Sensex Trades on a Flat Note; Metal & Realty Stocks Rise

Indian share markets continue to trade on a flat note in the noon session. Gains are largely seen in metal stocks and realty stocks. Meanwhile, bank stocks and energy stocks are witnessing majority of the selling activity.

The BSE Sensex is trading higher by 5 points and the NSE Nifty is trading higher by 9 points. Meanwhile, the BSE Mid Cap index is trading up by 0.2% & the BSE Small Cap index is up by 0.6%. The rupee is trading at 64.16 to the US$.

The Sensex and the Nifty trading at a PE of 25 and 26.9 times respectively. The midcap and smallcap indices are trading at insane valuations at PEs of around 46.4 and 113.8 times. Mid and small caps have never seen such crazy valuations.

There is still another ratio, which is frequently used to evaluate the valuations. The market capitalization to GDP ratio. It is one of Buffett's favourite indicators of broader market value. The market cap of all the listed companies in the country divided by the gross domestic product (GDP) of the country gives us this ratio.

Market Cap to GDP Ratio Close to 100%

The idea behind this ratio is simple. Stock prices are derived from expected earnings for corporates and GDP represents revenue of the country. This gives investors an estimate of whether the two are moving in tandem. A ratio above 100% shows overvaluation and one below 50% shows that the market may be undervalued.

Even this ratio is showing valuations reaching its peak levels. India's market cap to GDP ratio reached 95%. This ratio was more than 100% after the 2007 bull run. Stock prices had seen a significant meltdown after that amid the global financial crisis. 2018 will, therefore, be critical for Indian companies to justify their valuations with earnings growth.

Axis Bank share price is presently trading down by 1.2% on the BSE after it was reported that market regulator has directed Axis Bank to conduct an internal inquiry to ascertain how key financial information was leaked on a WhatsApp group before it was officially announced on the stock exchange platform.

In its first order in the WhatsApp leak case, market regulator had last night ordered Axis Bank to strengthen its systems and conduct an internal probe to fix responsibility as the initial investigation showed that the leakage was due to "inadequacy" of processes at the bank.

In news from realty sector, DLF share price surged 2.1% on the BSE after it was reported in The Livemint that the company approved an issue of debentures and warrants to promoters in lieu of Rs 112.5 billion equity infusion into the company to reduce company's net debt significantly.

The company plans to sell shares through public issue or private placement to institutional investors. The company is looking to raise more than Rs 35 billion through this process.

Moving on to news from the economy. A day after the Goods and Services Tax (GST) collection for November showed a decline in revenue receipts, the government has decided to raise additional market borrowing of Rs 500 billion through dated government securities in the last three months of FY18.

The move may result in a breach of its fiscal deficit target of 3.2% of gross domestic product (GDP) set for this fiscal year.

Besides, the government will trim down the T-Bills from present collections of Rs 862.03 billion to Rs 250.06 billion by March end 2018.

Since the revenue collection from the GST is slightly lower than the expected in the last two months, the additional borrowing would help bridge the shortfall. The GST collections fell for the second consecutive month to Rs 808.08 billion in November, down from Rs 833.46 billion in October, mainly due to sharp cuts in the tax on over 200 items from November 15.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.

Indian Indices Trade Marginally Higher; Metal Sector Up 2.2%

Stock markets in India are presently trading marginally higher. Sectoral indices are trading on a positive note with stocks in the realty sector and metal sector witnessing maximum buying interest.

The BSE Sensex is trading up 10 points (up 0.03%) and the NSE Nifty is trading up 8 points (up 0.1%). The BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading up by 0.4%. The rupee is trading at 64.17 to the US dollar.

In the news from the macroeconomic front, as per an article in the Economic Times, as per a finance ministry announcement, India will borrow an additional Rs 500 billion this fiscal year.

The above borrowing comes as a negative development as it could breach the fiscal deficit target for the first time in four years and also weigh on bond and equity markets in India.

This additional borrowing could raise the fiscal deficit to 3.5% of gross domestic product (GDP), higher than the stated target of 3.2%.

The government has budgeted spending of Rs 21.5 trillion in FY18. Of this, it had spent Rs 12.9 trillion by October with a fiscal deficit of Rs 5.25 trillion against a full-year fiscal deficit budget of Rs 5.47 trillion. And this has led to fiscal slippage concerns this year.

One must also note that in the last one decade, India is making serious efforts to reduce the fiscal deficit level. Ever since, the new government came in it has been in favor of fiscal consolidation and meet the long term fiscal deficit target of 3% by FY17-18. This will be the lowest target compared to the last couple of years, as can be seen from the chart below:

Fiscal Deficit target of 3% of GDP

That said, challenges remain in achieving the above stated target. The notebandi exercise resulted in a slowdown. Further, government announced flurry of projects but execution is still pending. This means the government needs to relax its spending to spurt the growth again.

This means, once again, the government needs to fight dual challenge. First, maintaining its stance on fiscal consolidation and sticking it fiscal deficit target of 3% of GDP for FY17-18. Second, it must relax the deficit target for reviving the economic growth from the shock of demonetisation.

