Equity Research Report Ways2Capital 12 June 2017

NIFTY FIFTY : - Indian shares hit new record highs in last week trading sessions, on hopes of good southwest monsoon rain, robust monthly sales figures from automakers and positive global cues helping investor sentiment

TECHNICAL TREND ( NIFTY - BANK NIFTY FUTURES )
NIFTY FIFTY : - Indian shares hit new record highs in last week trading sessions, on hopes of good southwest monsoon rain, robust monthly sales figures from automakers and positive global cues helping investor sentiment. The Indian Benchmark Index Nifty made a record high of 9687 on Monday 5th June. The Index opened at 9656 and closed at 9675. After the announcement of RBI Monetory Policy. RBI kept repo rate unchanged at 6.25% but cut statutory liquidity ratio by 50 basis points to 20%. The Indian Benchmark Index Nifty closed slightly higher at 9664 after making a high of 9679.  After the unexpected result from UK, risk trade may suffer in the short term; but the positive side may be the real Brexit will not happen at all. But still then, the resultant uncertainty may not be good for the overall global as well Domestic Market sentiment. Although overall tone of RBI was less hawkish than expected, a rate cut in H1FY18 may be still not sacrosanct as MPC will watch various macro data more carefully before changing their stance from neutral to accommodative again. Apart from macro data & progress of monsoon and GST implementation, As of Now Time and Price Action Suggest that the Nifty to Sustain over 9620 level for Further Up move toward 9680-9740, On the Flip side Sustaining below may drag the Index Toward 9585-9436 in Next week trading session. .
BANK NIFTY : - Bank Nifty also made a record high of 23495 in the last trading session of last week trading session and closed at 23460.Yes Bank was up by 2.82%, Axis Bank up by 1.10% , were among the top movers in the Index.   The Index made a record high of 9709 on Tuesday 6th June. The Index opened at 9704 and closed at 9637. Bank Nifty also made a record high of 23536 in the last trading session and closed at 23416. Reserve Bank of India announced its monetary Policy Central Banks Kept repo rate unchanged at 6.25% but cut statutory liquidity ratio by 50 basis points to 20%. This will infuse more liquidity into the banking system.  for Bank Nifty, actual FY-17 EPS may be around 795, if NSE data is correct or updated as of now. This is against FY-16 EPS of around 900, which translates a degrowth of almost 11.64%. Average CAGR of Bank Nifty may be around 8%, but for the last two years, average CAGR may be around (-) 8.5% due to huge NPA provisions.Bank Nifty may also be very expensive despite positive EBITDA, because actual NPA resolution is not happening as expected. Bank Nifty need to Sustain above 23400-520 level for Strength , The Significance Levels for Bank Nifty is 23510-23688 is up side and 23353-23237 is down side.


NSE - WEEKLY NEWS LETTERS
? TOP NEWS OF THE WEEK
Loan waiver to hurt credit discipline, impact fiscal, says experts - The loan waiver of Rs 30,000 crore will affect the state fiscal and ‘impact the credit discipline’ among borrowers, according to experts. Eleven days after farmers protest, the Maharashtra government has announced a farm loan waiver for small and marginal farmers on Sunday.  According to India Rating report, the impact of the waiver will be felt over a period of time, although it will push up states' fiscal deficit to 2.71 per cent as against 1.53 per cent budgeted for the fiscal year 2017-18. The rating company estimates that the debt burden will rise 17.44 per cent against 16.2 per cent estimated for the fiscal year 2017-18.  Maharashtra is the second BJP government governed state after Uttar Pradesh to have announced a farm loan waiver. Soon after BJP won an election in UP, the state government had announced a farm loan waiver of Rs 36,359 crore. A day after UP government had announced a waiver, governor of the Reserve Bank of India (RBI) Urjit Patel, had denounced it. “I think it undermines an honest credit culture. It impacts credit discipline. In other words, waivers are in general more of hazard,” he had said speaking to media. “Waivers are in general more of hazard. It also entails at the end of the day transfer from taxpayers to borrowers,” he added. 

