in India's iron ore production, the steel industry expects withdrawal of the 2.5% customs duty on iron ore. Iron ore is the primary raw material for steel making.

Coal India advanced 4.37% to Rs 312.60, with the stock extending gains registered during the previous trading session triggered by the Railway Minister keeping freight rates unchanged in the Rail Budget for 2016-17. The stock had risen 1.32% to settle at Rs 299.50 yesterday, 25 February 2016. Substantial movement of coal takes places through the railways and there will be no change in existing freight rates on coal transport through railways, with the Railway Minister keeping freight rates unchanged in the Rail Budget 2016-17 announced yesterday, 25 February 2016.
Meanwhile, there is wide expectation of further increase in clean energy cess on coal in Union Budget 2016-17 as the government intends to encourage renewable energy generation. It may be recalled that in Union Budget 2015-16, the government had raised the clean energy cess on coal to Rs 200 per tonne from Rs 100 per tonne.
Most auto stocks declined. Maruti Suzuki India (down 0.1%), Ashok Leyland (down 0.47%), Eicher Motors (down 0.24%), Bajaj Auto (down 3.52%), Hero MotoCorp (down 2.41%) and TVS Motor Company (down 1.31%) declined. Tata Motors (up 1.58%) and Mahindra & Mahindra (M&M) (up 1.01%), gained.

The commercial vehicles industry is seeking announcement in the Union Budget 2016-17 on scrappage policy that would provide incentive for replacing old commercial vehicles with new vehicles. This would be positive for commercial vehicles manufacturers, as it will result in spurt in demand for commercial vehicles.
Telecom stocks declined. Bharti Airtel (down 1.52%), Idea Cellular (down 1.13%), Tata Teleservices (Maharashtra) (down 2.65%) and Reliance Communications (down 1.93%) fell. MTNL rose 1.79%.

Shares of private sector bank stocks rose and state-run banks saw mixed trend after the Reserve Bank of India (RBI) announced changes and issued clarification on some aspects of its prudential guidelines on revitalising stressed assets in the economy. Among private sector banks, HDFC Bank (up 1.63%), Kotak Mahindra Bank (up 1.32%), ICICI Bank (up 0.71%), Axis Bank (up 1.9%), IndusInd Bank (up 0.64%) and Yes Bank (up 1.88%) gained.

Among public sector banks, State Bank of India (SBI) (up 3.36%), Bank of Baroda (up 1.73%), Punjab National Bank (up 0.56%), Canara Bank (up 0.62%), Bank of India (up 0.24%) rose. Union Bank of India (down 4.32%), Indian Overseas Bank (down 0.62%), Vijaya Bank (down 0.49%) and IDBI Bank (down 0.89%) fell.

The Reserve Bank of India (RBI) has announced reduction in the minimum percentage of shareholding to be initially divested by the lenders in case of Strategic Debt Restructuring (SDR). The central bank has also directed lenders to build up adequate provisions for possible loss in value of the equity acquired in lieu of debt and residual loan exposures. On the issue of divestment of banks' holding in favour of a new promoter in case where SDR has been initiated, the asset classification benefit will be available to the lenders provided they divest a minimum of 26% of the shares of the company to the new promoters within the stipulated time line of 18 months and the new promoters take over management control of the company. 

Lenders would, thus, have the option to exit their remaining holdings gradually, with upside as the company turns around. Lenders should, however, grant the new promoters the 'Right of First Refusal' for the subsequent divestment of their remaining stake, the RBI said. The RBI introduced SDR scheme for lenders for reviving stressed accounts and providing banks with enhanced capabilities to initiate change of ownership in accounts which fail to achieve the agreed critical conditions and viability milestones.

The RBI has also directed banks to periodically value and provide for depreciation of equity shares acquired and held by banks under the SDR scheme as per Income Recognition and Asset Classification (IRAC) norms for investment portfolio. Banks will have the option of distributing the depreciation on equity shares acquired under SDR over a maximum of four calendar quarters from the date of conversion of debt into equity. Furthermore, banks desiring to have a longer period for making provisions, say 6 quarters, can start making ex-ante provisions in anticipation of marked to market (MTM) requirement, from the reference date itself.

The RBI has also directed banks to build provisions on residual loan exposures in case of SDR such that, by the end of the 18-month period from the reference date, they hold provision of at least 15% of the residual loan. The required provision will have to be made in equal installments over four quarters. This provision can be reversed only when all the outstanding loans/facilities in the account perform satisfactorily after transfer of ownership/management control to new promoters.

With regard to the Framework to Revitalise the Distressed Assets in the Economy, the RBI has announced a reduction in the percentage of lenders, by number, required to approve the Corrective Action Plan (CAP). The RBI has also revised composition of the Joint Lenders' Forum Empowered Group (JLF-EG) for enhancing the quality of decision making. The central bank has also announced a scheme of incentives for adherence to timelines for decision-making by JLF members to facilitate timely implementation of the CAP.

