Market gains for second day in a row

Amid a divergent trend among various index constituents, the two key benchmark indices clocked modest gains. The barometer index, the S&P BSE Sensex, rose 120.38 points or 0.47% to settle at 25,773.61. The gains for the Nifty 50 index were lower than the Sensex's gains in percentage terms. The Nifty rose 30 points or 0.38% to settle at 7,890.75. The market witnessed intraday volatility during the second half of the trading session. After extending gains in mid-afternoon trade, the Sensex and the Nifty pared gains later. The volatility on the domestic bourses during the second half of the trading session materialized as European stocks pared gains. On the political front, various exit polls predicted a maiden win for the BJP led National Democratic Alliance (NDA) in assembly election in Assam.

The Sensex and the Nifty remained in positive zone throughout the trading session after opening with upward gap. The two benchmark indices edged higher for second day in a row.

Shares of oil exploration and production (E&P) companies rose as Brent crude oil futures hit a near seven month high yesterday, 16 May 2016. Shares of public sector oil marketing companies rose after announcing increase in the price of petrol and diesel. Car major Maruti Suzuki India edged higher as the Japanese yen weakened against the dollar. Tata Metaliks surged by the maximum permissible 20% level for the day after Tata Steel said it has decided withdraw the proposal for the merger of Tata Metaliks with the company.

In overseas stock markets, European stocks pared gains as crude oil prices reversed gains. Brent crude for July 2016 delivery was currently off 0.39% at $48.78 a barrel. The oil price has gained over the last week on the back of continued supply disruptions and bullish analyst forecasts, with Brent, the global crude benchmark, hitting a near seven month high yesterday, 16 May 2016. Energy stocks led gains in Asian equities after increase in crude oil prices overnight. US stocks edged higher yesterday, 16 May 2016, as a surge in oil prices and a rally in tech stocks overshadowed weaker-than-expected manufacturing data from the New York region. The Empire State general business-conditions index, which measures activity in the New York area, nosedived to a reading of negative 9 in early May, from positive 9.6 in April.

The Sensex rose 120.38 points or 0.47% to settle at 25,773.61, its highest closing level since 12 May 2016. The index jumped 274.08 points or 1.06% at the day's high of 25,927.31. The index rose 80.53 points or 0.31% at the day's low of 25,733.76.

The Nifty rose 30 points or 0.38% to settle at 7,890.75, its highest closing level since 12 May 2016. The index jumped 79.35 points or 1% at the day's high of 7,940.10. The index rose 18.95 points or 0.24% at the day's low of 7,879.70.

Among sectoral indices on BSE, the S&P BSE Oil & Gas index (up 1.18%), the S&P BSE Capital Goods index (up 0.55%), the S&P BSE Consumer Durables index (up 0.49%), the S&P BSE Finance index (up 0.51%), the S&P BSE Consumer Discretionary Goods & Services index (up 0.72%), the S&P BSE Auto index (up 0.58%) and the S&P BSE Realty index (up 0.79%) outperformed the Sensex.

The S&P BSE Energy index (up 0.38%), the S&P BSE Power index (down 0.38%), the S&P BSE Utilities index (down 0.14%), the S&P BSE Bankex (up 0.24%), the S&P BSE Industrials index (up 0.1%), the S&P BSE Telecom index (down 0.3%), the S&P BSE Basic Materials index (up 0.15%), the S&P BSE Healthcare index (up 0.21%), the S&P BSE Metal index (down 0.01%), the S&P BSE Teck index (up 0.2%), the S&P BSE FMCG index (down 0.16%), and the S&P BSE IT index (up 0.25%), underperformed the Sensex.

The market breadth indicating the overall health of the market was positive. On BSE, 1,304 shares rose and 1,301 shares fell. A total of 179 shares were unchanged. The BSE Mid-Cap index gained 0.13%. The BSE Small-Cap index rose 0.19%. Both these indices underperformed the Sensex.

The total turnover on BSE amounted to Rs 2602 crore, higher than turnover of Rs 2260.38 crore registered during the previous trading session.

