Equity Research Report Ways2Capital 7 july 2017
Added: (Mon Aug 07 2017)
Pressbox (Press Release) -
This Week Nifty Index made fresh all time high of 10138 and closed above a psychological level of 10000. However this rally may not sustain if nifty trades below 9988 l. FII & PRO has created a short position in last 10 days for 240908 contracts. On the fifth consecutive day, The Indian Benchmark Index Nifty closed above 10000 levels.last day the Index closed at 10,066 after making a high of 10075. The Reserve bank of India cut the repo rate by 25 bps to 6%. Nifty was down by 33.15 points and the probable Resistance as per Chart was at 10,141. The market made an opening high of approx. 10138 and corrected steadily during the day. Moreover, the support as per chart was mentioned at 10,058 and market after making a low of 10,054, recovered to close at 10081. The Indian Benchmark Index Nifty made an all time high of 10138 and closed at 10082 after making a low of 10054. The Index ended lower by 33 points after RBI trimmed repo rate by 25 bps. RBI has cut repo rate by 25 basis points in its third bi-monthly monetary policy outcome on Wednesday, as widely anticipated by the market. Now, the repo rate stands at 6%. Consequently, the reverse repo rate under the LAF stands adjusted to 5.75%, and MSF rate and the bank rate to 6.25%. Market signalled fresh up move after Friday’s close above the Monthly upward channel line at 10060. In the daily chart. Nifty continued its upward rally after taking support from upward channel line. The market surged by another 52 points and sustained above the 10000 mark. Nifty may open flat in next week trading session but continue to move up. Time and Price action Suggest that Nifty need to Sustain over 10060 levels for further up move towards 10154-10240, On the Flip Side if break this level may darg towards 9947-9902 in near-Term.
BANK NIFTY : - Bank Nifty also made an all time high of 25190 and closed at 25055 after making a low of 24926.Indusind Bank up by 1.21%, HDFC Bank by 0.72%, Yes Bank by 0.98% were among the top movers in the Banking Index. This is the first time the Index closed above the psychological level of 25000.The Index opened on week at 24881 and closed at 24827 levels. Among the Banking stocks, State Bank of India rallied 4.5% after it reduced Interest Rate on Saving account deposits by 50 basis point to 3.5%. The process of resolution of bad loans will start shortly, Finance Minister Arun Jaitley said in the Lok Sabha as it passed a bill which gives RBI the power to direct banking companies to resolve the problem of stressed assets. The Reserve Bank has already identified top 12 loan defaulters and more cases will be taken up by them for resolution. The Bank Nifty traded in a positive note for whole week on the back of rate cut by Reserve Bank of India central bank trimmed repo rate by 25 bps in its third bi-monthly monetary policy outcome on Wednesday, as widely anticipated by the market. As of Now Time and Price Action Suggest that Bank Nifty need to Sustain the 24950 level for further up move towards 25120-25278, On the Flip side Sustaining below 24950 may drag the index towards 24850-24520 In near Term.
NSE - WEEKLY NEWS LETTERS
✍ TOP NEWS OF THE WEEK
Arun Jaitley indicates scope for rationalisation of rates under GST - Finance minister Arun Jaitley on Wednesday said there is scope to rationalise goods and services tax and rolling 12 per cent and 18 per cent slabs into one as implementation of the country’s most comprehensive indirect tax reforms progresses. I do concede that as it moves forward, there will be scope for rationalising the rates. There, probably, will be scope that the two standard rates of 12% and 18 per cent, after some time, could be clubbed into one. That is a fair possibility and a suggestion,” Jaitley said replying to debate on the two bills related to GST in J&K. Central Goods and Services Tax (Extension to Jammu and Kashmir) Bill, 2017 and the Integrated Goods and Services Tax (Extension to Jammu and Kashmir) Bill, 2017 were later passed by a voice vote. The current GST has 5 per cent, 12 per cent, 18 per cent and 28 per cent rates, plus one for luxury and sin goods. There are some that are zero rated, or nil rate.