The RBI has also allowed restructuring and benefits of asset classification in cases of borrower accounts, which were involved in fraud where the promoters have been subsequently replaced by new promoters and the borrower is totally delinked from the erstwhile promoters. The RBI has also clarified that flexible structuring of project loans is also permitted for ECBs

Meanwhile, the key announcement to watch in the Union Budget 2016-17 is whether there is higher than proposed allocation of capital funds to public sector banks (PSU banks). As per Indradhanush framework for transforming PSU banks, the government has proposed capital infusion of Rs 70000 crore in PSU banks over four years through FY 2019, with Rs 25000 crore each for FY 2016 and FY 2017 and Rs 10000 crore each for FY 2018 and FY 2019. The government has already infused Rs 20000 crore in FY 2016 so far. A higher capital funds allocation would enable PSU banks to write off bad loans and meet with Basel III capital adequacy requirements. PSU banks continue to reel under a severe asset quality pressure, which worsened sharply in Q3 December 2015 after the Reserve Bank of India (RBI) advised banks to classify certain weak loan accounts as NPAs and make provision as a part of an Asset Quality Review (AQR) of the banking system.

Shares of oil exploration and production (E&P) companies edged higher as crude oil prices rose. Cairn India (up 2.82%), Reliance Industries (up 0.7%), ONGC (up 0.14%) and Oil India (up 0.61%) edged higher. Higher crude oil prices will result in higher realizations from crude sales for oil exploration firms.

In the global commodities markets, Brent for April settlement was currently up 63 cents at $35.92 a barrel. The contract had risen 88 cents, or 2.56% to settle at $35.29 a barrel during the previous trading session.

In the backdrop of a sharp fall in global crude oil prices during the past two years, companies involved in oil exploration and production expect relaxation on rate of cess on crude oil in the Union Budget 2016-17. The industry expects the levy to be made on ad-valorem basis on realized price on crude from the current specific levy of Rs 4,500 per metric tonne (MT). The industry also expects withdrawal of National Calamity Contingent Duty of Excise of Rs 50 per MT on crude oil. The upstream oil and gas sector also expects reduction/removal of the 5% customs duty on liquefied natural gas in order to provide a boost to the usage of cleaner fuel.

Stocks of public sector oil marketing companies (PSU OMCs) rose. HPCL (up 2.41%) and BPCL (up 0.92%) gained. Indian Oil Corporation shed 0.14%.

UltraTech Cement shed 0.63%. Jaiprakash Associates (JAL) fell 1.03%. UltraTech Cement after market hours today, 26 February 2016, announced withdrawal of Scheme of Arrangement between the company and JAL for the acquisition of JAL's entire cement business situated at Bela and Siddhi in Madhya Pradesh as a going concern on slump sale basis.

Meanwhile, the Economic Survey 2015-16 prepared by finance ministry's chief economic adviser Arvind Subramanian stated that the country's macro-economy is stable, founded on the government's commitment to fiscal consolidation and low inflation. Major public investment has been undertaken to strengthen the country's infrastructure. But the survey has expressed concern over approval of GST Bill being elusive so far and the disinvestment programme falling short of targets. The survey states that corporate and bank balance sheets remain stressed affecting the prospects for reviving private investments. The survey cautions that if the world economy remains weak, India's growth will face considerable headwinds.

The survey states that the fiscal deficit target of 3.9% of GDP for the year 2015-16 seems achievable. However, the coming year is expected to be a challenging one from the fiscal point of view as the implementation of the Pay Commission recommendations and the One Rank One Pay (OROP) scheme will put additional burden on expenditure. The survey states that the government should retain its previously stated 3.5% fiscal deficit target for 2016-17. At the same time, the survey states that the time is ripe for a review of the medium term fiscal framework. It states that a medium-term perspective to expenditure planning is necessary.

The survey states that due to the government's commitment to carry the reform process forward, conditions do exist for raising the economy's growth momentum to 8% or more in the next couple of years. The survey underlines that despite global headwinds and a truant monsoon, India registered 7.2% growth in 2014-15 and 7.6% in 2015-16, thus becoming the fastest growing major economy in the world.

The Economic Survey 2015-16 comes ahead of the presentation of Union Budget 2016-17 early next week. Finance Minister Arun Jaitley may provide a roadmap for rationalisation of the corporate tax exemptions when he presents the Budget in parliament on 29 February 2016. Jaitley in his last Budget had announced phased reduction in corporate taxes over four years to 25% from present 30%, and also simultaneous withdrawal of corporate tax exemptions.

The Sensex and the Nifty today, 26 February 2016, snapped their three-day falling trend. The Sensex had lost 812.79 points or 3.41% in the preceding three trading sessions from its close of 23,788.79 on 22 February 2016.