Index heavyweight and housing finance major HDFC advanced 2% to Rs 1,211. The stock hit high of Rs 1,228.80 and low of Rs 1,193 in intraday trade. HDFC has filed term sheet for issuing secured redeemable non-convertible debentures worth Rs 1500 crore on private placement basis. HDFC said that the coupon rate on debentures is 8.45% per annum. The tenor of the debentures is ten years, with redemption date being 18 May 2026. The issue opens and closes on the same day on 18 May 2016. The object of the issue is to augment long term resources of the company, HDFC said. The proceeds of the issue would be utilized for financing/refinancing the housing finance business requirements of the company. The announcement was made during market hours today, 17 May 2016.

Tata Metaliks surged by the maximum permissible 20% level for the day to settle at Rs 140.40 on BSE after Tata Steel said it has decided withdraw the proposal for the merger of Tata Metaliks with the company. Shares of Tata Steel fell 0.11%. Koushik Chatterjee, Group Executive Director (Finance and Corporate) Tata Steel said that the decision to withdraw the merger proposal is based on careful consideration of various factors including, inordinate delay in obtaining requisite regulatory and statutory approvals along with significant dilution in the intended synergies from the merger that were envisaged in April 2013. The swap ratio for the merger was fixed at four equity shares of Tata Steel for every 29 equity shares held in Tata Metaliks. Tata Steel continues to strategically support Tata Metaliks in its journey towards making it a profitable and value creating company for the future, Chatterjee said. With the latest decision, Tata Metaliks will continue to operate as a subsidiary company of Tata Steel, he added.

Tata Steel holds 50.09% stake in Tata Metaliks as per the shareholding pattern as on 31 March 2016.

Car major Maruti Suzuki India rose 1.54% as the Japanese yen weakened against the dollar. A weak yen lifts Maruti's operating profit margin. Maruti pays royalty to its Japanese parent Suzuki Motor Corporation in yen terms for some of its earlier models. As per recent media reports, Maruti will start paying royalty to its Japanese parent in rupee term on all new models from the current financial year, which began on 1 April 2016. Maruti also has an exposure to the yen to the extent it imports raw materials from Japan.

Shares of public sector oil marketing companies rose after announcing increase in the price of petrol and diesel with effect from the midnight of 16/17 May 2016. BPCL (up 2.41%) and HPCL (up 0.85%) rose. Indian Oil Corporation (IOCL) shed 0.48%. Petrol price was hiked by Rs 0.83 per litre and diesel price was raised by Rs 1.26 a litre at Delhi (including state levies) with corresponding price revision in other states. After the latest revision, petrol in Delhi costs Rs 63.02 per litre and diesel costs Rs 51.67 a litre.

Shares of oil exploration and production (E&P) companies rose as crude oil prices gained during the previous session. ONGC (up 3.72%), Cairn India (up 2.37%) and Oil India (up 3.66%) edged higher. Higher crude oil prices will result in higher realization from crude sales for oil exploration firms.

Index heavyweight Reliance Industries (RIL) shed 0.61% to Rs 970.20. The stock hit high of Rs 983.30 and low of Rs 966.65 i intraday trade.

In the global commodities markets, Brent crude oil futures edged lower on profit taking after hitting a near seven month high yesterday, 16 May 2016. Brent for July settlement was currently down 14 cents at $48.83 a barrel. The contract had risen $1.14 a barrel or 2.38% to settle at $48.97 a barrel during the previous trading session amid growing supply disruptions in Nigeria in the wake of militant threats.

FMCG stocks declined. Nestle India (down 1.2%), Hindustan Unilever (HUL) (down 1.38%), Dabur India (down 1.77%), GlaxoSmithkline Consumer Healthcare (down 0.06%), Godrej Consumer Products (down 1.38%), Marico (down 0.4%), Tata Global Beverages (down 0.37%), and Jyothy Laboratories (down 2.03%) fell. Procter & Gamble Hygiene and Health Care (up 0.03%), Colgate-Palmolive (India) (up 0.35%), Britannia Industries (up 2.28%), and Bajaj Corp (up 0.86%) rose.

Shares of private sector banks edged lower. Kotak Mahindra Bank fell 1.18%. ICICI Bank rose 1%.

