Equity Research Report Ways2Capital 19 December 2016

Last week Equity Market witnessed one of the historic events in the Indian Economy where after the Demonetization, markets were keenly expecting a minimum of 25 bps rate cu

TECHNICAL TREND ( NIFTY - BANK NIFTY FUTURES )
NIFTY FIFTY : - Last week Equity Market witnessed one of the historic events in the Indian Economy where after the Demonetization, markets were keenly expecting a minimum of 25 bps rate cut. But, to surprise all, Reserve Bank of India kept the stance unchanged shocking the markets on Wednesday. The Indian Equity benchmark Nifty opened in a negative bias on Monday trading Session Down by 31 points or 0.37 at 8230. The Last Week upside rally was contributed by strong fundamentals of the Indian economy accompanied with strong International markets. In last 24 trading sessions post Demonetisation, Nifty 50 has thereafter made a low of 7916 on 21 November and two successive tops around 8250 on 01 December and again 8274 on 09 December. The Nifty is currently showing a range of 8180 - 8300 with good supports holding the base strongly. During the discussed period, domestic indices were mostly driven by internal issues or sentiments and an impact of global coupling was quite limited or shortlived. Combination of stronger USD and domestic jitters of economic slowdown and political disruptions as a result of demonetization may be significant headwinds for the Indian market in the coming Weeks despite relatively better macros among its EM peers. unless & until Nifty sustained above 8100-8200 zone for a few days, any “Santa” or “Pre-Budget” Rally in the absence of FII’s in this month of Dec may be utilized for long profit booking to prepare for a probable Jan-March selling spree, despite a hope for a “dream budget”. On Thursday trading Session The Nifty opened at 8229 and that was the day's high too. It fell sharply by 61 points to test its previous day's low of 8172 after making a low of 8172. Yellen’s comments about the 0.25% rate hike as “very modest adjustment” and her “confidence” in the US economy has sent the USD & US bond yields soaring and for the first time after a decade. Technically, Nifty still in positive zone. Market needs to close below 8170 for Nifty to enter into negative zone. US FED increased Interest Rates by 25 bps, which was very much expected by the markets. Market would see roller-coaster rides Next week. There is possibility of recovery after a negative opening but direction would remain uncertain until closing. Traders can initiate short positions only if Nifty closes below 8170. Nifty would see strong support at 8145-8100-8077-8000 whereas strong resistance would be seen at 8200-8230-8265-8280-8310 levels.
BANK NIFTY : - The Indian Baking index Bank Nifty opened in a Negative note down by 79 points or 0.42 per cent at 18616. The Reserve Bank has directed banks to keep record of new bank notes in view of seizures by Income Tax Department and other law enforcement agencies of large quantities of high denomination notes. It has been felt necessary to put in place an appropriate reporting system to keep track of issuance of these bank notes by the currency chests. Nifty Bank is still in positive zone. Bank Nifty would enter into negative zone once it closes below 18255 levels. Market may see some short covering but for now, Bank Nifty looks weak and traders can go short at every positive rally in the Market. Bank Nifty would soon enter into negative zone once it closes below 18255 levels and we could see some sharp downfall in the market in days to come. The Bank Nifty is expected to trade in bullish trend for next trading week. The Significance Levels for Bank Nifty is 18833-19759 is Upside and 17907-16981 is down side.



NSE - WEEKLY NEWS LETTERS
? TOP NEWS OF THE WEEK

Industrial production shrinks 1.9% in October - Industrial production contracted in October, resuming its decline after marginal growth in September, suggesting more pain going ahead as the impact of note withdrawal begins to show up. The Index of Industrial Production fell 1.9 per cent in October compared with a 0.7 per cent rise in September and 9.8 per cent growth in the year-ago month, data released by the Central Statistics Office on Friday showed. In the April-October period, production declined 0.3 per cent compared with 4.8 per cent growth last year. "Despite a good monsoon and the onset of the festival season, a lacklustre performance of industrial growth performance is indeed disappointing and reiterates the fear that health of industrial sector is in trouble," said Sunil Sinha, principal economist, India Ratings & Research. The consensus was for about 1 per cent growth. Industrial production has contracted in four out of seven months so far this fiscal. Some early numbers suggested industrial production will take a bigger knock following the government’s move to invalidate `500 and `1,000 notes on November 8. Sales of passenger vehicles rose a modest 1.82 per cent in November.