Tuesday, February 23, 2016

THE END SESSION ( 23 / 02 )

Sensex, Nifty hit lowest closing level in almost a week


Losses for banking sector stocks and public sector companies led losses for key benchmark indices. The barometer index, the S&P BSE Sensex, shed 378.61 points or 1.59% to settle at 23,410.18. The losses for the 50-unit Nifty 50 index were higher in percentage terms than those for the Sensex. The Nifty fell 125 points or 1.73% to settle at 7,109.55. The Sensex and the Nifty extended losses in late trade. The Sensex and the Nifty, both, hit their lowest closing level in almost a week. The two key benchmark indices snapped a four-day winning streak.

The broad market depicted weakness. More than two stocks declined for each stock that rose on BSE. 1,888 shares declined and 713 shares gained. A total of 150 shares were unchanged. The BSE Mid-Cap index shed 1.47%. The BSE Small-Cap index dropped 1.25%. The fall in both these indices was lower than the Sensex's decline in percentage terms. All the nineteen sectoral indices on BSE registered losses.

The Sensex shed 378.61 points or 1.59% to settle at 23,410.18, its lowest closing level since 17 February 2016. The index lost 426.85 points or 1.79% at the day's low of 23,361.94. The index rose 62.72 points or 0.26% at the day's high of 23,851.51.

The Nifty fell 125 points or 1.73% to settle at 7,109.55, its lowest closing level since 17 February 2016. The index fell 143.85 points or 1.98% at the day's low of 7,090.70. The index rose 7.15 points or 0.09% at the day's high of 7,241.70.

Among the nineteen sectoral indices on BSE were in the red. The S&P BSE Metal index (down 1.75%), the S&P BSE Capital Goods index (down 1.7%), the S&P BSE Realty index (down 2.49%), the S&P BSE Basic Materials index (down 1.6%), the S&P BSE Energy index (down 1.89%), the S&P BSE Oil & Gas index (down 1.87%), the S&P BSE Bankex (down 2.82%), the S&P BSE Power index (down 1.67%), the S&P BSE Finance index (down 2.19%), and the S&P BSE Consumer Durables index (down 1.64%) underperformed the Sensex. The S&P BSE Industrials index (down 1.23%), the S&P BSE Auto index (down 1.43%), the S&P BSE Healthcare index (down 1.09%), the S&P BSE FMCG index (down 1.52%), the S&P BSE Telecom index (down 1.56%), the S&P BSE Consumer Discretionary Goods & Services index (down 1.42%), the S&P BSE Utilities index (down 1.44%), the S&P BSE IT index (down 0.81%), and the S&P BSE Teck index (down 0.92%) outperformed the Sensex.

The total turnover on BSE amounted to Rs 2583 crore, higher than turnover of Rs 1928.99 crore registered during the previous trading session.

All eyes are now on Union Budget 2016-17 to be announced on 29 February 2016. Finance Minister Arum Jaitley may provide a roadmap for rationalisation of the corporate tax exemptions in Budget. Jaitley in his last Budget had announced phased reduction in corporate taxes over four years to 25% from present 30%, and also simultaneous withdrawal of corporate tax exemptions.

TCS declined 2.12%. The company announced after market hours today, 23 February 2016, that it has been selected by Element Financial Corporation, one of North America's leading fleet management companies, to help it significantly evolve its fleet management technology platforms and user experience.

Wipro shed 0.61%. Wipro announced a partnership with SugarCRM to offer customer relationship management (CRM) solutions to its enterprise customers. The company made the announcement after market hours today, 23 February 2016.

FMCG stocks declined. Hindustan Unilever (down 2.9%), Colgate-Palmolive (India) (down 0.74%), Dabur India (down 4.42%), Godrej Consumer Products (down 1.27%), Marico (down 2.12%), Nestle India (down 1.69%), Tata Global Beverages (down 1.92%), Jyothy Laboratories (down 0.63%) fell. Bajaj Corp (up 0.07%), Britannia Industries (up 0.06%) and Procter & Gamble Hygiene and Health Care (up 0.18%) rose.

GlaxoSmithkline Consumer Healthcare was unchanged at Rs 5,630.

The government may significantly raise food subsidies and spends on MGNREGA in the Union Budget 2016-17. Any increase in rural spending/infrastructure spending/tax exemption, which can put money in hands of consumers, will indirectly benefit FMCG sector. In the previous Budget, it was announced that there would be a reduction in corporate tax rate over the next four years from 30% to 25%, which is a positive for consumer companies paying close to peak tax of income tax.