Yes Bank shed 0.92% to Rs 970.35. The stock hit a high of Rs 1,000 in intraday trade so far, which is a record high for the counter. The stock hit a low of Rs 986 in intraday trade.

IndusInd Bank dropped 0.17% to Rs 1,079. The stock hit a high of Rs 1,098.70 in intraday trade so far, which is a record high for the counter. The stock hit a low of Rs 1,075 in intraday trade.

HDFC Bank fell 0.8% to Rs 1,153.75. The stock hit a low of Rs 1,151.40 in intraday trade. The stock hit a high of Rs 1,178 in intraday trade, which is a record high for the counter.

Axis Bank rose 3.32%. The bank has kept its lending rates based on marginal cost of funds unchanged effective from 18 May 2016. The bank's Marginal Cost of Funds based Lending Rate (MCLR) for overnight loans will be 8.95%, the rate for one month will be 9.05% and for three months it will be 9.25%. The MCLR on 6-month loans will be 9.3% and for one-year loans the rate will be 9.35%, the bank said. MCLR on two-year loans will be 9.45% and for three-year loans the rate will be 9.5%. The announcement was made after market hours today, 17 May 2016.

All rupee loans sanctioned and credit limits renewed with effect from 1 April 2016 are priced with reference to the Marginal Cost of Funds based Lending Rate (MCLR) which is the internal benchmark of the concerned bank. Actual lending rates are determined by adding the components of spread to the MCLR.

PSU bank stocks fell. State Bank of India (SBI) (down 0.08%), Punjab National Bank (down 1.47%), and Union Bank of India (down 0.64%) dropped. IDBI Bank (up 1.33%), Canara Bank (up 1.54%) and Bank of India (up 1.14%) gained.

Reserve Bank of India (RBI) Deputy Governor R. Gandhi was quoted as saying today, 17 May 2016, that the RBI will continue reviewing the asset quality at commercial lenders this financial year as part of a continuous process aimed at avoiding an increase in levels of distressed debt. Reviewing asset quality is a permanent process of supervisory action, he said. As part of an asset quality review (AQR) of the banking sector, the RBI has directed lenders to make additional provisions on certain loans in Q3 December 2015 and Q4 March 2016.

Bank of Baroda (BoB) dropped 0.32%, with the stock extending steep losses registered during the previous session triggered by the bank's dismal Q4 results. The stock lost 8.23% to settle at Rs 142.20 yesterday, 16 May 2016. BoB reported net loss of Rs 3230.14 crore in Q4 March 2016 compared with net profit of Rs 598.35 crore in Q4 March 2015. The result was announced after market hours on Friday, 13 May 2016. BoB said that its asset quality has stabilized and that the management expects the bank to return to black during the current financial year. The state-run bank posted a massive net loss of Rs 5395.55 crore in the year ended 31 March 2016 (FY 2016) as against a net profit of Rs 3398.43 crore in the year ended 31 March 2015 (FY 2015). The reason for the massive net loss was due to additional provisions that the state-run bank made with respect to certain loans in Q3 December 2015 and Q4 March 2016 as a part of an asset quality review (AQR) being carried out by the Reserve Bank of India for the banking sector as a whole. The provision coverage ratio (PCR) of the bank improved to 60.09% as on 31 March 2016 from 52.7% as on 31 December 2015. The bank proposes to maintain provision coverage ratio (PCR) above 60% in FY 2017.

The total restructured standard assets of the bank dropped to Rs 13735 crore on 31 March 2016 from Rs 17135 crore as on 31 December 2015. In a post result conference call, BoB's management said that it has high performance confidence for Rs 7300 crore of restructured advances. The SMA 2 category (interest payment overdue by 60 days) advances of the bank stand at Rs 13153 crore at end March 2016, with high confidence for Rs 5750 crore of advances. Thus, the bank has about balance Rs 6434 crore of restructured advances and Rs 7394 crore of SMA 2 category advance under watch list together at Rs 13828 crore. On the basis of accounts under watchlist, the bank expects fresh slippages to be around Rs 15000 crore for FY 2017, lower than Rs 26863 crore in FY 2016. The bank is expecting strong recoveries and upgradation of Rs 10000 crore in FY 2017. The bank has deployed about 1,000 employees to focus on recoveries across the country.