CBDT tries to allay tax terror fears as businesses go digital - An increase in turnover of a business owing to its accepting digital means of payment will not trigger reopening of cases of past years, according to a clarification issued by the Central Board of Direct Taxes. The Income Tax regulatory authority has sought to allay fears of tax terror, especially among the smaller and medium-sized business entities, many of which — in the back drop of demonetisation — would be accepting digital payments for the first time. These include retail stores, restaurants and other service agencies, ranging from coaching classes to beauty parlours. In its circular, CBDT explains, "By adopting the digital mode of payment, no financial transactions would remain undisclosed and consequently an enhanced turnover of business might get reflected in the books of accounts. "An apprehension was raised by the business community that increased turnover in the current year may lead to reopening of earlier years' cases where the turnover was lower. Reopening would cause undue harassment to taxpayers.

India's current account gap in July-Sept at 0.6% of GDP - The current account deficit narrowed by more than a percentage point to 0.6 per cent of GDP at USD 3.4 billion in the July-September on account of lower trade deficit. The July-September CAD is lower than USD 8.5 billion, or 1.7 per cent of GDP, in the same quarter of last fiscal. It is, however, higher than USD 0.3 billion or 0.1 per cent recorded in the first quarter of the current fiscal. According to RBI data, private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to USD 15.2 billion, registering a decline by 10.7 per cent from the previous level a year ago. "The contraction in the CAD on year-on-year basis was primarily on account of lower trade deficit (USD 25.6 billion) brought about by a larger decline in merchandise imports relative to exports," the RBI said in a statement. Net services receipts moderated on annual basis, primarily owing to the fall in earnings from software, financial services and charges for intellectual property rights, it said.

Bring land, realty, power under GST fold, says Arvind Subramanian - As the Narendra Modi government wages its biggest war on black money yet, Chief Economic Advisor Arvind Subramanian today pitched for including land and real estate under the GST regime to check money laundering and corruption. Arvind Subramanian, who for the finance ministry had authored a report on possible tax rates under the Goods and Services Tax, suggested that the new indirect tax set-up should be clean with simple low rates and should include land and property as well as electricity. GST, which the government intends to roll out from April 1, 2017, is to subsume central excise, service tax and state VAT among other indirect levies on manufactured goods and services, but property and electricity have so far not been talked about as being part of it. "I still think we should aspire for simple, clean structure of rates which will have on balance lower and higher rates and that will be a necessary complement to fighting against black money that the Prime Minister has launched with demonetisation of old 500 and 1,000 rupee notes," he said at a conference here. He felt that land and real estate need to be part of the GST.

Bank credit plunges by Rs 61,000 crore in post note ban fortnight - The demand destruction unleashed by the November 8 demonetisation drive saw the bank credit shrinking by a whopping Rs 61,000 crore, or 0.8 per cent, during the fortnight to November 25, show the latest RBI data. But at the same time, the note ban also had a positive effect, as borrowers, including some default accounts, paid back as much as Rs 66,000 crore during the same period. In sharp contrast, during the same fortnight, banks received huge inflows as people deposited as much as Rs 4.03 trillion into the accounts, which as of December 9 crossed Rs 12 trillion, putting all calculations of the Government into a tizzy. Analysts supporting the cash recall move initially claimed that at least 20 per cent, or a little over Rs 3 trillion - out of the total Rs 15.4 trillion of the banned bank notes - would not come back to the banking system, helping the Government net a windfall from the exercise whose stated aim is to root out black money and curb corruption. This, they claimed, would be achieved by writing off a similar amount from the balance sheet of the central bank and then transferring the same the Government as surplus. But with the near total return of the banned notes, all these calculations have gone out of the window. The outstanding credit of banking system stood at Rs 72.92 trillion as of November 25, according to the Reserve Bank data. The year-on-year credit growth was just 6.6 per cent, down from 9.3 per cent a year ago.

Options before government if GST not implemented by September 2017 - Even as Arun Jaitley on Sunday said that the last possible day to pass GST is September 16, many are discussing of what would happen in a worst case scenario, if government were to miss even this deadline? The government is required to implement the Goods and Services Tax by September 16, or there would be no tax law altogether after that since the validity of the recently passed GST bill lapses by then, point out experts. The Parliamentary logjam, with the opposition being relentless in its attack on demonetisation, has impacted government’s planned timeline on GST. “If the GST doesn't come into force by September 16, there is one view that existing specified tax legislations would cease to have effect. Hence, the government is working towards ensuring that GST is implemented before 16th September. It needs to be seen that if the same is not achieved whether the Government has an alternative plan,” said Dharmesh Panchal, India - West Indirect Tax leader, PwC. Experts say that the government may not be in a position to levy any indirect taxes as the current taxes would cease to exist while its replacement GST would not have come into force.