PSU banks need Rs. 1.9 lakh crore capital by March 2019: S&P - PSU banks will need at least Rs. 1.9 lakh crore additional capital by March 2019 as the lack of it will restrict their ability to write down Non-Performing loans, S&P Global Ratings said. "We estimate that Indian banks may need a minimum of about $ 29.6 billion or Rs. 1.9 trillion over the next two years," S&P Global Ratings credit analyst Geeta Chugh said. Public sector banks will need substantial capital to make large haircuts on loans to unviable stressed projects and to meet rising Basel III requirements, S&P said. "The lack of capital restricts the ability of India's public sector banks to write down non-performing loans to more accurate levels. Weak profitability and rising capital demands from Basel III implementation will also continue to pressure the capitalisation of many of these banks. The US-based agency said PSU banks will have to look for alternate sources to increase their capitalisation.
India's public sector banks face three key challenges in tapping equity capital markets: - low equity valuations, overcrowding in the market, and regulations. At the same time, they may find it hard to raise money via the issuance of additional Tier-1 capital instruments because the risk of default on these instruments is rising," S&P Global Ratings credit analyst Deepali Seth-Chhabria said.
India must guard against external financing vulnerability: IMF - India needs to remain vigilant as greater reliance on debt financing and portfolio inflows could create significant external financing vulnerabilities, a recent IMF report has said. The The International Monetary Fund in its report titled 'The 2017 External Sector Report' further said other risks to the Indian economy stem from global financial volatility and 'longer-than-expected cash normalization' following the currency exchange initiative. "Like other EMs, too great a reliance on debt financing and portfolio inflows would create significant external financing vulnerabilities. Therefore, there is need to remain vigilant to safeguard the Indian economy. India's economic risks stem from intensified global financial volatility including from a faster-than-anticipated normalization of monetary policy in key advanced economies, longer-than-expected cash normalization following the currency exchange initiative, as well as slower global growth," the report noted.
RBI says that there are uncertainties around its inflation trajectory - The Reserve Bank of India continues to express its concerns over the inflation outlook, even as it has eased key policy rates implying that it is comfortable with the inflation levels . The second bi-monthly statement projected quarterly average headline inflation in the range of 2.0-3.5 per cent in the first half of the year and 3.5-4.5 per cent in the second half. The actual outcome for Q1 has tracked projections. "But looking ahead, as base effects fade, the evolving momentum of inflation would be determined by the impact on the CPI of the implementation of house rent allowances under the 7th central pay commission, the impact of the price revisions withheld ahead of the GST- goods and services tax,” RBI said in its policy statement. Besides, how structural and transitory factors shaping food inflation play out will also determine the future inflation trajectory it said.
RBI rate cut important step for sustained growth: Finance Ministry - The finance ministry today said the RBI's decision to cut key policy rate by 0.25 per cent is an important step to achieve sustained growth consistent with moderate inflation and India's potential. The Reserve Bank, in its third bi-monthly monetary policy of the fiscal, today reduced the repo rate after a gap of almost 10 months. The new repo rate at 6 per cent is the lowest in six- and-a-half years. The last rate cut was effected in October 2016. RBI Governor Urjit Patel said the central bank has maintained the economic growth projection at 7.3 per cent for the current fiscal. Commenting on the central bank's decision, Economic Affairs Secretary Subhash Chandra Garg said the government welcomes the repo rate cut. The government has taken note of the statement of the Monetary Policy Committee and its assessment of the inflation and growth outlook, he added.
Fiscal deficit at Rs 4.42 trillion, hits 80.8% target of FY18 - India’s fiscal deficit reached Rs 4.42 trillion or around USD 68.88 billion during the first quarter ended June of the current fiscal year 2017-18 or 80.8% of the budgeted target for the current fiscal year 2018, according to government data released on Monday. The fiscal deficit stood 61.1% of the full-year target during the same period last fiscal year. According to the data, the net tax receipts during April-June period of the fiscal year 2017-18 were Rs 1.77 trillion around USD 27.59 billion. India aims to bring down its federal fiscal deficit to 3.2% of gross domestic product in 2017-18 compared with 3.5% in the previous year.