It is also worthwhile to note that creating economic growth by the government spending its way out of trouble, cannot continue indefinitely.

As Vivek Kaul writes in one of his recent editions of the Vivek Kaul's Diary... 'At the end of the day the government has a limited amount of money at its disposal. Further, its expenditure tends to be terribly leaky and does not reach a major portion of those it is intended for.'

It would be interesting to see how the government tackles the above challenges. We'll keep you updated on the developments from this space.

In other news, the Lok Sabha has approved a bill to hike cess on luxury vehicles from 15% to 25%.

This is done with a view to enhance funds to compensate states for revenue loss following the rollout of the Goods and Services Tax (GST).

The above bill seeks to replace the Ordinance which was issued in September to give effect to the decision of the GST Council and provides for a hike in the GST cess on a range of cars from mid-size to hybrid variants and the luxury ones to 25%.

Automobile manufacturers may face some hiccups on the back of above development. Meanwhile, we'll keep you posted on the recent developments from this space.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.

Sensex Opens Marginally Up; Sun Pharma & Tata Steel Top Gainers

Asian stock markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.15% while the Hang Seng is up 0.66%. The Shanghai Composite is trading up by 0.52%. US stocks ended in green on Wednesday, with gains in real estate and utilities offsetting declines in energy and telecommunications stocks.

Back home, India share markets have opened the day marginally higher. The BSE Sensex is trading higher by 58 points while the NSE Nifty is trading higher by 19 points. The BSE Mid Cap index and BSE Small Cap index both opened the day up by 0.3% & 0.2% respectively.

Barring banking sector & consumer durables sector, all sectoral indices have opened the day in green with metal stocks and power stocks witnessing maximum buying interest. The rupee is trading at 64.16 to the US$.

Tata steel share price opened the day on an encouraging note on the reports that the company has appointed a domestic investment bank to manage its proposed rights issue of about US$2bn (Rs 128 bn). The stated purpose of the rights issue is to deleverage the firm.

Pharma stocks opened the day on a mixed note with Alembic Pharma and Panacea Biotech being the most active stocks in this space. As per an article in a leading financial daily, Aurobindo Pharma Ltd has received final approval from the US Food & Drug Administration (USFDA) to manufacture and market Fondaparinux Sodium injection.

The injections to be marketed will be in the strengths of 2.5 mg/0.5 mL, 5 mg/0.4 mL, 7.5 mg/0.6 mL, and 10 mg/0.8 mL single-dose prefilled syringes. It is used to prevent deep vein thrombosis (DVT).

Reportedly, the approved ANDA is a bioequivalent and therapeutically equivalent to the reference listed drug (RLD) product Arixtra Injection of Mylan Ireland. The product will be launched in January 2018.

According to IMS health sales data, the approved product has an estimated market size of US$73 million for the 12 months ended 31 October 2017.

Notably, this is the 52nd ANDA (including 2 tentative approvals) to be approved out of Unit IV formulation facility in Hyderabad, used for manufacturing general injectable and ophthalmic products.

Aurobindo now has 350 ANDA approvals (313 final approvals including 17 from Aurolife Pharma LLC and 37 tentative approvals) from USFDA.

Aurobindo pharma share price opened the day up by 1.5%.

Moving on to the news from the bank stocks. As per an article in a leading financial daily, State Bank of India is planning to raise capital worth Rs 80 billion through additional tier-I bonds (AT1 bonds) by March 2018.

Reportedly, the board of directors of the bank has given a nod to raise additional tier-I capital (AT1) of Rs 80 billion through Basel-III-compliant debt instruments.

The lender has an option to issue bonds, in domestic and international markets in rupee and US dollar including masala bonds, till 31 March 2018. The bank could also issue masala bonds to international investors for raising AT1 capital.

Masala bonds are rupee-denominated specialised debt instruments that can be floated in overseas markets only to raise capital.

One shall note that, banks in India have to comply with the global capital norms under Basel III by March 2019, three months later than the internationally-agreed time frame, by January 2019.

SBI's capital adequacy ratio (CAR) was 13.6% at the end of September 2017, with common equity tier-I at 10.2% and AT1 level of just 0.7%.

Meanwhile, Foreign debt raised by Indian companies has surged ten-fold to US$ 41 billion in 2017. This is the highest ever infusion of foreign funds in the domestic debt markets in the last 15 years. At US$ 23 billion, foreign investments in government securities and corporate paper took the cake.

This was followed by dollar denominated bonds that attracted around US$ 16 billion of foreign investments whereas funds of US$ 2 billion were mopped up by masala bonds. Masala Bonds are rupee-denominated borrowings by Indian entities in the overseas markets. All this has made the Indian bond market flush with foreign debt investments in 2017, as can be seen from the chart below:

Bond Markets on a High

Apart from the above, the recent sovereign rating upgrade by Moody's coupled with factors such as economic stability, abundant global liquidity and diversification needs of investors have stoked demand for Indian bonds in the overseas markets.

SBI share price opened up by 0.3%.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.