NTPC fell 2.33% to Rs 123.90 after Government of India set the floor price for divestment of up to 5% stake stake in the state-run firm through the stock exchanges mechanism at a discount to the ruling market price. The Offer for Sale (OFS) received strong response from institutional investors. As per BSE data, bids from non-retail investors were received for a total of 59.62 crore shares at an indicative prices of Rs 122.22 per share. A total of 32.98 crore shares have been reserved for this category of investors. GoI is selling up to 41.22 crore equity shares, constituting 5% of the total paid up equity share capital of the company, through Offer for Sale (OFS) via the stock exchanges mechanism. The floor price of Rs 122 per share for the OFS was set at a discount of 3.82% to the stock's closing price of Rs 126.85 on BSE yesterday, 22 February 2016.

Bidding for the shares in the OFS for non-retail investors concluded in a single trading session called 'T' day today, 23 February 2016. However, those non-retail investors who have placed their bids on T day and have chosen to carry forward their bids to T+1 day will be allowed to revise their bids on T+1 day. Bidding by retail investors will take place in a single trading session called T+1 day tomorrow, 24 February 2016. A total of 8.24 crore shares have been reserved for retail investors. Retail investors will be allocated offer shares at a discount of 5% to the cut-off price.
GoI currently holds 74.96% stake in NTPC (as per shareholding pattern as on 31 December 2015).

Separately, NTPC announced after market hours today, 23 February 2016, that it has launched issue of $500 million fixed rate unsecured notes due 2026. The notes carry a coupon rate of 4.25% per annum payable semi-annually, with tenor of 10 years. The notes are expected to be settled by 26 February 2016. The proceeds of the issue will be used for capital expenditure of ongoing and/or new power projects, coal mining projects and renovation and modernisation of power stations.

Many PSU stocks were in the red. Bharat Heavy Electricals (Bhel) (down 2.72%), Coal India (down 4.06%), GAIL (India) (down 1.77%), PowerGrid Corporation of India (down 1.83%) and Bharat Electronics (down 3.58%) declined.

Shares of public sector oil marketing companies fell amid concerns that government may impose customs duty on crude oil imports in the forthcoming Union Budget 2016-17. BPCL fell 3.03%.

Indian Oil Corporation dropped 4.04% to Rs 363.10 after the stock turned ex-dividend today, 23 February 2016, for interim dividend of Rs 5.50 per share for the year ending 31 March 2016 (FY 2016).

HPCL fell 4.87%. HPCL announced after market hours yesterday, 22 February 2016, that global credit rating agency Moody's Investors Service (Moody's) has assigned a first time Baa3 issuer rating to the company. The outlook for the rating is positive.
Reports suggested that the government may look at reimposing 5% customs duty on crude oil imports in the upcoming Budget 2016-17 in the wake of recent sharp slump in global crude oil prices. The government had cut customs duty on crude oil imports from 5% to zero in June 2011 when global crude oil prices had shot up to around $100 a barrel.

The government maintains a 2.5% import duty differential between crude oil and petroleum products, petrol and diesel, to protect the domestic industry. Currently, while crude oil attracts nil import duty, the levy on petrol and diesel stands at 2.5%. A 5% import duty likely to be imposed on crude in this year's Budget could, therefore, be accompanied by an increase in petrol and diesel import duty to 7.5%.

Meanwhile, a surge in crude oil prices overnight also weighed on PSU OMCs. Higher crude oil prices could increase under-recoveries of PSU OMCs on domestic sale of LPG and kerosene at controlled prices. The government has already freed pricing of petrol and diesel.

Brent for April settlement was currently down 39 cents at $34.30 a barrel. The contract had gained $1.68 a barrel or 5.09% to settle at $34.69 a barrel during the previous trading session. Crude prices surged overnight after the International Energy Agency said it expects US shale-oil production to fall by 600,000 barrels a day in 2016.

Shares of most oil exploration and production companies dropped. Oil India dropped 0.31%. ONGC rose 0.02%.

Index heavyweight Reliance Industries (RIL) lost 2.02% to Rs 943.05. The stock hit high of Rs 966.90 and low of Rs 943.05 in intraday trade.

Cairn India (down 4.36%), Vedanta (down 1.82%) and Punjab National Bank (down 4.03%) edged lower as these stocks will be excluded from the Nifty index with effect from 1 April 2016. Aurobindo Pharma shed 0.37%. Bharti Infratel (up 0.69%), Eicher Motors (up 0.04%) and Tata Motors' Differential Voting Rights (DVR) (up 1.82%) edged higher. Aurobindo Pharma, Bharti Infratel, Eicher Motors will be included in Nifty index with effect from 1 April 2016.

Index heavyweight and cigarette major ITC lost 1.77% to Rs 294.30, with the stock extending losses registered during the previous trading session triggered by concerns that the government may hike tax on all tobacco products in the Union Budget 2016-17 by upto 40%. The stock declined 1.72% to settle at Rs 299.60 yesterday, 22 February 2016. Reports suggested that tobacco products may again attract higher taxes in the upcoming Union Budget 2016-17 to be presented on Monday, 29 February 2016. Highlighting a discrepancy between the existing tobacco prices and rising income levels, the health ministry along with the World Health Organisation (WHO) and other public health groups have proposed a hike in taxes of up to 40% for all tobacco products, as per reports.