The bank expects to improve domestic net interest margins (NIMs) to 3% in the year ending March 2017 (FY 2017) from 2.6% in the year ended 31 March 2016 (FY 2016). It proposes to improve overseas NIM to 1.25% in the immediate term and 1.75% in the medium term. The bank expects return on equity (RoE) at 7-8% for FY 2017 and 14-15% in the year ending March 2018 (FY 2018).

TCS gained 0.64% after the company and Siemens PLM Software announced that they will leverage a long-standing partnership to expand and enhance the delivery of product performance intelligence through big data analytics to the global manufacturing industry. The announcement was made after market hours yesterday, 16 May 2016.

Separately, TCS announced during market hours today, 17 May 2016, that its client National Employment Savings Trust (NEST) in the UK signed 1 lakh employers to its auto enrolment pension scheme after partnering with the company.

Separately, TCS announced after market hours today, 17 May 2016, that IDBI Bank's financial services arm IDBI Capital Market Services has gone operational with the securities trading and processing solution from TCS BaNCS for its online brokerage business.

Key indices gained for the second day in a row. The Sensex has risen 284.04 points or 1.11% in two trading sessions from its close of 25,489.57 on 13 May 2016. The Sensex has risen 166.99 points or 0.65% in this month so far (till 17 May 2016). The Sensex has fallen 343.93 points or 1.31% in calendar year 2016 so far (till 17 May 2016). From a 52-week low of 22,494.61 hit on 29 February 2016, the barometer index has risen 3,279 points or 14.57%. The Sensex is off 2,804.72 points or 9.81% from a 52-week high of 28,578.33 hit on 23 July 2015. The Sensex is off 4,251.13 points or 14.15% from a record high of 30,024.74 hit on 4 March 2015.

On the political front, various exit polls predicted a victory for the Dravida Munnetra Kazhagam (DMK)-Congress alliance in assembly elections in Tamil Nadu, a victory for Communist Party of India-Marxist (CPM)-led Left Democratic Front government in Kerala assembly elections and a maiden win for the BJP led National Democratic Alliance (NDA) in Assam assembly elections. The exit polls predicted victory for West Bengal Chief Minister Mamata Banerjee in assembly elections that state. The Congress-DMK alliance looks set to form government in the Union territory of Puducherry, the post-poll surveys indicated. The counting of votes for assembly elections held in these four states and the Union territory of Puducherry takes place on Thursday, 19 May 2016.

A win for the BJP led NDA in Assam will put BJP in the right shape for the 2017 assembly election in Uttar Pradesh (UP). The UP assembly has 403 seats. The number of seats in Rajya Sabha, or the upper house of parliament, depends on representation in states. A lack of a majority for the NDA in the Rajya Sabha has delayed passage of a key tax reform bill viz. the Goods and Services Tax (GST) bill in the upper house. Finance Minister Arun Jaitley said in an interview to All India Radio recently that the GST Bill will be put to vote in the monsoon session of Parliament if Congress continues to oppose the Legislation. The GST bill, which has been approved by the Lok Sabha, is pending in the Rajya Sabha because of stiff resistance by the Congress. For the GST bill to become a law, the GST bill also needs to be approved by half the state assemblies.

Meanwhile, with a view to aid the development of corporate bond market, the Reserve Bank of India in consultation with the Ministry of Finance has decided to allow investment by foreign portfolio investors (FPIs) in unlisted debt securities and securitised debt instruments subject to certain restrictions. In a draft circular issued yesterday, 16 May 2016, the RBI said that FPIs can invest in the primary issues of non-convertible debentures/bonds by a public company issued in demat form, provided that the issuing company does not use the borrowing proceeds for real estate activities, purchase of land, investing in capital market or on-lending to other entities. FPIs can also invest in securitised debt instruments issued by a special purpose vehicle (SPV) set up for securitisation of assets where banks, FIs or NBFCs are originators. FPIs can also invest in securitised debt instruments issued and listed in terms of the Securities and Exchange Board of India Regulations on Public Offer and Listing of Securitised Debt Instruments, 2008. The RBI has invited public comments on draft circular by 25 May 2016.

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