CPI inflation to remain below 5% in first half of 2017: HSBC - The Reserve Bank is expected to meet its target 'comfortably' as CPI inflation is likely to remain well below 5 per cent over the first half of 2017, an HSBC report says. According to the global financial services major, food prices have remained low over the first 10 days of December and it is getting increasingly likely that the RBI will meet its '5 per cent by March' CPI target comfortably. "We expect CPI inflation to remain well below 5 per cent over the first half of 2017," HSBC said in a research note. Retail inflation fell to a two-year low of 3.63 per cent in November following the Centre's demonetisation drive that led to lower consumer spending on various food items including vegetables. The report further said that demonetisation has clearly hurt activity as effective cash in circulation has contracted 60 per cent over the last month.


? TOP ECONOMY NEWS
Industrial production contracts 1.9% in October as against 9.9% growth in the same month last year, driven down by a contraction in manufacturing and mining sectors.

Government realised Rs324.34bn in upfront payment for the spectrum sold in the auction this year, which was lower than Telecom Department's projection of Rs345.86bn.

Direct tax collection was up by 15.12% to Rs 4.12 trillion while indirect tax collection jumped by 26.2% to Rs5.52trn during the April to November period this year.

A major banking sector union asked the RBI to supply adequate cash to nationalised bank branches and ATMs or stop cash transactions, otherwise they may resort to agitation and even go on strike.

In value terms, PE/VC investments in India stood at USD 908 million, down 50% over a deal value of USD 1.82 billion in November last year.

The Directorate General of Anti-Dumping and Allied Duties has recommended imposition of definitive anti-dumping duty on imports of steel tubes and pipes from China.

Premium collection of life insurance companies has more than doubled in November while investment in mutual funds grew by a three-fourth.

The Department of Industrial Policy & Promotion has set up a committee with representatives from various ministries such as food processing, energy and environment as well as industry bodies to identify areas where the US could be persuaded to share technology with India under the bilateral Trade Policy Forum platform.

In value terms, PE/VC investments in India stood at USD 908 million, down 50% over a deal value of USD 1.82 billion in November last year.

The Directorate General of Anti-Dumping and Allied Duties has recommended imposition of definitive anti-dumping duty on imports of steel tubes and pipes from China.

Premium collection of life insurance companies has more than doubled in November while investment in mutual funds grew by a three-fourth.

The Department of Industrial Policy & Promotion has set up a committee with representatives from various ministries such as food processing, energy and environment as well as industry bodies to identify areas where the US could be persuaded to share technology with India under the bilateral Trade Policy Forum platform.

The Wholesale Price Index -based inflation for November 2016 came in at a five-month low of 3.15% against 3.39% in the previous month.

Finance Minister Arun Jaitley hinted that tax rates might be brought down as demonetisation is likely to bring in higher tax revenues from unaccounted wealth.

The Asian Development Bank has trimmed its 2016 growth estimate for India to 7% from the previous 7.4% on account of demonetisation, weak investment and agricultural slowdown.

The demand destruction unleashed by the November 8 demonetisation drive saw the bank credit shrinking by a whopping Rs. 610 billion, or 0.8%, during the fortnight to November 25.

Direct investments by Indian firms abroad plunged by 70.9% year-on-year to USD747.78mn in November 2016.

Reserve Bank of India Deputy Governor R Gandhi said Rs. 12.4 trillion of old notes scrapped have been deposited in banks till December 10.

The Central Electricity Regulatory Commission has admitted the petition filed by the Indian Energy Exchange for the introduction of green power (renewable energy) contracts.

With sharp drop imports, India’s Current Account Deficit declined to USD 3.4 billion (0.6% of GDP) for the second quarter ended September 2016 from USD 8.5 billion (1.7% of GDP) in July-September 2015.

The Consumer Price Index based inflation for November fell to 3.63% against 4.20% reported in previous month.

The Government will start easing restrictions on cash withdrawals once 80 per cent of the new currency introduced following demonetisation is Re-channelised through bank deposits. Restrictions on cash withdrawals will be first eased in the case of cooperative banks and then for all the scheduled commercial banks.

The Supreme Court ordered a ban on all liquor shops on national as well as state highways across the country and made it clear that licences of existing shops will not be renewed after March 31 next year.

Expanding for the third straight month, exports rose 2.29% to US$ 20 billion in November. Imports too increased by 10.44% to US$ 33 billion, leaving a trade deficit of US$ 13 billion in November.


