Markets witness impressive turnaround, surges over half a percent

Coming out of a slew of declines, Indian markets witnessed a dead cat bounce on Monday, outperforming most of the regional peers and making an impressive start of the new week. The market mood looked under pressure in the morning and reacted in sync to the other global markets after the deadly attacks in Paris during the weekend, with Sensex breaching the crucial psychological levels of 25500 and Nifty coming very close to slip below 7700 mark. Bourses witnessed a smart turnaround with traders accumulating value stocks at lower levels. Blue-chips stocks that were heavily oversold last week, witnessed good buying along with the broader markets. In line with expectation inflation numbers, which remained in negative territory for the 12th month in a row gave some hopes of RBI reducing its rate further and led the rise in rate sensitive banking stocks. Wholesale Price Index (WPI) inflation for the month of October was reported at (-)3.81% vs (-)4.54% in September.

The global cues remained mostly weak, as investors responded to Europe’s worst terror attack in a decade by shifting out of riskier assets. Traders also grew concerned about the weak economic conditions with the Japan’s economy contracting in the third quarter. The nation fell into its second recession since Prime Minister Shinzo Abe took office in December 2012. Gross domestic product of Japan declined an annualized 0.8 percent in the three months ended Sept. 30, following a revised 0.7 drop in the second quarter, meeting the common definition of a recession. Most of the European markets too made a weak start, as the euro fell on concern that geopolitical tensions will hurt trade and consumer confidence, with travel and leisure stocks dragging down the markets, but recovered and were trading in green. Europe is on high alert after at least 129 people were killed in more than half a dozen locations in the French capital.

Back home, markets started moving higher in the second half encouraged by finance minister Arun Jaitley’s statement that India's economy has grown faster than any other, despite global economic turbulence, below par monsoons and private sector stress. He said that India's economic growth was expected to exceed 7.3 per cent in the current fiscal year and go higher still in the next one. It was also reported that FM is reaching out to the other political parties for the passage of GST bill in the winter session of parliament. There were some positive developments from the global front that too supported the markets, IMF stated that it is optimistic about India's prospects and view the economy being on an increasingly stable footing. The US President Barack Obama too hailed India's economic growth under the leadership of Prime Minister Narendra Modi and its focus on renewable energy. He said that Modi government's ambitious plans for scaling up the use of renewable energy combines a concern for environment and creates opportunity for furthering global growth through fresh investment in renewable energy. Back on street, traders also got some support with bounce back in rupee, which erased all the morning losses and strengthened past the 66 per US dollar mark. The local currency was trading at 65.99 per US dollar, up  11 paise from its previous close of 66.10. But it was mainly the strong buying in banking stocks that lifted the markets higher for the day. SBI surged by over 3%, ICICI Bank, IndusInd Bank gained over 2%, PNB was up by over 2.5%, and Yes Bank ended higher by around 2%. The other sectors that performed well included, capital goods, FMCG and healthcare. The broader markets too ended in green, while in non sectoral gauges, fertilizer companies showed some upmove after the Fertilizer Ministry sought more than Rs 25,000 crore from the Finance Ministry for making subsidy payments to domestic urea manufacturers, as there has been shortage of funds for making subsidy payments. Chambal Fertilisers, Coromandel Fertilizers, RCF, GSFC all rose in a range of 0.5-1.5% for the day.

There was buzz at the new listing front too with the debutant SH Kelkar and Company, a manufacturer of specialty fragrance and flavour ingredients, making a stellar debut on the bourses, with the stock listing on BSE at Rs 222, a 23 per cent premium to the issue price of Rs 180. The Rs 508 crore initial public offering (IPO), which was sold between October 28 and 30, was oversubscribed 27.08 times. The stock finally closed at Rs 207, up by 27 points or 15% from its issue price.

Finally, the BSE Sensex surged by 149.57 points or 0.58% to 25760.10, while the CNX Nifty gained 44.35 points or 0.57 % to 7806.60. 

The BSE Sensex touched a high and a low 25866.42 and 25451.42, respectively. The BSE Mid cap index was up by 0.22%, while Small cap index gained 0.50%. 
 