GST Council to meet on June 11 to review rates, amend rules - The all powerful GST Council will meet on Sunday to review some of the rates on which industry has expressed displeasure, besides amending the draft rules.  This will be the 16th meeting of the Council, chaired by Finance Minister Arun Jaitley and comprising state counterparts, since it was set up in September 2016.  "Main agenda items include confirmation of the minutes of the 15th GST Council meeting held on June 3, approval of amendments to draft GST rules and rate adjustment, if any, based on the representations received from different trade and industry and their associations," a finance ministry statement said.  The June 11 meeting would probably be the last one of the Council before the Goods and Services Tax (GST) is rolled out from July 1.  Various industry associations have sought a review of the tax rates saying that the GST incidence is working out to be much higher than the present level of taxation.  The auto industry has been demanding a review of the GST rate on mid and large-sized hybrid cars which are proposed to be taxed at 43 per cent, higher than the current level of effective tax rate of 30.3 per cent. Also, the telecom sector has been placed in the 18 per cent tax bracket and they are demanding that the rate should be lowered. COAI has written to Revenue Secretary to review the matter. IT hardware firms are seeking an uniform GST rate of 18 per cent on IT products, like monitors and printers, instead of 28 per cent proposed for some items. The GST Council has fitted almost all goods and services in tax slabs of 5, 12, 18 and 28 per cent. However, precious metals, gold coins and imitation jewellery have been fitted in the 3 per cent slab, and rough diamond at 0.25 per cent.  The GST, which will subsume a host of levies including excise, service tax and VAT, will be rolled out from July 1. 

Economy headed for consolidation, says RBI survey  - The economy will gradually consolidate growth in the current fiscal, predicted 28 forecasters surveyed by the Reserve Bank. As per the survey result posted on the RBI website, real GDP and real GVA are expected to grow by 7.4 per cent and 7.2 per cent, respectively, in 2017-18 and consolidate further by 40 basis points and 50 bps, respectively in the following year.  The RBI has been conducting the Survey of Professional Forecasters since September 2007 and the latest (46th round) was conducted during May 2017.  According to the forecasters, retail inflation is expected to gradually rise to 5 per cent by the fourth quarter of 2017-18. The consumer price inflation was 2.99 per cent in April.  On the external front, they expect foreign trade to shed its recent sluggishness as there is a "greater optimism" around the growth of both exports and imports than in previous rounds of surveys, which is expected to sustain in 2018-19.  Meanwhile, the Consumer Confidence Survey conducted by the RBI in six metropolitan cities revealed that households' current perception of the economic situation improved slightly in May though net responses remained in the negative zone for the second consecutive round.  Respondents' outlook on the future economic situation was, however, more optimistic," the survey said. 

HSBC sees India growth unchanged at 7.1% this fiscal - India's growth is likely to remain unchanged at 7.1 per cent this fiscal, as investments are low and government spending may not remain high given the fiscal consolidation path the country is treading, says a report. Growth numbers were marked down marginally but still remain higher than ours," HSBC said in a research note. It further said, "we have a below-consensus view that growth will be flat at 7.1 per cent in 2017-18".  According to the global financial services major HSBC, output gap in the country is likely to remain negative for longer period of time.  In its policy review meet yesterday, the central bank also lowered its growth forecast to 7.3 per cent, from 7.4 per cent earlier.  The report said that investment still remained low in the country, while urban wages are growing but at multi-year lows. Moreover, government spending may not remain as high given the fiscal consolidation path, and the rise in exports over the last few months are showing some signs of moderation.  HSBC said though "rural growth could come in high if rains are strong, but that would just about offset the weakness from other sectors. This means that the output gap is likely to remain negative for longer".  Regarding RBI's monetary policy stance, the report said a prolonged pause is likely with risks of a rate cut in August.  Given that we believe inflation expectations have fallen into a virtuous cycle, anchoring inflation at around 4 per cent, we do not find a pressing need for the RBI to either cut or hike policy rates by a large quantum," it said. 


