Union Budget 2017: Sensex Cautious Amid High Hopes From Budget, PSU Banks In Focus

It is a big day for markets. Both Sensex and Nifty turned flat after opening marginally higher with shares of public sector banks advancing. Finance Minister Arun Jaitley is set to present Union Budget 2017 later in the day.  Markets' expectations are riding high given that it is the first Budget after demonetisation. From income tax to corporate tax cuts to measures to support the economy to more funds for public sector banks, expectations galore from Budget 2017. Stocks markets have already rallied to pre-denomination levels in anticipation of big announcements from the finance minister.  Analysts say that any disappoint could trigger a big correction in stock markets. 

Sajiv Dhawan of JV Capital Services says that feel good factor post demonetisation is still not there and Finance Minister Arun Jaitley should take this opportunity reignite the investor sentiment.  "I think the feel good factor is still not there across the board after demonetisation and this is an opportunity for the finance minister to reignite the sentiment by giving us some infrastructural push," he said. "He has to come out with some big reforms on tax cuts." Any Budget announcement on higher cash infusion in public sector banks and a roadmap for divestment would be hugely positive for stocks of state-run banks, say analysts. Income tax and home loan sops would be positive for consumer durable and real estate stocks. 

The index of public sector banks was up over 1 per cent, with SBI and Bank of Baroda up around 1-2 per cent. If there is any announcement on corporate tax cuts, it will be a big positive trigger for markets as the bottomline of companies would get an immediate boost, say analysts. 

However, if there is a change in capital gains tax regime or taxes on gains from stock market investments, it could spook markets, caution analysts. The Rail Budget has been merged with the Union Budget from this year. So a big hike in capital outlay for rail infrastructure will be a positive for railway-infrastructure related stocks. 

AK Prabhakar, head of research at IDBI Capital Markets & Securities, says markets have very high hopes from the upcoming Budget and it will be difficult for Mr Jaitley to fulfill them.  If there is a slight disappointment, markets could see a big correction, he added. If Nifty corrects below 8,300, then the correction would get deeper, he added.

At 9:19 am, the Sensex was up 40 points at 27,692 while Nifty edged higher to 8,574, up 13 points.

Budget Won't Be Moved Over MP's Death, Arun Jaitley Is Ready: 10 Points

New Delhi:  Lok Sabha Speaker Sumitra Mahajan will decide whether the Union Budget will be presented today, after a member of the house E Ahamed died last night. Sources, however say, the budget will be presented as scheduled, according to news agency ANI. Parliament is usually adjourned for a day after a sitting member dies. A decision is expected after 10 am. But the government, sources said, would like to go ahead with the Budget today and Finance Minister Arun Jaitley left home on schedule and is now meeting the President. The government is also talking to the opposition, whose leaders have suggested that the Budget should be put off for a day.

Here are 10 things to know:

1. Stock markets opened higher on Wednesday anticipating big announcements from the Finance Minister to support the economy after November's notes ban. This is Mr Jaitley's fourth Budget and the first after demonetisation.
2. The Railway Budget has been merged with the Union Budget, which has been advanced by almost a month for the first time. Opposition parties have alleged that the government made the change to be able to offer sops before elections in five states.
3. To support higher government spending, economists expect Mr Jaitley to plan a fiscal deficit of 3.3-3.4 per cent of the gross domestic product (GDP) for 2017-18 which is higher than the earlier road map of 3 per cent. Rating agencies will frown at such a deviation.
4. All eyes are on the tax section of Mr Jaitley's Budget. The income tax exemption limit for persons below 60 could be hiked from the Rs. 2.5 lakh currently, say economists. Mr Jaitley had in the Modi government's first Budget in 2014, raised the tax exemption limit to Rs.2.5 lakh from Rs. 2 lakh.
5. With the overall savings rate declining, Mr Jaitley is expected to increase the deduction under Section 80C to Rs. 2 lakh from the current Rs.1.5 lakh. In last year's Budget, Mr Jaitley had allowed an additional deduction of Rs.50,000 under Section 80CCD (1) for investment in the National Pension Scheme or NPS.
6. Economists expect the government to increase the exemption limit for interest payments under housing loans to Rs. 2.5 lakhs for existing home loan buyers from the current Rs. 2 lakh. This will benefit the real estate sector, which has been hit hard by demonetisation.
7. Mr Jaitley is also expected to cut corporate tax rate by 1 percentage point to 29 per cent. The finance minister had in his second Budget speech in February 2015 announced reducing the corporate tax rate from 30 per cent to 25 per cent over a period of time. With the goods and services tax (GST) set to be rolled out from July, Mr Jaitley is not expected to tinker much with excise duties. However, he could raise the service tax rate from the current 15 per cent to align with the higher GST rate.
8. Though the currency in circulation has largely normalised, the impact from demonetisation is likely to linger over the next few months, says global financial powerhouse Morgan Stanley. This will make revenue and tax projections a tough task, say economists.
9. The Economic Survey has projected a growth rate of 6.75 per cent to 7.5 per cent for the next year (2017-18) but said that demonetisation is a risk for its growth projection. The Survey sees India's GDP growing between 6.5 per cent and 6.75 per cent in the current fiscal year.
10. With elections in five states this month and the impact of demonetisation, some analysts are    worried that the government may turn towards less productive forms of spending, like subsidies. However, Morgan Stanley expects the government to stick to a fiscal policy stance that will remain supportive of promoting productive spending. "The government policies over the last 2.5 years have shown policymakers' commitment to promoting productivity-enhancing reforms," it said.

