Global Markets Surge

Sat, 5 Mar RoundUp

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Global markets closed on an encouraging note in the week gone by. Stock indices across Asia, US, and Europe surged, as signs of an improving US economy seemed to restore investor confidence. Positive employment data announced also cheered investors. The US markets ended higher for the third consecutive week. Major indices touched two-month high levels, posting the highest weekly gain since October 2015.

The most noticeable rally of the was in the Brazil stock market, which surged by almost 18%. The stocks rallied as prospects increased of change in government. The commodity prices moved upwards with oil prices touching two month high levels.

China equity markets closed higher by 3.9%. Investors are looking forward to the National People's Congress, an annual legislative session which will begin today. Policy makers are expected to rollout plans to kindle the slowing economy.

Back home, the BSE Sensex ended the week up 6.4%. Both domestic and macro factors boosted market sentiments. Foreign investors poured money into Indian equities after the Union budget, particularly banks, capital goods, and metals stocks.

All sectoral indices ended on a positive note. Strong buying interest was witnessed in the stocks from banking, realty and metal sectors.

Now let us discuss some key economic and industry developments during the week gone by.

Union Budget 2016-17, was tabled in the parliament in the week gone by. There were important announcements across various segments and sectors. The key focus was laid on Agriculture and Farmers' welfare, rural employment and infrastructure, financial sector reforms, Education skills and job creation. Read here to know more about these developments.

Reserve Bank of India (RBI) has relaxed norms for core requirements of capital. The step is taken to ease pressure of the banks that are facing several pressures owing to non-performing assets and losses.

Under the current norms of Basel III, banks are required to maintain a minimum capital adequacy of 9% and a Tier-I ratio of 7%. Capital adequacy is a measure of a bank's financial strength, expressed as a ratio of capital to risk-weighted assets.

While all banks have capital in excess of those minimum requirements, some are coming close to the limit. Reportedly Indian Overseas Bank and United Bank of India have capital adequacy ratios of less than 10%, while 10 other banks have capital adequacy ratio of 10-11%.

Banks are now allowed to include certain items such as revaluation reserves linked to their property holdings in the Tier-I capital. In addition, foreign currency translation reserves which arise out of translation of financial statements of a bank's foreign operations to the home currency can now also be included in the Tier-1 capital. Some part of deferred tax assets will also be counted as a Tier-I capital. All this put together could help shore up the capital by Rs 350 billion of public sector banks. These measures will boost the capital requirement and are positive for the banking industry.

According to an article in The Economic Times, the government plans to raise natural gas price by about 60% for their undeveloped gas discoveries in difficult areas. This would provide the much necessary boost to firms like ONGC and Reliance Industries.

Gas price in India is currently priced at US$3.82 per million British thermal unit, which will fall to US$3.15 in April, a rate not enough to make up for cost of deep-sea development. Reportedly, this rate is not enough to incentivize exploration, so the government plans to price undeveloped gas discoveries in deep-sea, ultra-deep sea and high-temperature, high-pressure areas using average of landed price of naphtha, fuel oil and LNG.

Source: Equitymaster

Now let us move on to some of the key corporate developments in the week gone by.

As per a leading financial daily, Coal India has been forced to temporarily stop production at several mines and suspend shifts in others. This is because there are no takers for their stock due to surplus position at all thermal power plants in the country.

The coal stocks now stand at 84 million tonnes (MT), with 48 MT at various Coal India mines and another 36 MT at power plants.

The company has been officially asked to stop production as there's a limit on the volume of coal that can be stores at any single location. The stock is so huge that transportation is becoming an issue. Further, with large stocks, there is the risk of catching fire.

It should be noted that the National Coal Distribution Policy (NCDP) stipulates that Coal India cannot supply to power plants without signing any fuel supply agreement. This is indeed an irony (subscription required) as despite being in a situation of surplus coal, some 57,000 MW of thermal units still starve for coal since they do not have any supply contract with Coal India. As reported, the only way out now for Coal India is to supply more than 65% of the annual contracted quantity to power plants which have fuel supply agreements.

ONGC's stock price has crashed 53% in last one year. The stock witnessed sharp plunge post the Budget 2016. So what resulted in the sharp decline, we have in-depth discussed this in our recent edition of The 5 Minute WrapUp Premium, What the future holds for ONGC (Subscription Required).

Indian companies are seen on a dividend payout spree on the back of the new 10% tax on dividend income that is going to kick in on April 1. The new tax was announced on the Budget day and some 50 companies listed on the BSE have declared that they are considering payment of interim dividend before the month ends to avoid the tax. Though the rate of Dividend distribution tax (DDT) has been kept unchanged in the subsequent year, the computation mechanism has changed and the effective rate of dividend stands increased to 20.36% (including surcharge and cess). The additional 10% tax will be applicable from April 1, 2016. This means that the dividends declared before March 31, 2016 will not be taxable.

Dividends are often - if not always - an indication of healthy cash flows of the company. But should you be buying stocks just to cash in on the dividend? Should you be looking for companies paying milestone dividends? Should you be buying and holding stocks for the six months between March and August (when most companies in India announce their annual dividends)? Certainly not...

Rather than arbitrarily investing in dividend stocks, what you want to do is to buy the most solid, consistent, and fastest-growing dividend companies - dividend multibaggers, in other words.

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Tanushree Banerjee (Research Co-Head) has laid out just the details you need, in her special report - How to Pocket 10-30% Returns Without Selling Your Stock. Click here to join in and benefit from great dividend stocks right away...

And here's an update from our friends at Daily Profit Hunter...

The index dipped below the 6,900 support levels momentarily on Monday but has snapped back quickly from there onwards. It has rallied one-way from there till 7,500 levels. The index now faces resistance around 7,600 levels. The RSI on 75 minute chart is also pointing towards exhaustion in momentum. Thus, we may expect some profit booking or consolidation in the coming week. You can read the detailed market update here...

Indian Markets Surge

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