The top gaining sectoral indices on the BSE were Bankex up by 1.51%, Capital Goods up by 1.07%, FMCG up by 0.50%, Healthcare up by 0.49% and PSU up by 0.47%, while IT down by 0.97%, TECK down by 0.88%, Consumer Durables down by 0.06% and Realty down by 0.02% were the losing indices on BSE.

The top gainers on the Sensex were GAIL India up by 4.62%, Tata Steel up by 3.44%, Dr. Reddys Lab up by 3.43%, SBI up by 3.23% and Vedanta up by 2.75%. On the flip side, Coal India down by 1.94%, Infosys down by 1.84%, Hindustan Unilever down by 1.54%, TCS down by 0.93% and Tata Motors down by 0.66% were the top losers.

Meanwhile, with the government’s announcement to allow foreign direct investment (FDI) through the automatic route in limited liability partnerships (LLPs), the Multinationals registered as companies in India are lobbying the government to freely permit their conversion to LLPs. The External commercial borrowings (ECBs) could rise if the relaxations are extended to existing multinationals. Besides, the new regulations have also allowed 'downstream investments' in LLPs operating in India by their parents.

Any company with an annual turnover of more than Rs 60 lakh in India can convert itself into an LLP but this process is fraught with complications as well as tax implications. Besides, the approval of the Foreign Investment Promotion Board (FIPB) is also needed. The government has made the changes because it sees that this is a way to greater investment from overseas.

Recently, revenue secretary Hasmukh Adhia has met executives and consultants to get a view on conversion to LLPs. If the majority of the economic interest (50 per cent) in an organisation remains the same for next five years, the relaxation could be looked at. According to ministry of corporate affairs data, in all there are 11,616 LLPs registered in India, in which less than 1 per cent were conversions from companies to LLPs by multinationals. Views were being raised that the conversion needs to be made specifically tax exempt to remove a major roadblock for existing companies to convert to LLP, while the Conversion of a company to LLP should be treated as other restructuring activities like amalgamations and demergers. However, the argument against such a relaxation is that the process can't be treated differently from others.

In many circumstances, LLP is a preferred form of organisation, mainly due to  lesser regulatory compliances vis a vis companies, and inordinately heavy liabilities of directors of companies and inapplicability of dividend distribution tax to LLPs. LLPs are exempted from this along with other levies such as minimum alternate tax or MAT. Many Indian companies could also look at a possible conversion if the rules were to be relaxed.

The CNX Nifty touched a high and low 7838.85 and 7714.15 respectively.

The top gainers on Nifty were Tata Steel up by 4.15%, GAIL India up by 4.08%, Vedanta up by 3.78%, SBI up by 3.64% and Dr. Reddys Lab up by 3.55%. On the flip side, Coal India down by 2.27%, Hindustan Unilever down by 1.91%, Tata Power down by 1.39%, Hero MotoCorp down by 1.35% and Power Grid down by 1.19% were the top losers. 

European Markets were trading mostly in the green; France’s CAC was up by 0.10%, Germany’s DAX was up by 0.32% and UK’s FTSE was up by 0.26%.

The Asian markets closed mostly lower on Monday, as weak growth numbers released by Japan kept investors at bay.  Japan’s economy slid back into recession in July-September as uncertainty over the overseas outlook hurt business investment, keeping policymakers under pressure to deploy new stimulus measures to support a fragile recovery. A rebound in private consumption and exports offered some hope, the world’s third-largest economy is emerging from the doldrums, despite slowing Chinese demand and the pain households are feeling from rising imported food prices. The world’s third-largest economy shrank an annualized 0.8 percent in July-September.

Chinese President Xi Jinping stated that the country’s economy is predicted to grow by about 7 percent this year, which will continue to contribute as high as about a third to the global growth. Xi Jinping added that China shouldered the responsibility of driving economic growth in times of the world economic hardship. Despite a recent slowdown, China still contributes 30 percent to world economic growth, which means that China still acts as a major world economic powerhouse. Indonesian Trade Balance fell to a seasonally adjusted 1.01B, from 1.02B in the preceding month. Thailand GDP rose to a seasonally adjusted 2.9%, from 2.8% in the preceding month.