GST's impact will be disruptive, but positive: World Gold Council  - With the Goods and Service Tax Council deciding to put gold under three per cent tax bracket, World Gold Council sees the impact to be "disruptive" with change in consumer behaviour in the coming days. But the net impact is expected to be positive, it said. We see consumer behaviour changing in response to GST. Our econometric analysis spanning 26 years of data illustrates that higher taxes act as a headwind to gold demand. But the tax should also change the industry to the benefit of the consumer," WGC said here in a report on Thursday. The report -- GST's impact on India's gold market -- said while gold consumers will face a slightly higher tax rate, the industry will go through a period of adjustment.  We believe GST may be disruptive in the short term as the industry adjusts to the new tax regime. Manufacturers' and retailers' working capital could be tied up because of inter-state gold stock transfers," it said. 

Met Office updates monsoon forecast to 98% of normal - The weather office expects higher monsoon rainfall this year than its forecast in April because of favourable developments in global conditions, particularly the lower prospects of rain-busting El Nino conditions in the Pacific Ocean.  The updated forecast of 98% of normal rainfall will cheer farmers and policy makers and help to control food inflation, which is a key input in the Reserve Bank of India’s stance towards interest rates. The India Meteorological Department has also forecast good monsoon activity in the crucial months of July and August, when rainfall has the biggest influence on the growth of crops and output.  “As per IMD model, there is less probability of El Nino during the monsoon season. We can expect a minimum impact of El Nino on the south-west monsoon,” said a senior IMD official.  IMD’s optimistic forecast was corroborated by the widely respected Australian weather office, which said the El Nino phenomenon, associated with abnormal warming of parts of the Pacific Ocean, had stopped developing, although it has still not been ruled out. The Australian Bureau of Meteorology, in its latest assessment of El Nino on Tuesday, said El Nino indicators, which had developed in the past, were showing little or no progress in the past few weeks. Sea surface temperatures across the tropical Pacific remain warmer than average, though cooling has occurred in some areas over recent weeks in response to stronger than average trade winds,” it said. 

FDI in services up 26 per cent to $8.68 billion in FY17  - FDI inflows into the services sector rose by about 26 per cent to $8.68 billion in 2016- 17 with the government taking steps to improve the ease of doing business and attracting foreign investments. The sector, which includes banking, insurance, outsourcing, R&D, courier and technology testing, had received foreign direct investment (FDI) worth $6.89 billion in 2015-16, according to data of the Department of Industrial Policy and Promotion .  The government has taken several measures such as fixing timeliness for approvals and streamlining procedures to improve ease of doing business in the country and attract foreign investments.  With FDI growth in key sectors like services and telecom, the overall foreign investment inflows in the country too increased by 9 per cent to $43.5 billion last fiscal. Increasing foreign inflows in the services sector assumes significance as it contributes over 60 per cent to India's GDP. 

View: Forget GDP, worry about the financial state of our states - For a government so focused on triumphal messaging and with the '3 saal bemisal' celebrations reaching a crescendo, new economic numbers released this week make for sobering reading. Finance minister Arun Jaitley has pointed to the impact of global factors, vociferously asserting that 7-8% growth is the new normal and "fairly reasonable". The government's chief statistician TCA Anant thinks that slowdown concerns shouldn't be overplayed just yet, that the economy is still growing rapidly even if "not as fast as we would have liked". Yet, the trajectory of the numbers is clear: India's GDP growth slowed down sharply in January-March this year to 6.1%, down from 7% in the previous quarter, and to a three-year low of 7.1% overall in 2016-17.  While economists continue to debate the slowdown and whether the demonetisation gamble was responsible (no, says the government), what should concern us all even more is the declining financial state of our states. While all attention has been focused on Modi sarkar, many of our states have been borrowing money like there is no tomorrow. Reserve Bank of India (RBI) recently reported that the debt-to-state GDP ratio of as many as 17 Indian states increased in the past year. For all states taken together, this ratio hit an alarming 3.6% in 2015-16 (breaching the mandated 3% ceiling under fiscal prudence rules) for the first time in 10 years. 

