Tuesday, 25 July 2017

Steel Stocks at Highest in Years

Steel stocks are trading at the highest since 2011 and it’s mostly thanks to the industry’s biggest menace in recent years: China.

Demand in China, which produces half the world’s steel, has been surprisingly strong this year and the country closed some plants to ease a glut that had spread across the globe.

That’s led to a steep drop in exports, helping steel prices extend a recovery and pushing a Bloomberg gauge of global steel stocks up 45% in the past year.

Less supply coming out of China has helped prices in Europe and the US jump about 75% in the past 18 months.Bloomberg

Monetary easing not a silver bullet

Expectations that the Reserve Bank of India will cut its benchmark rate at its forthcoming policy meet in August are getting cemented everyday with incremental inflation data tipping the scales for a cut.

However, such a reduction is unlikely to make a material impact on growth, according to DBS Bank Ltd.
In a research note the bank said that what makes an impact is transmission.

Further transmission of policy rate reductions onto bank lending rates depends squarely on how bad loans are resolved.

Since this is a long-drawn process, immediate transmission should not be expected. Nevertheless, the abundant liquidity will maintain short-term rates low, said the note.


Strong growth prospects for consumer durables

Quite predictably, a surge in middle-class households will imply higher consumption and discretionary spends.

A report by Edelweiss Research forecasts a rise in penetration levels for consumer durable goods like air conditioners (ACs), washing machines and refrigerators.

 From 27.3% of the middle-class market, the penetration of refrigerators is likely to be the highest among durables, by calendar year 2026 at 47.5%.

Reasons that may fuel growth are improving income, need for comfort among working class and easy financing schemes.

According to the report, this has led to truncated product replacement cycles and evolving lifestyles where consumer durables like ACs and refrigerators are perceived as utilities.

The projections, of course, hinge on the forecasts made by the National Council of Applied Economic Research, that India’s middle-class population will double between FY16 and FY26 to 547 million.

Friday, 21 July 2017

ONGC-HPCL deal: A Marriage of Convenience

The government is moving ahead with its proposal to create an integrated public sector ‘oil major’ but in the process, is also filling its own coffers. It is, however, denying minority shareholders that opportunity.

A merger of Hindustan Petroleum Corp. Ltd (HPCL) with Oil and Natural Gas Corp. Ltd (ONGC) would have been a neat structure, combining both businesses with the full benefits of integration available to claim. There would be no cash to be paid or debt to be raised. Instead, ONGC plans to acquire the government’s 51% stake in HPCL.

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Whether this will be followed by a merger is not known, but is not on the cards yet.

The Street is rather unimpressed, with HPCL’s shares falling by 4.3% while ONGC’s share rose by 1.8% on Thursday. ONGC’s shareholders would have preferred a merger.

HPCL’s shareholders would be disappointed that the acquisition is unlikely to be accompanied by an open offer. That would be unfair as they too should get a chance to exit at the same price as the government.

A BloombergQuint article dated 20 July cites a precedent of Indian Oil Corp. Ltd (IOC) acquiring public sector IBP Co. Ltd, and then making an open offer. There have been instances where promoters have made an inter-se transfer and also sought exemption from making an open offer.

Kotak Mahindra Bank’s loan Growth takes the Sting out of Profit Miss

A look at Kotak Mahindra Bank’s rising loan growth should be enough for investors to forgive the lender for missing Street estimates of net profit for the quarter ended June.
Kotak Mahindra Bank posted a net profit of Rs912.73 crore, a 23% growth from a year-ago period.

Six analysts polled by Bloomberg forecast a net profit of Rs963.40 crore. The miss caused the stock to close 1.44% down for the day. The private lender’s net interest income, or the core income a bank earns, grew at a sedate pace of 17% to Rs2,246 crore.

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But the growth in its loan book was 18%, higher for a second consecutive quarter. This comes on the back of a strong growth of 21% in the corporate loan book, unlike most peer banks running after retail business. Not that the lender’s retail loan book growth is to be scoffed at.

At 20%, Kotak Mahindra Bank’s retail loans that consist of home loans, loan against property, loans to small businesses and other unsecured credit card and personal lending, too matched the speed of corporate disbursals.