India's GDP To Grow At 6.75-7.5% Next Year, Projects Economic Survey

India's economy is expected to grow by between 6.75 per cent and 7.5 per cent in the coming fiscal year (2017-18), according to the Economic Survey, which was tabled in Parliament today. Indian economy is expected to slow down significantly in this current fiscal (2016-17) in the wake of demonetisation. The International Monetary Fund (IMF) has already downgraded its growth projection for this fiscal year, down to 6.6 per cent from 7.6 per cent forecast earlier.

The Indian economy expanded at 7.6 per cent in 2015-16 and at 7.2 per cent in 2014-15.
Prior to that, India's GDP grew at 6.9 per cent in 2013-14 and 5.1 per cent in 2012-13. 
At the lower band of Economic Survey's projection, if the economy grows at 6.75 per cent in 2017-18, it would be the lowest growth in five years.

A flagship annual document of the Ministry of Finance, the Economic Survey reviews the developments in the Indian economy over the previous 12 months, summarises the performance on major development programmes, and highlights the policy initiatives of the government. The Economic Survey also highlights prospects of the economy in the short to medium term.
 
The IMF has also cut India's growth rate for fiscal year (2017-18) to 7.2 per cent as against its previous forecast of 7.6 per cent.

Tech Mahindra Beats Estimates In Q3. Should You Buy?

Shares of IT outsourcer Tech Mahindra fell as much as 1.34 per cent on Tuesday, despite reporting better-than-estimated earnings for the December quarter.

Tech Mahindra's revenue grew 5.4 per cent sequentially to Rs. 7,558 crore compared to Rs.7,167 crore in the September quarter and its net profit surged 33 per cent sequentially to Rs.856 crore.

Analysts polled by NDTV Profit had estimated its net profit at Rs. 725 crore on revenues of Rs.7,360 crore. 

Its dollar revenue, which is widely tracked by analysts, grew 4.1 per cent sequentially to $1,161 million compared to NDTV Profit's analyst estimate of $1,090 million dollar. 

Tech Mahindra also reported improvement in its profitability. Its EBITDA margin or operating margin improved 80 basis points to 15.7 per cent against estimates of 15.6 per cent by NDTV Profit. 

However, Tech Mahindra's revenue beat was mainly driven by revenues from "Rest of World", whose contribution to its total revenue grew from 21.9 per cent in Q2 to 23.2 per cent. Revenue contribution from US, which is its biggest market and contributes nearly half of its total revenue, declined to 47.8 per cent compared to 48.9 per cent in Q2. 

According to domestic brokerage Nirmal Bang, Tech Mahindra is losing its market shares in communication vertical to its peers, which is a matter of concern. 

"The TTM (trailing twelve months) results of its (Tech Mahindra) large peers have shown relatively strong growth in communications vertical (TCS/Infosys/HCLT growing YoY by 8%/23%/13%, respectively) versus a decline shown by TML, indicating reasonably strong demand conditions and incremental market share shifting away," Nirmal Bang said in a note. 

The brokerage has a "sell" rating on the stock with a target price of Rs. 383, indicating a downside potential of 19 per cent from Monday's closing price. 

"Our target P/E multiple (10.1x) is at a 30% discount to the target multiples of TCS/Infosys and reflects TML's structural weaknesses because of its less diversified revenue mix, higher client concentration, lower margins and lower trending RoIC(return on capital employed)," the brokerage said. 

Meanwhile, overall weakness in the IT sector post US President Donald Trump's immigration curbs on seven countries has also hit investor sentiments. The IT sub-index of NSE, Nifty IT was down 1.27 per cent. 

As of 11.37 a.m., Tech Mahindra shares were down 0.51 per cent at Rs. 469.20. In comparison, the broader Nifty was 0.68 per cent lower at 8,574.45.

Piramal To Acquire Drugs From UK's Mallinckrodt For Rs. 1,162 Crore

New Delhi: Piramal Enterprises today said it will acquire a portfolio of intrathecal spasticity and pain management drugs from UK-based Mallinckrodt for $171 million (around Rs. 1,162 crore) in an all cash deal.

The company's UK-based wholly-owned subsidiary Piramal Critical Care has entered into an agreement with Mallinckrodt for acquiring the drugs and may also pay an additional $32 million depending on financial performance of the acquired assets over the next three years.

The acquired portfolio includes Gablofen (baclofen), a severe spasticity management product, which is currently marketed in the US and two pain management products, which are currently under development. 

"We continue to invest in the growth of our pharmaceutical businesses. This would be our 7th pharma acquisition in the last two years, taking our investment for inorganic growth to Rs.3,000 crore across our pharmaceutical businesses," Piramal Enterprises Ltd Chairman Ajay Piramal said in a statement. 