Of Rising Crude Oil Prices, FRDI Bill, and Other Top Cues in Focus Today

Indian share markets pared all earlier intraday gains yesterday to end the session on a negative note.

At the closing bell yesterday, the BSE Sensex closed lower by 99 points and the NSE Nifty finished lower by 41 points. The S&P BSE Mid Cap finished up by 0.3% while S&P BSE Small Cap finished up by 0.5%. Gains were largely seen in pharma sector, while oil & gas stocks and realty stocks witnessed selling pressure.

Top Stocks in Focus Today

From the telecom sector, Reliance Communications share price will be in focus today. The stock of the company has surged over 125% in the last six trading sessions after the company announced a Rs 390 billion debt resolution plan. The stock ended up by 34% on BSE yesterday.

From the pharma sector, market participants will be tracking Glenmark Pharma share price and Sun Pharma share price. Stock of Glenmark Pharma witnessed buying interest yesterday after it was granted final approval by the United States Food & Drug Administration (USFDA) for Norethindrone Acetate and Ethinyl Estradiol Tablets USP and Ferrous Fumarate Tablets, 1 mg/20 mcg.

As for Sun Pharma, the stock of the company traded near its 5-month high yesterday as the USFDA accepted the company's new drug application filed by its wholly owned subsidiary, for OTX-101 (cyclosporine A, ophthalmic solution) 0.09%. The stock climbed as much as 6.9% to Rs 578, highest since 27 July.

Market participants will also be tracking Jindal Steel & Power share price. The stock witnessed buying interest yesterday after the company said it has successfully completed a 250-tonne basic oxygen furnace (BOF), marking the completion of the company's 6 million tonnes per annum (MTPA) integrated steel project at Angul in Odisha.

Crude Oil Trades Near 2015 High

In the news from the commodity space, crude oil has continued its momentum this week as it is trading at its highest levels since mid-2015.

Most of the buying interest is seen as a pipeline run by Waha Oil Company that carries crude to Libya's Es Sider terminal exploded on Tuesday, reducing output by 70,000 to 100,000 barrels a day.

The above drop in supply led to optimism of easing glut and helped crude oil trade on a positive note. Futures in New York and London touched the highest levels in more than two years after reports of the explosion came through.

Note that crude oil prices have been on a rising trend this year. However, this is not good news from India's perspective.

As we wrote in a recent edition of The 5 Minute WrapUp...

• Fiscal revenues are at risk. Particularly if the government is forced to consider a cut in fuel excise duties due to a rally in oil prices. In recent times, a sharp jump in excise collections has helped indirect tax collections. Any risk to revenues and subsequent threat to the fiscal deficit target at 3.2% of GDP would require tighter spending cuts.
  
  Secondly, the impact on inflation needs to be monitored. This narrowing the central bank's scope for further rate cuts.

You can read the entire article here.

To keep a tab on the movements in crude oil and other commodities, you can read the stock market commentaryfrom the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency, and commodity markets.

Two Companies Join the 2018 IPO Pipeline

In the news form the IPO space, many companies are lined up to hit the primary markets in 2018.

Among these, Baring Private Equity Asia-promoted CMS Info Systems - India's largest cash management company - is likely to hit the IPO market in January to raise about Rs 13 billion. As per the news, Baring will dilute about 30% of its stake in the IPO.

CMS is the local market leader in cash management, based on the number of automated teller machines (ATMs) and retail pick-up points. It has a market share of 25.6%, based on the total number of ATMs in India, according to a Frost & Sullivan report cited in the offer document of the company.

Apart from that, Anmol Industries Ltd plans to list in 2018 and has begun work on an initial public offer (IPO). The company plans to file offer documents with the regulator soon.

The Kolkata based company has already appointed bankers for the process and plans to raise over Rs 10 billion through the offer, which would see the company valued at about Rs 40-50 billion.

IPOs are all the rage in the share markets these days. With new companies listing by the day, all with promises of superior returns.

Download this FREE report now and discover How to Get Rich with IPOs. This guide will show you how to safely profit from the ongoing IPO rush.

Concerns for FRDI Bill Continue

Market participants are tracking the Financial Resolution and Deposit Insurance (FRDI) Bill under Parliament's consideration. As per the news, the social media is worried about the bill in that it will put bank deposits at risk and that depositors' money would be used to recapitalize banks.

The one concerning clause in the bill causing concern is the provision for a 'bail in'. In essence, the bill empowers a distressed financial institution to utilise its own public deposits to set its house in order.

Presently, only Rs 0.1 million worth of bank fixed deposits are insured by the Deposit Insurance and Credit Guarantee Corporation (DICGC). What the FRDI Bill proposes is, to utilise deposits above the insurable limit of Rs 0.1 million by converting the funds into shares of the bank. In other words, the FRDI Bill is simply an extension of the DICGC Act and is not draconian as it is made out to be.

The bill overlooks the truth that the insurance cover for public deposits in India woefully low. The share of insured deposits has fallen drastically from 75% to less than one third in the last two decades.

Speaking of FRDI, Vivek Kaul, editor of Vivek Kaul's Diary, has recently shared his thoughts on the topic in a recent article. You can read the same here.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.