India’s GDP growth to remain in 6.5- 7.5% range: Moody’s - GDP growth rate of India will remain in the range of 6.5-7.5% over the next 12-18 months and GST will support the momentum for faster growth, reported a study conducted by a leading research agency, Moody’s. More than 75% respondent out of 200 market participants responded in the favour that exposure to large corporates in power, steel and infrastructure sectors poses as the greatest risk to banks’ asset quality in India. According to the US-based agency estimates, the economy will grow 7.5 per cent in 2016-17 and 7.7 per cent in 2017-18. While it forecasted that the economic growth will gradually increase to around 8% over the next 3-4 years. India is likely to grow faster over the next 12-18 months despite a short-term drag caused by demonetisation and the asset quality risks for banks and credit growth will remain subdued, said the report.
✍ TOP ECONOMY NEWS
India’s services activity plunged to a four-year low in July because of the disruption caused by the goods and services tax, a private survey showed, but industry is confident of a quick rebound as the new tax regime settles into place. This follows a manufacturing indicator plummeting to an eight-year low last month because of the same reason GST, which was rolled out on July 1.
Business conditions in India have deteriorated the most since the global financial crisis as the roll out of a nationwide sales tax disrupted supply and distribution links just months after Prime Minister Narendra Modi’s cash ban roiled markets.
RBI Governor Urjit Patel said inflation is expected to rise from record lows even as the central bank opted for a cut in key lending rate to a 6.5-year low "to reinvigorate private investment" and resolve the issue of mounting bad loans amid weak corporate balance sheets. The 0.25 per cent lowering of the repo rate to 6 per cent comes after a 10-month pause and is the second since Patel took over last September.
The Reserve Bank said it will endeavour to keep retail inflation close to 4 per cent on a "durable basis" which may rise in the near term on account of pay commission payouts and price adjustments post GST rollout. "The MPC observed that while inflation has fallen to a historic low, a conclusive segregation of transitory and structural factors driving the disinflation is still elusive. The MPC remains focused on its commitment to keeping headline inflation close to 4 per cent on a durable basis," the central bank said in its 3rd bi-monthly monetary policy statement, 2017-18.
India's new Goods and Services Tax, introduced in July, has impacted the country's services sector. The Nikkei India Services Purchasing Managers' Index fell to 45.9 in July, the lowest reading since September 2013. June's figure was 53.1. Almost 23% of survey participants reported lower output, which they commonly associated with falling new orders and the introduction of the GST. Business conditions in India’s service economy deteriorated markedly in July following the implementation of the GST. Output and new work declined for the first time since January, with rates of reduction the quickest since September 2013.
The Indian government is on track to achieve the fiscal deficit target of 3.2% of GDP in the current fiscal year, said a report by UBS. The central government’s fiscal deficit has already reached 81% of the full-year target in the first quarter (April to June) of 2017-18. The Centre’s fiscal deficit narrowed from a peak of 6.5% of GDP in 2009-10 to 3.5 % of GDP in 2016-17 and is estimated to fall further to 3.2% of GDP in 2017-18.
The Government of India has garnered over Rs 1.80 lakh crore in direct tax till July 15 in the current FY18, representing a growth of 21.4% YoY. The current growth rate is higher than the target rate of 15.32% required to achieve the budget estimate. Through direct taxes, the government aims to collect Rs 9.8 lakh crore in FY18. On the other hand, the number of cyber crimes pertaining to credit card, ATM, debit card and internet banking shows a marginal increase of 4.4% to 13,653 in 2016-17 from 13,083 in 2014-15.
The Nikkei India Manufacturing Purchasing Managers' Index, or PMI, dropped to a near eight-and-a-half year low of 47.9 in July from 50.9 in June. A reading above 50 indicates economic expansion, while one below 50 points toward contraction. Manufacturing growth in India came to a halt in July, with the PMI down to its lowest mark in almost eight-and-a-half years amid widespread reports that the sector has been adversely affected by the implementation of the goods and services tax," said Pollyanna De Lima, principal economist at IHS Markit, which compiles the survey.