? TOP CORPORATE NEWS -
JSW Energy Limited is believed to have initiated talks for a possible acquisition of Monnet Power’s 1,050 MW coal-fired plant in Odisha at Angul, close to the site of another Group company, Jindal Steel & Power Ltd’s steel making facility.

A group of lenders led by State Bank of India has ordered a forensic audit of Jindal Steel & Power to find out if the company has diverted funds from projects for which the loans were given.

IL&FS Engineering and Construction Co. has emerged as the lowest bidder for rural electrification works of Jharkhand Bijli Vitran Nigam, Ranchi, worth Rs. 2.25 billion.

Tata Consultancy Services, Deloitte Touche, EY and Tally Solutions were among the 34 firms shortlisted to provide interface between the new Goods and Services Tax server and taxpayers.

MIC Electronics Limited has received a letter of award for supply of 20,000 standalone off-grid solar LED street lights with a contract price of Rs. 329 million.

Mahindra & Mahindra Limited has launched the CNG variant of its popular mini-truck Jeeto, priced at Rs. 0.35 million (ex-showroom, Delhi). The CNG variant will be available at the top-end model of Jeeto X716.

Strides Shasun has inked pacts to acquire Perrigo API India for Rs. 1 billion.

State Bank of India sold 3.9% stake in its life insurance venture SBI Life to private equity firms KKR and Temasek. The deal values SBI Life at Rs. 460 billion.

Oil and Natural Gas Corp is awaiting nod of upstream regulator DGH to commence investing USD 5.07 billion in bringing to production oil and gas discoveries in its Bay of Bengal block KG-D5.

Life Insurance Corporation has hiked its stake in Bata India Limited by 2.03%, taking its total shareholding to 7.05% in the company.

Bank of Baroda is in talks to buy a majority stake in Cent Bank Home Fin.

After agreeing to a deal to sell 3.9% stake in SBI Life Insurance, its joint venture with BNP Cardiff, State Bank of India will begin the process for re-valuation of the arm, for a plan to sell a further 10% stake to the partner.

Tata Motors Limited said it will hike the prices of its passenger vehicles by up to Rs. 25,000 from next month in order to offset the increased input costs.

Natco Pharma Limited has launched generic Tamiflu capsules, used for the treatment of influenza, in the American market after the final nod from the US health regulator in Aug 2016.

Alkem Laboratories Limited said the US health regulator has issued three observations after inspection of the company’s API facility at Ankleshwar in Gujarat.

Axis Bank Limited slammed a regional newspaper report stating authorities were preparing to revoke the bank's license as "false and malafide", saying it had strong systems and controls in place as per central bank rules.

Sun Pharma and Moebius Medical have entered into an exclusive worldwide licensing deal to further develop MM-II, a novel pharmaceutical candidate for the treatment of pain in osteoarthritis.

Glenmark Pharmaceuticals Limited US business has received a boost with the launch of generic version of cholesterol drug Zetia in that market.

Morgan Stanley will buy 50 million shares 1.73% stake in Tata Motors Limited on behalf of an undisclosed client. The shares will be bought at an upper cap of Rs. 499.8, nearly 10% premium to last closing price of Rs. 454.55. At the top end, the deal size translates into Rs. 25 billion.

A massive fire has engulfed the premises of Syngene, the contract research subsidiary of Biocon Limited , possibly due to a chemical leak.

Petroleum and Natural Gas Regulatory Board last week gave GAIL India Limited four more years till February 2019 to complete the 1104 km Kochi-Koottanad-Bengaluru-Mangaluru natural gas pipeline. The Rs. 44.93 billion project was originally to be completed in March 2013.


An overwhelming majority of shareholders of Tata Consultancy Services voted to oust Cyrus Mistry as director from the company’s board at the company’s extraordinary general meeting held in Mumbai.

The US drug regulator has flagged serious problems with the testing programmes at drugmaker Sun Pharma's manufacturing facility at Halol.

Bharti Airtel Limited and Vodafone India are pushing ahead the government's broad agenda to move towards cashless economy, at a time when demonetisation has crippled cash payments due to inadequate cash in the system.

Bajaj Electricals Limited has entered into a strategic alliance with the UK-based firm Gooee to create lighting products and solutions on the Internet of Things platform.

NTPC Limited has lined up investments worth Rs. 26.48 billion for developing three coal blocks in Odisha.

Lupin Limited has received approval from the US health regulator to market its Desoximetasone ointment, used for providing relief from inflammation and itching in a skin disease.