All these acquisitions are expected to be value accretive and will improve the company's pharmaceutical segment's growth, he added. 

"This transaction is a step further in our strategy to make investments, in both internal developments and acquisitions, to expand our presence in the global generic hospital drug market, which is greater than $20 billion in size," Pirmal said. 

Through this strategy, the company's focus continues to be the creation of long-term value for shareholders, he added. Completion of the transaction is subject to HSR review in the US and certain other conditions, the Mumbai-based firm said. 

"This acquisition provides Piramal a leadership position within the intrathecal spasticity segment and the opportunity to access the intrathecal pain management market, which is complementary to our critical care focus, and leverage our current operations and capabilities, especially in the US," Piramal Critical Care CEO Peter DeYoung said. 

These acquisitions add branded products that are in attractive niches with barriers to entry and limited competition, he added. "Along with our inhalation anesthesia products, we are building an exciting portfolio to offer our customers and a substantially more diversified revenue base," DeYoung said. 

Piramal Enterprises Ltd (PEL) is the flagship company of Piramal Group and has a presence in the healthcare and financial services verticals. Piramal shares were trading at Rs. 1,712.25 apiece on the BSE, down 0.49 per cent from previous close.

TCS, Wipro, HCL Tech Shares Fall Over Trump Administration's Policy Fears

Shares of Indian outsourcers struggled today amid concern over the Trump administration's clampdown on immigration. The US is the key export market for Indian IT sector, accounting for around 60 per cent of revenues. The BSE IT index was down 0.41 per cent in noon trade as compared to an overall flat Mumbai market. Wipro, HCL Tech and TCS were down over 1 per cent. US President Donald Trump last week ordered a temporary ban on travelers from seven countries and a 120-day halt to refugee resettlement. The action triggered a global backlash as well as concern from global tech giants such as Google, Apple and Microsoft.

"Although this should not affect Indian IT companies immediately, it points to the fact that President Trump may walk the talk," wrote independent market analyst Ambareesh Baliga in a blog post.
The Indian IT industry is closely watching the Trump administration's policy over outsourcing and H-1B visa programme. Indian outsourcers employ a large number of tech workers on H-1B visas to work on projects in the US. 

The $150 billion India IT industry is particularly watching the proposed legislative changes in H-1B visa regime. A bill proposes restrictions from hiring H-1B employees if companies employ more than 50 people, and more than 50 per cent of the employees are H-1B and L1 visa holders. Another bill, among other things, proposes to increase the minimum salary of H-1B visa holders to $100,000 per annum (from $60,000 per year currently).

Hiring more workers in the US could significantly raise costs for Indian tech firms, analysts say.
The Indian IT industry is already battling slowing growth amid big changes in the technological landscape (like automation and artificial intelligence) and global headwinds like Brexit.
Concerns over US policies have weighed on IT stocks, with the BSE IT index falling over 3 per cent in the past one year. In comparison, the broader Nifty50 index has gained over 5 per cent during the same period.

Oil Extends Declines On Rising US Output

Tokyo: Oil prices extended declines on Monday, dragged down by signs of growing output in the United States that could partly offset output cuts by OPEC and other producers.
Uncertainty over the outlook for U.S policy also broadly weighed on financial markets after President Donald Trump introduced immigration curbs that sparked criticism at home and abroad.
But oil trading was quiet with several Asian countries, including China, on holiday for the Lunar New Year.

London Brent crude for March delivery had dropped 28 cents to $55.24 a barrel by 0417 GMT, after settling down 72 cents on Friday. NYMEX crude for March delivery was down 27 cents at $52.90 a barrel.

The U.S. weekly oil and gas rig count from Baker Hughes showed that U.S. drillers added 15 oil rigs last week, bringing the total count to 566, the most since November 2015.
The Organization of the Petroleum Exporting Countries and other producers, including Russia, agreed to cut output by almost 1.8 million barrels per day (bpd) in the first half of 2017 to relieve a two-year supply overhang.

"We are in wait-and-see mode, I suspect at the moment. Oil has reached a fair value equilibrium level given the current supply and demand outlook," said Ric Spooner, chief market analyst at CMC Markets in Sydney.

"Until we get anything to really disrupt that, we may not see too much change," he said, adding the market may draw some comfort from official OPEC figures for January output.
Spooner said as with other financial markets, Trump's ban on entry to the U.S. for refugees and citizens from seven Muslim countries had contributed to a "risk-off" attitude.

U.S. oil production has been rising, with the International Energy Agency forecasting total U.S. output growth of 320,000 bpd in 2017 to an average of 12.8 million bpd.

"The rise in U.S. output should not be unexpected," ANZ bank said in a note. "However we expect the reductions being made by OPEC will far exceed any rise in the U.S. and quickly reduce the global inventory that has been built up over the past two years," it added.

Hedge funds and money managers boosted bullish wagers on U.S. crude oil to the highest level since mid-2014, Commodity Futures Trading Commission (CFTC) data showed on Friday, as agreed output cuts by the world's top producers began to eat into a global glut.