The government has extended the deadline for small businesses to opt for the composition scheme in the GST regime by nearly four weeks to August 16. Small businesses with a turnover of up to Rs 75 lakh had to opt for the scheme in the Goods and Services Tax regime by July 21. The taxpayer needs to fill up the Form GST CMP-01 to opt for the composition scheme.
The country’s foreign exchange reserves stood at USD 389.059 billion, rose by USD 2.681 billion, as on July 14, because of an increase in foreign currency assets, as per the Reserve Bank of India data. While in the previous week, the reserves had marginally dropped by USD 161.9 million to USD 386.377 billion. According to the RBI data, Foreign Currency Assets, increase by USD 2.677 billion to USD 364.908 billion. Gold reserves remained unchanged at USD 20.348 billion, as on July 14, 2017.
Export from India soared by 4.39% to USD 23.56 billion in June as shipments of chemicals, engineering and marine products increased, reported a statement released by the Commerce Ministry on Friday.
Banks may require an incremental provisioning of 20% against 50 large stressed accounts in order to absorb any losses, according to a report by Assocham and rating agency Crisil. These 50 large stressed accounts belong to sectors like construction, power and metals, among others and constitute about half of the gross non-performing assets of the banking sector.
✍ TOP CORPORATE NEWS -
Titan Company Limited Q1FY18 consolidated results for the quarter registered a beat on street estimates. Revenue for the quarter came in 18.2% higher than the estimated figure of Rs. 3402 crore. EBITDA for the quarter came in 5.8% higher than the estimated figure of Rs. 345 crore. And lastly, net profit for the quarter came in line with the estimated figure of Rs. 240 crore.
Indian Oil Corporation Q1FY18 standalone results for the quarter registered a beat on street estimates. Revenue for the quarter came in 35.6% higher than the estimated figure of Rs. 94563 crore. EBITDA for the quarter came in 28.8% higher than the estimated figure of Rs. 6213 crore. And lastly, net profit for the quarter came in 51% higher than the estimated figure of Rs. 3013 crore.
Lupin Limited Q1FY18 consolidated results for the quarter registered a miss versus street estimates. Revenue for the quarter came in 8.5% lower than the estimated figure of Rs. 4230 crore. EBITDA for the quarter came in 9.1% lower than the estimated figure of Rs. 845 crore. And lastly, net profit for the quarter came in 17.1% lower than the estimated figure of Rs. 432 crore.
Larsen & Toubro Limited on Wednesday announced that it has bagged an order worth Rs 3,375 crore from the Metro Express, owned by the government of Mauritius to design and build an integrated light rail based urban transit system. The company also informed that the contract was signed on July 31, 2017, adding that the project has been won against competition and will be fully-funded through a government of India grant Line of Credit.
Punjab National Bank Q1FY18 results registered mixed versus street estimates. The NII for the quarter came in 1.2% higher than the estimated figure of Rs.3809 crore. While, net profit for the quarter came in 4.2% below the street estimates of Rs.358 crore. NII for the quarter rose by 4.2% yoy to Rs.3855 crore in Q1FY18 vs Rs.3699 crore in previous year corresponding quarter. This was largely due to almost muted growth in advances by 2% yoy to Rs.399749 crore in Q1FY18. Also, interest income for the quarter rose by 5% yoy to Rs.12136 crore.
Pharma major Lupin Limited has announced that it has received final approval for its Fluocinonide Topical Ointment USP, 0.05% from the USFDA to market a generic version of Country Line Pharmaceuticals, LLC’s Lidex Ointment, 0.05%.
Marico Limited Q1FY18 consolidated results for the quarter registered a miss versus consensus estimates. Revenue for the quarter came in 4% lower than the estimated figure of Rs. 1763 crore. EBITDA for the quarter came in 12.7% lower than the estimated figure of Rs. 372 crore. And lastly, net profit for the quarter came in 9.9% lower than the estimated figure of Rs. 262 crore.