India's national accounts on economic growth wrong: Expert - India is not growing at a seven per cent rate as being reported by the government, an eminent Indian-origin economist has claimed, citing flat growth in several key sectors.  "They (India's national accounts) show India's growing at seven per cent a year. But I along with many other economists, I'm afraid don't believe the national accounts. They were redone in 2011," Vijay R Joshi, Emeritus Fellow of Merton College, Oxford and Reader Emeritus in Economics, University of Oxford, told a Washington audience. Joshi, the author of a book titled 'India's Long Road--The Search for Prosperity' alleged that India's growth rate is back at 5.5 per cent, but the national accounts show a much rosier picture. During a discussion organised by the Carnegie Endowment for International Peace, a top American think-tank, the London-based economist gave several reasons to prove his point.  "I will say one thing, (India's national accounts) is the only place where you can see seven per cent growth. You can't see it anywhere else. If you look at exports and imports, they have been flat. Shrinking or flat or growing very slowly. If you look at employment in the organised sector it's at a standstill," he argued. 


? TOP ECONOMY NEWS
India's forex reserves surged by $2.404 billion to reach life-time high of $381.167 billion in the week to June 2 on account of rise in foreign currency assets, the Reserve Bank said today. In the previous week, the reserves had declined by $547 million to $378.763 billion.  Foreign currency assets (FCAs), a major component of overall reserves, increased by $2.748 billion to $357.290 billion in the reporting week, RBI said. 

The farm loan waiver worth Rs 30000 crore announced by the Maharashtra government will be at the cost of capital expenditure and also push up the fiscal deficit, notes ratings firm India Ratings. The loan waiver for small and marginal farmers will push up states' fiscal deficit to 2.71% (budgeted: 1.53%) in FY’18 of gross state domestic product, India Ratings said in a report. In order to manage the elevated debt levels, the state could reduce expenditure on capital formation. It said that the loan waiver is likely to reduce the fiscal space for the government to undertake higher capital expenditure over the medium-term, thus affecting its medium-term growth prospects. 

Vikas Patharkar borrowed $700,000 in 2014 to set up a factory to make electric transformers on the outskirts of Mumbai, buoyed by the promise of massive government spending and hopes of a strong economic rebound. Three years later, production has yet to begin. But servicing the debt is cutting into overall profits at his Lustre Engineering, which also offers electrical services, and the 59-year-old may have to sell off assets to repay the bank. 

The Reserve Bank of India has identified a few large stressed accounts which will be either restructured or referred to Insolvency and Bankruptcy Code – a move that could set the ball rolling for resolution of problem loans to be led by the central bank. This development comes as a follow up to the ordinance issued by the government in May that empowering the central bank to enforce resolution of problem loans.

Inflation in India is expected to have cooled to a new record low in May, a Reuters poll found, which could add pressure on the Reserve Bank of India to cut interest rates later in the year. The consumer price index likely rose 2.60 per cent in May from a year earlier, dipping from 2.99 per cent in April, due to a fall in the cost of pulses, cereals and perishable goods, according to the poll of 25 economists. That would be the lowest level since the series began in 2012 and remain below the RBI's medium-term target of 4.0 per cent for the seventh successive month. Forecasts ranged from 2.26 per cent to 3.49 per cent. The data will be released on June 12 at 1200 GMT. 

Despite stagnant foreign direct investment inflow of $ 44 billion in 2016, India will most likely remain most favoured destination due to its attractiveness among MNCs for cross-border mergers and acquisitions, a UN trade report has said. On the flip side, it said there are tax related concerns that may pose as deterrent to some foreign investors. In South Asia, FDI inflows increased by 6 per cent to $54 billion in 2016.

