Indian Indices Trade Marginally Positive

Wed, 27 Jul 11:30 am

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After opening the day on a positive note, the Indian stock markets registered slight losses and went on to trade near the dotted line. Sectoral indices are trading on a mixed note with stocks from the telecom, finance and automobile sectors leading the gains. Healthcare stocks are trading in the red.

The BSE Sensex is trading up by 12 points (up 0.04%) and the NSE Nifty is trading up by 18 points (up 0.2%). The BSE Mid Cap index is trading up by 0.02%, while the BSE Small Cap index is trading up 0.4%. The rupee is trading at 67.27 to the US$.

Stocks in the energy space are trading on a mixed note with HPCL and Gujarat Gas leading the gains. As per a leading financial daily, state power distribution companies will have to mandatorily draw at least 2.75% of their total power consumption from solar plants in the current fiscal. The move is made mandatory according to the renewable purchase obligation (RPO) norms laid down by the power ministry. Further, as per the guidelines laid down in the norms, states will have to increase the share of solar power to 4.75% in 2017-18 and 6.75% in 2018-19.

Also, the RPO has been segregated into energy from solar sources and non-solar sources. The power ministry has set the quota of power to be drawn from non-solar renewable energy sources at 8.75% in 2016-17, 9.5% in 2017-18 and 10.25% in 2018-19.

This adds up to a total renewable energy share of 11.5% this year, 14.25% in 2017-18 and 17% in 2018-19.

It was reported that while the ministry has issued guidelines, the final targets will be set by each individual state's electricity regulatory commission (SERC).

It must be noted that India had earlier announced a goal of achieving 8% intake of solar power by March 2022. This goes in hand with the government's ambitious target of setting up 175 gigawatt (GW) of renewable energy capacities by 2022 with a capital outlay of US$160 billion including equity of US$40 billion. (1 GW = 1,000 megawatts) Speaking of renewables, we had written an article stating the major flaw in the US$ 100 billion solar sector.

So, as all seems well and bright for the renewable sector, should you bet your money on such businesses? While the future looks promising, many hiccups are taking away from the profitability of these businesses as of today.

Experts suggest that module prices, a key component of solar plants, are unlikely to fall drastically in the near term. On the other hand, the price of solar power has skid downwards. Due to this, few of the solar projects are already running into financial troubles. Further, while India has seen record capacity in both solar and wind power, states are defaulting on their mandated renewable purchase obligations (RPO).

Thus, one should not get carried away by the hoopla surrounding solar power projects. We are not against solar power. It's a much-needed initiative to reduce the pollution levels across the country and can be crowned as the sunrise sector in the future too. However, readers that are willing to increase their exposure in this space must be extremely cautious.

Moving on to the news from the global markets... Asian stocks are witnessing buying interest. While at the same time the yen has taken a hit and is trading in the red. All of this is seen ahead of the awaited meeting of Bank of Japan (BOJ) this week. The outcome of the meeting is said to set the stimulus measures in Japan. Also, the BOJ's meeting comes along with the US Federal Reserve meeting that is going to announce Fed's stance on US interest rate.

In the policy meet scheduled this week, Japan's government will be finalizing one of the biggest spending packages since Shinzo Abe took office more than three-and-a-half years ago vowing to revitalize the economy.

As per the news, policymakers have urged BOJ Governor Haruhiko Kuroda to coordinate efforts by expanding the central bank's monetary easing.

However, Haruhiko Kuroda has ruled out the possibility of further stimulus. The governor, in a speech last week, declined the use of helicopter money to lift the Japanese economy.

One must note that the BOJ has already implemented a negative interest rate policy (NIRP). Further, it is printing 80 trillion yen (US$750 billion) a year to stimulate inflation after decades of deflation and stagnant growth. Despite all these measures the inflationary expectations appear to be weakening. An entry in Vivek Kaul's Diary explains how Japan became a giant laboratory experiment for novel monetary policies.

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