Maruti Suzuki India Limited, leader in passenger vehicles, sold a total of 1,65,346 unit’s in July 2017, growing 20.6% over the same period of the last fiscal. The company sold a total of 137,116 units in July 2016. This included 154,001 units in the domestic market as compared to 125,778 units, registering a growth of 22.4%. Total exports sales stood at 11,345 units.
Mahindra & Mahindra Limited Q1FY18 standalone results for the quarter were a mixed against the street estimates. Revenue for the quarter came in 10.5 % higher than the estimated figure of Rs. 11168 crore. EBITDA for the quarter came in 2.4% higher than the estimated figure of Rs. 1573 crore. And lastly, net profit for the quarter came in 21.1 % lower than the estimated figure of Rs. 971 crore.
Dabur India Limited Q1FY18 consolidated results for the quarter registered a miss versus street estimates. Revenue for the quarter came in 3.6% lower than the estimated figure of Rs. 1856 crore. EBITDA for the quarter came in 6.1% lower than the estimated figure of Rs. 329 crore. However, net profit for the quarter came in 2.1% higher than the estimated figure of Rs. 271 crore.
Kalpataru Power Transmission Limited has secured new orders worth Rs. 1,081 crore. The award involves two order for laying pipelines and associated EPC work totalling Rs. 763 crore from GSPL India Transco and KKMPL part IIA project of GAIL.
✍ TOP BANKING AND FINANCIAL NEWS OF THE WEEK
The State Bank of India on Thursday said that though the Marginal Cost of Funds-based Lending Rate is expected to be in tandem with the policy rates, banks are hesitant to reduce it due to cost of credit and deposits and NPAs positioning. The Reserve Bank of India on Wednesday cut the key lending rates by 25 basis points. "As far as the MCLR is concerned, it is a function of multiple components. It is intended that the MCLR is in tandem with policy rates,
Kotak Mahindra Bank has cut its savings bank rate for savings bank deposits between Rs 1 crore to Rs 5 crore to 5.5% from 6% effective August 4, the bank said in an emailed statement. The cut in the rates comes just days after State Bank of India reduced its savings bank rate across the board to 3.5% from 4%.
The process of resolution of bad loans will start shortly, Finance Minister Arun Jaitley said in the Lok Sabha as it passed a bill which gives RBI the power to direct banking companies to resolve the problem of stressed assets. Replying to a debate on the Banking Regulation Bill, 2017, Jaitley said the Reserve Bank has already identified top 12 loan defaulters and more cases will be taken up by them for resolution. No one can claim the right of equality in not paying banks back. RBI has taken up some difficult cases. I am sure they will take up more," Jaitley said.
Banks may need to do an incremental provisioning of 20 per cent for 50 large stressed accounts to absorb any losses, says a report. These 50 large accounts are from the sectors such as construction, power and metals, among others and constitute about half of the gross Non-Performing assets of the banking sector. Banks may require an incremental provisioning of 20 per cent against cumulative debt of 50 large stressed assets worth over Rs. 4.3 lakh crore," says a joint report by Assocham and rating agency Crisil.
The Insolvency and Bankruptcy Board of India is looking into a complaint that some professional service firms were acting as insolvency resolution professionals to help banks manage and restructure insolvent companies.
The amount of corporate loans restructured by lenders has seen a decline in the last three financial years, according to the data tabled by Finance Minister Arun Jaitley in the Rajya Sabha. Banks restructured loans, that were sanctioned to companies, of worth Rs 3,70,279 crore in FY2014-15 and Rs 2,99,111 crore in 2015-16. The amount of restructured corporate loans came down to Rs 2,04,884 crore in the last financial year, as per the data.
Days after it reported spike in its own NPAs due to farm loan waivers, HDFC Bank warned that lenders may discontinue fresh lending to the agriculture sector. Banks are likely to see increase in NPAs in the agriculture sector and a general worsening of credit culture," its economists said in a note.
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