RBI expects retail inflation to fall to 2-3.5 per cent in the first half of current fiscal and move up to 4.5 per cent in the second half saying that rush for farm loan waivers may have inflationary spillovers.  The abrupt and significant retreat of inflation in April from the firming trajectory that was developing in February and March has raised several issues that have to be factored into the inflation projections, it said. 

Farm loan waivers will amount to 2 per cent of GDP by 2019 polls as other states may follow BJP's Maharashtra and UP governments, says a Bank of America Merrill Lynch report. We expect almost all States to write off about $40 billion of farm loans in the run up to the 2019 general elections following the ruling BJP's UP and Maharashtra governments' waivers," BofAML said in a research note. 

Services sector activity rose to its highest in four months in May, driven by an upturn in incoming new business, a private survey showed on Monday. The Nikkei India Services Business Activity Index climbed to 52.2 in the past month from 50.2 in April, marking a strong rebound in a sector that makes up nearly 60% of the economy.  India's economy grew 6.1% in the January-March quarter, its lowest in more than two years. The new survey suggests a rebound in the first quarter of the current fiscal year. 

The GST Council will examine the concerns of trade and industry regarding the rates and the rollout of Goods and Services Tax will be implemented from July 1, Union Minister Arjun Ram Meghwal said today.  "If any trade or business organization feels there's any anomaly in the calculation of rate of tax or fitment formula under GST, they can send their representations. The government is open (to look at it) if the amendments is in the interest of country, trade and traders. But it is the GST council which is to make a final decision on it," Meghwal, Minister of State for Finance. 

Finance minister Arun Jaitley will review the performance of state-run banks and financial institutions on June 12, the finance ministry said in a statement. This will be the first such review meeting in this financial year and the government will take up issues and solutions relating to non-performing assets or NPAs of public sector banks, status of MSE credit, Stand-up India and Mudra Yojana, among others. Bad loans at state-run banks grew more than Rs 1 lakh crore since April 2016 to Rs 6 lakh crore as of December 31, 2016. 


? TOP CORPORATE NEWS -
Housing Development Corporation Finance Corporation on Tuesday is going to raise Rs 1,500 crore through private placement basis. The mortgage lender said that subscription to the bond is exclusively offered to those who are specifically addressed through a communication made by the lender.

Maruti Suzuki India Limited, a blue-chip auto company, continued its upward rally in the Friday’s trading session. The stock closed at Rs 7,451 per share, higher by 3% in the Friday’s trade. The stock touched its all-time high of Rs 7,469 per share. The stock has gained around 80% in the past one year.

 
Tata Motors Group global wholesales in May 2017, including Jaguar Land Rover, were at 86,385 units, lower by 1%, over May 2016. Global wholesales of all Tata Motors’ commercial vehicles and Tata Daewoo range in May 2017 were at 28,310 units, lower by 13%, over May 2016.

Tata Communications has partnered with Alibaba Cloud, which is a cloud computing arm of Alibaba Group, the company informed the BSE on Saturday. This tie-up will enable customers from over 150 countries.

Wockhardt Limited informed the bourses that the members of the company have approved the plans to raise Rs. 1,000 crore through Qualified Institutional Placement.

Videocon Industries, an India-based diversified company, hit its lower circuit of 5% or Rs 28.55 per share for the 15th consecutive straight session during the trading session on Friday. The stock has declined mainly due to the selling pressure after two lenders declared the company's account as non-performing assets.
  
IndusInd Bank has inked a finance agreement with the Overseas Private Investment Corporatio for a USD 225 million loan to support the expansion of the bank’s micro, small and medium enterprise Lending programs across India. At least 25% of the proposed facility will support women entrepreneurs and reach previously unbanked populations. The eight-year loan is part of the agency’s commitment to supporting $1 billion in loan to underserved small and medium enterprise in India.

Ujaas Energy has received a letter of award from Numaligarh Refinery Limited (NRL) for supply, installation, testing and commissioning of a 1Mwp solar power plant at NRL, the company informed the bourses on Thursday.