Bank stocks saw across the board slide. Among private bank stocks, HDFC Bank (down 2.12%), Kotak Mahindra Bank (down 2.92%), ICICI Bank (down 3.2%), Axis Bank (down 3.02%), IndusInd Bank (down 1.18%) and Yes Bank (down 3.77%) declined.

Among PSU bank stocks, State Bank of India (SBI) (down 3.94%), Bank of Baroda (down 4.66%), Canara Bank (down 3.12%), IDBI Bank (down 2.02%), Bank of India (down 2.42%) and Union Bank of India (down 3.5%) dropped.

For the banking sector, the key announcement to watch in the Union Budget 2016-17 is whether there is higher than proposed allocation of capital funds to public sector banks (PSU banks). As per Indradhanush framework for transforming PSU banks, the government has proposed capital infusion of Rs 70000 crore in PSU banks over four years through FY 2019, with Rs 25000 crore each for FY 2016 and FY 2017 and Rs 10000 crore each for FY 2018 and FY 2019. The government has already infused Rs 20000 crore in FY 2016 so far. A higher capital funds allocation would enable PSU banks to write off bad loans and meet with Basel III capital adequacy requirements. PSU banks continue to reel under a severe asset quality pressure, which worsened sharply in Q3 December 2015 after the Reserve Bank of India (RBI) advised banks to classify certain weak loan accounts as NPAs and make provision as a part of an Asset Quality Review (AQR) of the banking system.

Vijaya Bank slipped 0.96%. The bank announced after market hours yesterday, 22 February 2016, that it has decided to raise additional Tier-I bonds (Series III) amounting to Rs 500 crore.

In overseas stock markets, European stocks declined as crude oil prices dropped after a sharp surge overnight. Earlier during the global day, Asian markets ended on a mixed note. US stocks edged higher yesterday, 22 February 2016, as a surge in the price of oil lifted energy stocks.

The Sensex and the Nifty snapped a four-day winning streak. The Sensex had risen 600.82 points or 2.59% in the preceding four trading sessions to settle at 23,788.79 yesterday, 22 February 2016, from its close of 23,191.97 on 16 February 2016. The barometer index has fallen 1,459.51 points or 5.86% in this month so far (till 23 February 2016). The Sensex has fallen 2,707.36 points or 10.36% in calendar year 2016 so far (till 23 February 2016). From a 52-week low of 22,600.39 on 12 February 2016, the Sensex has risen 812.79 points or 3.59%. The Sensex is off 6,612.56 points or 22.02% from a record high of 30,024.74 hit on 4 March 2015.

Meanwhile, the summary released by the Reserve Bank of India (RBI) on RBI's consultation with external members of the Technical Advisory Committee (TAC) on monetary policy showed that the RBI governor went with a majority view in keeping the benchmark lending rate viz. the repo rate unchanged at 2 February 2016 monetary policy review. Four out of five members of the TAC recommended status quo on interest rates due to high services sector inflation and elevated inflationary expectations. They also felt the need to watch the impact of the pay commission recommendations on the evolution of headline and core inflation in the medium term. The majority of the members of the TAC were of the view that the RBI should assess supply-side measures and fiscal consolidation efforts in the Union Budget 2016-17 before making a move to cut policy rates. The members were of the view that the real policy rate is slightly below the neutral rate, suggesting that policy is currently accommodative, rather than neutral. One of these four members of the TAC was of the view that given the continuing weakness in the domestic economic recovery and the growing signs of further weakness in the international economy, consideration may be given to an out-of-cycle policy rate reduction, synchronized with the Union Budget. This could act as confidence booster on the flagging domestic private investment. The fifth member recommended a policy repo rate reduction by 50 basis points.

While retaining accommodative stance of the monetary policy, RBI Governor Raghuram Rajan said in his 2 February 2016 monetary policy statement that structural reforms in the Union Budget 2016-17 that boost growth while controlling spending will create more space for monetary policy to support growth.

THE END SESSION ( 22 / 02 )

Market gains for fourth day in a row


With traders avoiding taking large bets ahead of the Union Budget 2016-17, key equity benchmark indices registered small gains.‭ The barometer index,‭ ‬the S&P BSE Sensex,‭ ‬rose 79.64 points or‭ 0.34% to settle ‬at‭ 23,788.79.‭ The 50-unit Nifty 50 index gained 23.80 or 0.33% to settle at 7,234.55. Positive cues from global markets helped Indian stocks register small gains. With small gains, the Sensex and the Nifty, both, hit their closing highest level in almost two weeks. ‬The two key benchmark indices edged higher for the fourth straight trading session.