The management’s comments on the outlook for loan growth and asset quality for the financial year are reassuring as well.
With its loan book expansion inching back to early 2016-17 levels, coupled with an enviable asset quality, picking out sore spots would be like splitting hairs for investors.

Wednesday, 12 July 2017

Jet Airways in talks with airlines, PE Players to Raise Funds

Jet Airways is in discussions with a few foreign airlines and private equity players for raising funds by selling stake, investment banking sources said as per the PTI report. The leading full service airline, where Abu Dhabi-based Etihad Airways already has 24 per cent strategic stake, has been looking to raise funds for expanding operations. 

The airline has already appointed an investment banker to explore various options for raising fresh funds, including through possible stake sale, the sources said, requesting anonymity as discussions are at an exploratory stage.

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The sources also said that initial discussions are going on with a few foreign carriers apart from some private equity firms. Queries sent to a Jet Airways spokesperson remained unanswered. Earlier this month, the airline neither confirmed nor denied reports that it was in exploratory talks with US-based Delta Air Lines to sell stake. 

"We are committed to make appropriate disclosures in accordance with applicable regulations to avoid any speculative activities and state that there is no discussion or decision in the board which would require disclosure under Regulation 30 of Sebi (Listing Obligations and Listing Requirements) Regulations, 2015," Jet Airways had said in a filing to the stock exchanges on July 3. 

Last week, Etihad Airways had told PTI that it is committed to the strategic partnership with Jet Airways that continues to be strong and healthy. "We remain committed to our strategic partnership which has grown to become the largest carriers of international traffic to and from India with one in five passengers flying with Etihad Airways and Jet Airways.

Union Bank appoints Kewal Handa as Chairman

Union Bank of India said Kewal Handa, former Managing Director of pharma major Pfizer India, has been appointed as its Chairman for three years. Handa has been appointed non-executive chairman and part-time non-official director as per a notification of the finance ministry, the lender said in a BSE filing.

He was MD of Pfizer India from 2005-2012 and prior to that had served as Executive Director - Finance in the company. 

Handa has worked in domestic and global generic business and has experience in markets like the US, South East Asia, Africa, Bangladesh and Sri Lanka, the filing added.

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Tata Motors extends Ace family of small commercial vehicles

Automobile major Tata Motors on Tuesday extended its Ace vehicles with the introduction of the new XL range of small commercial cargo vehicles.

"Being the market leader in this segment, we understand our customer requirements very well and the new XL range emerges out of this in-depth knowledge and consumer insight," said R.T. Wasan, Head for Sales and Marketing, Commercial Vehicles, Tata Motors.

"With the introduction of BS-IV compliant XL range of SCV, we are offering a complete portfolio of last mile delivery solutions and addressing the emerging needs for a safer, economical, and more reliable business transport solutions."
According to the company, the vehicle is strategically designed to perform all tasks for the last mile cargo movement.

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Aadhaar plays key role in removing Corruption

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Union Minister for Electronics & IT and Law Justice, Ravi Shankar Prasad has said that Aadhaar has played an effective role in removing corruption and enabling citizen empowerment. Inaugurating a CSC SPV organized a workshop on “Aadhaar Services through organized Unique Initiative”, the Minister appreciated the efforts of the enterprising Village Level Entrepreneurs (VLEs) in delivering Aadhaar services among the poor and marginalized communities in India, through the Common Services Centres (CSCs).

Minister said, “I have great expectation from CSC VLEs. Our VLEs are change makers of India. CSCs have given employment to 10 lakh people in India. I am confident that in near future, one crore people will work in CSCs.” Recounting the strength of VLEs in mobilizing citizens under Government campaigns, the Minister said: “I am happy to note that the VLEs have trained 2 crore people in the Cashless India movement.” “Recently, Union Textile Minister Smt. Smriti Irani sought the support of VLEs in the expansion of handloom.

Rupee Strengthens Marginally Against US Dollar Ahead of key Data

The Indian rupee strengthened marginally against the US dollar ahead of the key consumer price inflation and industrial production data due after 5.30pm on Wednesday.

The rupee opened at 64.52 a dollar. At 9.15am, the rupee was trading at 64.51 a dollar, up 0.13% from its Tuesday’s close of 64.59.

The 10-year bond yield was at 6.473%, compared to its previous close of 6.485%. Bond yields and prices move in opposite directions.