Tech Mahindra Limited stock tanked over 3% after British voters slammed a major blow to the Prime Minster Theresa May, wiping out her parliamentary majority. The election results came as a major worry for the IT giant, as the Mumbai-based company gets around 29% of its revenues from the European region.  Tech Mahindra's client concentration is double that of the peer group and that is one of the reasons why the company would be under more pricing pressure than the peers.

Biocon, Indian biopharmaceutical major, announced that the shareholders have approved the issue of bonus share on Thursday. The company in its BSE filling said that the board of directors have fixed Saturday, June 17, 2017 as the record date to determine the eligible shareholders entitled to the bonus equity share.

Piramal Enterprises on Wednesday said that through its subsidiary it has provided Rs 1,100 crore funds Embassy group, a realy estate firm.The fund are provided mainly for the development of housing and commercial projects Hyderabad, Chennai and Bengaluru over a span of the last six months.

Federal Bank on Wednesday informed the bourses that the board of directors at its meeting held on June 7, 2017, approved raising of funds by way of issue of debt securities up to Rs. 4000 crore in one or more tranches. The bank will seek shareholders’ approval at the forthcoming annual general meeting.

Mindtree Limited, an Indian multinational information technology and outsourcing company on Wednesday received the National Company Law Tribunal’s approval for its composite scheme of amalgamation.The scheme includes the amalgamation of the US-based companies Discoventure Solutions LLC. and Relational Solutions Inc. with Mindtree Limited.
 
Yes Bank Limited , India’s fourth largest private sector bank on Wednesday said that the shareholders have approved the borrowing limit to Rs 70,000 crore from Rs 50,000 crore. The bank in its filing also added that it has approved borrowing/raising funds in Indian/foreign currency by the issue of debt securities up to Rs 20,000 crore to eligible investors on private placement basis.sing funds in Indian/foreign currency by the issue of debt securities up to Rs 20,000 crore to eligible investors on private placement basis.

? TOP BANKING AND FINANCIAL NEWS OF THE WEEK
Finance Minister Arun Jaitley will meet heads of PSU banks tomorrow to discuss the issue of non-performing assets and the steps being taken by them to expedite the recovery of bad loans which have crossed Rs 6 lakh crore. Besides, the minister will review the financial performance of all the public sector banks at the meeting, the first between Jaitley and them in the current fiscal. 

Country's largest lender SBI has expressed apprehensions that demonetisation may continue to result in slowing down of the economy, and adversely affect its business. The government had discontinued Rs 500 and Rs 1,000 banknotes from November 9, 2016 and issued new Rs 500 and Rs 2,000 currency notes in exchange for the discontinued ones. 

Finance Minister Arun Jaitley will meet heads of public sector banks and financial institutions on June 12 to discuss issues related to rising bad loans, interest rate reduction and credit flow to various sectors. He will also review the performance of the lenders. The meeting assumes significance as it will be the first after promulgation of the ordinance amending the Banking Regulation Act, 1949, last month. 

IDBI Bank has created a special department for managing bad loans and monitoring credit after taking a series of hits which include being put "under watch" by RBI and a downgrade by credit rating agency Icra. Besides, in an attempt to fulfil capital conservation buffer norms, it may raise about Rs 5,000 crore by selling non-core assets in the current fiscal. 

Public sector banks will need as much as Rs. 95,000 crore in capital over two years, which is way higher than the Rs. 20,000 crore capital infusion that the government plans till March 2019, a Moody's-ICRA report said on Thursday.  "In our central scenario, we estimate that the 11 Moody's-rated public sector banks will require external equity capital of about Rs. 70,000-Rs. 95,000 crore, or about $ 10.6-$ 14.6 billion," analyst, said. 

Non-performing assets of Indian banking sector are among the biggest roadblocks to the country’s economic growth as evident from latest data of GDP, says trade body Assocham, urging the banking regulator RBI to make NPA norms flexible and pragmatic. 

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