Pharma stocks gained as the rupee edged lower against the dollar. Oriental Bank of Commerce dropped after credit rating agency ICRA revised the ratings on bank's outstanding Tier 1/Tier 2 bonds, citing sharp deterioration in asset quality indicators of the bank. Shares of public sector oil marketing companies (PSU OMCs) rose after a fall in crude oil prices during the previous trading session.

Index heavyweight and cigarette major ITC dropped on reports suggesting that tobacco products may again attract higher taxes in the upcoming Union Budget 2016-17. Maruti Suzuki India edged lower after the company announced temporary suspension of production at its facilities in Manesar and Gurgaon due to the ongoing agitation by the Jat community in Haryana for job reservation.

The Sensex ‬rose 79.64 points or‭ 0.34% to settle ‬at‭ 23,788.79, its highest closing level since‭ ‬9‭ ‬February ‬2016.‭ The index rose ‬145.89‭ ‬points or‭ ‬0.61%‭ ‬at the day's high of‭ ‬23,855.04‭.‭ ‬The index fell ‬34.29‭ ‬points or‭ ‬0.14%‭ ‬at the day's low of ‬23,674.86.

The Nifty gained 23.80 or 0.33% to settle at 7,234.55, its highest closing level since‭ ‬9‭ ‬February ‬2016. The index rose 41.65 points or 0.57% at the day's high of 7,252.40. The index fell 10.05 points or 0.13% at the day's high of 7,200.70.

The market breadth indicating the overall health of the market was positive.‭ ‬On BSE,‭ 1,390 shares gained and‭ ‬1,158 shares declined.‭ ‬A total of‭ 153 ‬shares were unchanged.‭ ‬The BSE Mid-Cap index rose 0.75‬%.‭ ‬The BSE Small-Cap index gained 0.46‬%. Both these indices outperformed the Sensex.

Among the sectoral indices on BSE, the S&P BSE Metal index (up 0.56%), the S&P BSE Capital Goods index (up 0.35%), the S&P BSE Realty index (up 0.71%), the S&P BSE Industrials index (up 0.43%), the S&P BSE Basic Materials index (up 0.88%), the S&P BSE Energy index (up 1.39%), the S&P BSE Auto index (up 0.39%), the S&P BSE Oil & Gas index (up 0.97%), the S&P BSE Bankex (up 0.49%), the S&P BSE Healthcare index (up 1.1%), the S&P BSE FMCG index (up 0.48%), the S&P BSE Telecom index (up 0.88%), and the S&P BSE Consumer Discretionary Goods & Services index (up 0.55%) outperformed the Sensex. The S&P BSE Power index (down 0.33%), the S&P BSE Finance index (up 0.21%), the S&P BSE Utilities index (down 0.65%), the S&P BSE IT index (down 0.27%), the S&P BSE Consumer Durables index (up 0.3%), and the S&P BSE Teck index (down 0.04%) underperformed the Sensex.

In overseas stock markets,‭ ‬European stocks logged strong gains,‭ ‬tracking their Asian counterparts.‭ ‬Trading in US stock index futures indicated gains for US stocks at the opening bell today,‭ ‬22‭ ‬February‭ ‬2016.‭ ‬Trading in US index futures indicated that the Dow Jones Industrial Average could jump 188 points at the opening bell.‭ ‬Earlier during the global day, Chinese stocks led gains in Asian stocks as investors welcomed news over the weekend that the head of the securities regulator was being replaced.‭ ‬In mainland China,‭ ‬the Shanghai Composite index settled‭ ‬2.35%‭ ‬higher.‭ ‬In Hong Kong,‭ ‬the Hang Seng index ended ‬0.93%‭ ‬higher.

The total turnover on BSE amounted to Rs 1909 crore,‭ slightly ‬higher than ‬turnover of Rs‭ ‬1907.05‭ ‬crore registered during the previous trading session.

Pharma stocks gained as the rupee edged lower against the dollar. Cipla (up 1.71%), Dr Reddy's Laboratories (up 1.36%), Lupin (up 1.74%), Sun Pharmaceutical Industries (up 2.24%), Aurobindo Pharma (up 0.98%), Cadila Healthcare (up 0.86%), Glenmark Pharmaceuticals (up 0.44%), GlaxoSmithKline Pharmaceuticals (up 0.17%) and Wockhardt (up 0.4%) rose. Alkem Laboratories fell 1.82%.

In the foreign exchange market, the partially convertible rupee was currently hovering at 68.5525, compared with its close of 68.456 during the previous trading session. A weak rupee boosts the value of overseas earnings in local terms. Pharma companies derive substantial revenue from exports.