According to a Bloomberg poll, the Consumer Price Index (CPI) for June will be at 1.67% from 2.18% a month ago while Index of Industrial Production (IIP) will be 1.7% in May versus 3.1% in April. Traders are cautious ahead of the testimony from Federal Reserve chair Janet Yellen and reports of Donald Trump Jr.’s contact with a Russian lawyer.

The catalyst was the release of emails by the president’s son that said the Russian government backed his father’s presidential campaign and was trying to damage Hillary Clinton, Bloomberg reported.

The benchmark Sensex index rose 0.23% or 72.67 points to 31,819.25. So far this year, it has risen 19.11%.

So far this year, the rupee has gained 5.18%, while foreign investors bought $8.26 billion and $14.64 billion in local equity and debt markets, respectively.

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Opening bell: Asian markets open mixed; Tata Steel, Tata Beverages, IDBI Bank in news

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US markets close flat; Asia mixed

Asian markets opened mixed. Markets in Japan and Australia weakened in the morning trade. But the broader index of Asia-Pacific shares outside Japan held up in green, reportsReuters. Overnight, the US markets closed flat after volatile trade.

Dry spell threatens Indian summer crops

Farmers are facing the risk of planting too much, too fast in the current monsoon season as an unexpected dry spell starts to wilt summer-sown crops, raising fears of lower yields, reports Reuters. According to the report, the ongoing dryness is affecting central, western and southern parts of India.

Tata Steel’s UK arm to sell two pipe mills to Liberty House Group

Tata Steel Ltd has said its UK subsidiary had signed a definitive agreement to sell two pipe mills in Hartlepool, England to Liberty House Group.

Tata Global Beverages to divest stake in group’s firms to parent

Tata Global Beverages Ltd has decided to sell its stake in various Tata group listed companies to its parent, Tata Sons, reportsBusiness Standard. According to the report, Tata Global Beverages owns close to Rs755 crore worth of stake in other group firms.

Maruti Suzuki unseats Mahindra as top utility vehicle maker in Q1

Mahindra and Mahindra Ltd’s core utility vehicle segment is under attack. The company has lost its pole position in the segment to Maruti Suzuki India Ltd, shows the latest data from Society of Indian Automobile Manufacturers, reports Mint.

IDBI Bank’s gross NPA divergence Rs6,816 crore for FY16

IDBI Bank Ltd has said that the divergence between its own gross bad loan estimates and those made by the Reserve Bank of India (RBI) was Rs6,816.60 crore at the end of 2015-16. Read more

Torrent Pharma’s Dahej unit gets US FDA observations

The US drug regulator has issued five observations related to two products from Torrent Pharmaceuticals Ltd’s Dahej plant that are awaiting approvals, reports Business Standard.

Fairfax, ICICI Bank to pare stake in ICICI Lombard IPO

The initial public offering (IPO) of ICICI Lombard General Insurance Co. Ltd will see its founders ICICI Bank Ltd and Prem Watsa’s Fairfax Financial Holdings Ltd collectively dilute a stake of at least 20%, reports Mint.

How Excess Capacities are Fuelling the Solar boom

Solar power tariffs, which have more than halved over the last two years, may continue to trend lower. An analysis by Morgan Stanley research estimates solar panel capacities to exceed installations by 45% in 2017, putting downward pressure on tariffs.

Solar panels are an important component, constituting as much as 40% of the utility scale project cost. In 2016, capacities exceeded installations by 28%. With the industry forecast to add 6,000 megawatts of new capacities and global installations estimate to soften, the demand-supply gap is estimated to widen this year, weighing on panel prices. “Following a 30% price decline in 2016, we expect a further 20% decline by the end of 2017,” Morgan Stanley said in a note.

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Solar installations in Japan, China, the UK and some other markets are estimated to slow this year. It has to be seen how long solar panel manufacturers will endure the downtrend in prices. According to JM Financial Institutional Securities Ltd, Chinese manufacturers, large suppliers of panels to India, may not be recovering fixed costs at current prices.

“While Chinese suppliers may not be recovering fixed costs at current prices, a shrinking solar market in China, Europe and anti import trends in US can lead to prolonged period of pain for Chinese module makers—a boon for Indian solar programme,” JM Financial said in a note.