Indian Oil Corp sought up to 80,000 t of 40ppm sulphur diesel for delivery in late December.

Wipro Limited chief executive has split the information technology major's India and Middle East business in two. And, carved a separate hyper automation group by consolidating the Artificial Intelligence assets such as Holmes that would be headed by its chief technology officer, K R Sanjiv.

Infosys Limited has invested an undisclosed amount in ideaForge , which counts India’s armed and paramilitary forces as its biggest customers.

NTPC Limited has decided to replace over 25-year-old power plants totaling 11GW capacity in the next five years at an investment of Rs. 500 billion.

Bajaj Auto Limited launched its latest sports bike Dominar 400 priced up to Rs 1.5 lakh (ex-showroom Delhi) as it looks to challenge segment leader Royal Enfield in the Rs 1-2 lakh category.

Cipla Limited subsidiary in the Netherlands will pump in up to euro 16.8 million to form a joint venture with its Iranian distributor Ahran Tejarat Company. The JV proposes to undertake manufacturing and marketing of pharmaceutical products in Iran.

Welspun India Limited is investing Rs 600 crore for setting up a facility for manufacturing carpets, area rugs and carpet tiles here, marking the leading global home textile firm's foray into flooring solutions segment


? TOP BANKING AND FINANCIAL NEWS OF THE WEEK
The finance ministry has written to all banks to keep a tight watch on cash deposits as seizure of large hauls of old and new currency notes and gold continues, suggesting connivance of banks in money laundering. It has directed state-run banks and the Indian Bankers Association to ensure that deposits of new and old currency notes are properly reflected in the customers’ counterfoils and bank records. There have been concerns that deposits in new or valid currency may have be shown as deposits in the demonetised Rs. 500 and Rs. 1000 notes and the legal currency diverted for laundering.

To avoid any malpractices, the government today asked all public sector banks to strictly maintain record of deposits made through both old Rs. 500/1,000 notes and other valid currencies. In a letter written to chief executive officers of public sector banks, the Finance Ministry asked that "maintenance of records regarding deposit of Specified Bank Note and Non-SBN, as the case may be, is essential both in the bank record as well as the customers record.

With more and more instances of money laundering and fraudulent currency exchange surfacing, RBI today warned of stern action against wrongdoers and asked banks to carry out a thorough central data checking, while it suspended a "junior functionary" who is being investigated. "We have issued elaborate instructions to all banks to do the central data checking and wherever they find any inconsistency, it should be pursued further through their internal audit mechanism," said deputy governor of RBI, S S Mundra, speaking to a select group of reporters here.

The office of the banking ombudsman received 1.02 lakh consumer complaints in FY16, up 21% during the year. The Banking Ombudsman Scheme aims to provide a quick and cost-free resolution mechanism for complaints relating to deficiency of banking services of common bank customers who otherwise find it difficult or cost-prohibitive to approach any other forum such as courts. The maximum rise in complaints were against private sector banks, which rose 36.5%.

The Supreme Court today expressed concern over lack of infrastructure, manpower and other facilities at Debt Recovery Tribunals and their appellate bodies and said lakhs of crores of rupees are non-performing assets as the recovery mechanism is not up to the mark. The bench headed by Chief Justice T S Thakur also said that it may ask the National Law School and IIM at Bangalore to jointly conduct a study as to what "ails" these quasi- judicial bodies -- DRTs and Debt Recovery Appellate Tribunals, meant for recovering bad loans of financial institutions.

The broader banking system in India will continue to be capital constrained and it will require an additional capital of up to Rs 1.2 lakh crore or USD 18 billion over next three years, says a report. In order to thrive in a resource-constrained world, banks will need to have a razor-sharp focus on managing their capital and their risk-return profiles, said the report by management consulting firm Oliver Wyman.

Small finance banks funding mix will be different and complex after their transition from non-banking finance companies and microfinance institutions and they are likely to need Rs. 60,000 crore of non-equity funding by the financial year 2019-2020, according to a report. The current funding mix for MFIs includes bank debt, other borrowings and equity, with bank debt being the largest proportion in the mix. Scheduled Commercial Banks prefer funding MFIs because these advances qualify as priority sector lending for them.

The Reserve Bank of India has ordered banks to investigate instances of unusual patterns in cash management at branches and currency chests — a move aimed to prevent unauthorised exchange of scrapped notes for new notes. The banking regulator has asked banks to immediately bring to their notice any such malpractice found at their bank and also track the complete trail if cash movement is in large quantity.


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