Divi's Laboratories shed 0.49%. The company after market hours on Friday, 19 February 2016, announced that it had a successful inspection by the US Food and Drug Administration (USFDA) for its Unit-2 at Chippada, Bheemunipatnam near Visakhapatnam during February 2016 with no observations.

Realty stocks rose. Godrej Properties (up 2.18%), DLF (up 1.02%), Indiabulls Real Estate (up 1.95%), Parsvnath Developers (up 0.3%), Housing Development and Infrastructure (up 0.24%) and D B Realty (up 3.8%), Unitech (up 1.84%) gained. Sobha (down 0.18%) and Oberoi Realty (down 0.95%) fell.

Shares of private sector banks rose. HDFC Bank (up 0.35%), Kotak Mahindra Bank (up 1.44%), Axis Bank (up 1.17%), and IndusInd Bank (up 0.72%) gained. Yes Bank (down 0.19%) and ICICI Bank (down 0.05%) declined.

Stocks of public sector banks declined. Canara Bank (down 2.04%), Bank of India (down 0.52%), Union Bank of India (down 1.82%), Punjab National Bank (down 0.66%) and Bank of Baroda (down 0.14%) declined. State Bank of India (SBI) rose 0.18%.
Oriental Bank of Commerce lost 1.97% after credit rating agency ICRA revised the ratings on bank's outstanding Tier 1/Tier 2 bonds, citing sharp deterioration in asset quality indicators of the bank.

Shares of public sector oil marketing companies (PSU OMCs) rose after a fall in crude oil prices during the previous trading session. Indian Oil Corporation (up 1.54%) and HPCL (up 1.71%) edged higher. BPCL declined 0.71%. Lower crude oil prices could reduce under-recoveries of PSU OMCs on domestic sale of LPG and kerosene at controlled prices. The government has already freed pricing of petrol and diesel. However, a weakness in rupee against the dollar will restrict the benefit of falling global crude oil prices to that extent. A weak rupee raises the cost of imports.
Shares of most oil exploration and production companies rose. Reliance Industries (RIL) (up 1.9%), ONGC (up 1.54%), and Cairn India (up 0.5%) gained. Oil India declined 0.64%.

In global commodities markets, Brent for April settlement was currently up 93 cents at $33.94 a barrel. The contract had declined $1,27 a barrel or 3.7% to settle at $33.01 a barrel during previous trading session.

Index heavyweight and cigarette major ITC dropped on reports suggesting that tobacco products may again attract higher taxes in the upcoming Union Budget 2016-17. The stock dropped 1.72% to Rs 299.60. The stock hit a high of Rs 304 and low of Rs 293.65 in intraday trade. Highlighting a discrepancy between the existing tobacco prices and rising income levels, the health ministry along with the World Health Organisation (WHO) and other public health groups have proposed a hike in taxes of up to 40% for all tobacco products, as per reports.

FMCG stocks edged higher on renewed buying. Hindustan Unilever (up 4.02%), Marico (up 3.59%), Nestle India (up 1.27%), Tata Global Beverages (up 1.87%), Britannia Industries (up 2.77%), GlaxoSmithkline Consumer Healthcare (up 0.85%), Dabur India (up 2.35%), Godrej Consumer Products (up 1.58%) and Bajaj Corp (up 0.2%) rose. Procter & Gamble Hygiene and Health Care (down 0.18%), Jyothy Laboratories (down 1.58%), and Colgate-Palmolive (India) (down 0.01%) fell.

The government could significantly raise food subsidies, and spends on MGNREGA in the Union Budget 2016-17. Any increase in rural spending/infrastructure spending/tax exemption, which can put money in hands of consumers, will indirectly benefit FMCG sector. In the previous Budget, it was announced that there will be a reduction in corporate tax rate over the next four years from 30% to 25% which is a positive for consumer companies paying close to peak tax of income tax.

Maruti Suzuki India (MSIL) fell 1.61% after the company on Saturday, 20 February 2016, announced temporary suspension of manufacture of cars at its facilities in Manesar and Gurgaon due to the ongoing agitation by the Jat community in Haryana for job reservation. Maruti said that due to the agitation in Rohtak and nearby areas, supplies of certain components have been disrupted. MSIL said it is making efforts to arrange the components from other sources. Once the supply of components is restored, normal operations will resume, it added. The combined output from Manesar and Gurgaon is currently about 5,000 vehicles per day, MSIL said.
IT stocks dropped. Tech Mahindra (down 1.76%), TCS (down 0.26%), and Infosys (down 0.4%) edged lower.

HCL Technologies declined 1.21%. HCL Technologies and Symantec today, 22 February 2016, announced their plan to expand their current partnership to help enterprises in areas of cloud security, cyber threats and forensic solutions. HCL and Symantec aim to help enterprises better meet their information and risk management needs by building a cyber-resilient service that safeguards them from targeted attacks and persistent threats. The company made the announcement during market hours today, 22 February 2016.

Wipro declined 0.81%. Wipro announced today, 22 February 2016, a partnership with Verveba Telecom LLC, a premium telecom network engineering company, for advanced mobile radio network optimization solutions. The company made the announcement after market hours today, 22 February 2016.

The Sensex and the Nifty edged higher for the fourth straight trading session. The Sensex has risen 600.82 points or 2.59% in four trading sessions from its close of 23,191.97 on 16 February 2016. The barometer index has fallen 1,080.90 points or 4.34% in this month so far (till 22 February 2016). The Sensex has fallen 2,328.75 points or 8.91% in calendar year 2016 so far (till 22 February 2016). From a 52-week low of 22,600.39 on 12 February 2016, the Sensex has risen 1,191.40 points or 5.27%. The Sensex is off 6,233.95 points or 20.76% from a record high of 30,024.74 hit on 4 March 2015.

All eyes are now on Union Budget 2016-17 to be announced on 29 February 2016. Finance Minister Arum Jaitley may provide a roadmap for rationalisation of the corporate tax exemptions in Budget. ‬Jaitley in his last Budget had announced phased reduction in corporate taxes over four years to‭ ‬25‭ ‬per cent from present ‬30‭ ‬per cent,‭ ‬and also simultaneous withdrawal of exemptions.

Sunday, February 21, 2016

THE WEEK AHEAD

Railway Budget, Economic Survey in focus ahead of Union Budget


Indian stocks may remain volatile next week as traders roll over positions in the futures & options (F&O) segment from the near month February 2016 series to March 2016 series. The February 2016 derivatives contracts are set to expire on Thursday, 25 February 2016. The two key events lined up during the week are Railway Budget for 2016-17 on Thursday, 25 February 2016, and Economic Survey for 2015-16 on Friday, 26 February 2016.

Stocks of companies from steel, cement, coal, iron ore and fertilizer sector will be in focus as Railway Minister Suresh Prabhu presents Railway Budget for 2016-17 in the Lok Sabha on 25 February 2016. Substantial movement for these commodities takes places through the Railways and it remains to be seen if the Rail Minister announces changes in freight rates in the Rail Budget. According to reports, the Railway Minister will unveil a plan in the Rail Budget to cut expenses of the Railways and at the same time increase non-tariff revenue substantially.

The Finance Ministry will present Economic Survey for 2015-16 in parliament on 26 February 2016. The annual document reviews the developments in the Indian economy over the previous 12 months, summarizes the performance on major development programmes, highlights the policy initiatives of the government and the prospects of the economy in the short to medium term.

The next major trigger for the stock market is Union Budget 2016-17, which will be unveiled in the Parliament by the finance minister Arun Jaitley on 29 February 2016. Investors want to see if the government is able to keep spending on areas such as building rural roads, houses and other infrastructure, without letting its fiscal deficit targets slip. In Union Budget 2015-16, Jaitley had stretched the fiscal deficit target to 3.9% of GDP for 2015-16 from the earlier 3.6% to address growth concerns. At that time, he had set fiscal deficit target at 3.5% of GDP for 2016-17.

According to news reports, the finance minister may bring in changes in the service tax regime and withdraw excise duty exemptions on some items in the Budget to set the stage for the rollout of the nationwide goods & services tax (GST). The list of exempted items under the GST will required to be pruned substantially so that it contains only essential items. This is key to keeping the GST rate low.

Meanwhile, the government may raise the rate of service tax to 16-17% to bridge the gap between the current service tax rate and proposed GST rates. Further, the Budget may rationalise exemptions available under service tax to align with the minimal proposed exemptions under GST, according to media reports.

Revenue Secretary Hasmukh Adhia indicated recently that the government would announce a final roadmap for rationalising corporate tax exemptions in the Union Budget 2016-17. Following Jaitley's proposal in the Union Budget 2015-16 to lower corporate tax rate to 25 per cent over the next four years, the Central Board of Direct Taxes (CBDT) on 20 November 2015 released a draft proposal suggesting that all profit-linked, investment-linked and area-based deductions for both corporate and non-corporate taxpayers would be phased out.

Meanwhile, recent reports have suggested that the government is mulling whether to raise the time frame of long-term capital gains tax on sale of shares to three years from current one year. Currently, investors don't have to pay any capital gains tax on shares sold on an exchange after one year of holding. Currently, short-term capital gains tax is 15% if shares are sold within a period of one year from the date of purchase. However, given the recent turmoil in global financial markets, the government may not make changes to the existing capital gains tax regime on sale of shares in the Union Budget 2016-17.

Among key global data, Eurozone Markit PMI Composite index for February 2016 is scheduled for release on Monday, 22 February 2016. US new home sales data for the January 2016 is due for release on Tuesday, 23 February 2016. US Q4 GDP data is due on Friday, 26 February 2016.