Markets slide despite the largesse of Crude: HDFC Sec

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The markets were on the back foot on Monday despite the falling crude. The Nifty and the Sensex both surrendered more than 1% to produce the largest correction in 7 weeks. The Nifty surrendered 100 points to close at 8,438. The next support for the benchmark is at 8300. However, the markets are unlikely to fall as much.

The further slide in crude prices on Monday should cushion the fall in the markets. The markets may worry about the CAD data that came in on Monday after the markets pulled down their shutters. And now that there is no export requirement on gold imports, imports could rise further which could worsen the CAD.

The only solace is that Crude is tumbling down. In the U.S. the Dow was down because the slide in crude was hurting components ExxonMobil and Chevron. The S&P 500 too fell for similar reasons and due to Apple. The Nasdaq, which should have normally been immune to the crude fell the most as solar stocks such as First Solar and SunPower sold off in sympathy with the energy sector.

Nevertheless, while stocks could fall, direct beneficiary sectors of the crude fall such as Paints, Airlines and Lube companies could be in demand.

Crude slides further

On the New York Mercantile Exchange, crude futures for January delivery dropped $2.79, or 4.2%, to settle at $63.05 a barrel. January Brent crude on London?s ICE Futures exchange dropped $2.88, or 4.2%, to settle at $66.19 a barrel.

Global petroleum markets are extending their price downtrend on a broadening recognition that there will be no quick rebalancing of the physical market after Friday?s Baker Hughes report showed an uptick in the U.S. drilling rig count, despite the falling price.

Chinese trade data missed market forecasts on Monday, with export growth falling to 4.7% in November, from an 11.6% rise in October, though China?s oil imports in November rose 7.9% from a year earlier to 25.41 million tonnes.

Morgan Stanley cut its forecast for average Brent crude price in 2015, seeing the price falling to as low $43 a barrel during the second quarter of next year. Physical markets also show an overhang of unsold Nigerian oil. Less than a third of January?s cargos have been sold with just two weeks left before February barrels become available. 

The surplus of West African crude is one indicator of Atlantic basin oil demand, and unsold cargos have weighed on Brent crude prices in 2014. Later this week, the U.S. Energy Information Administration, OPEC countries and the International Energy Agency will publish their monthly reports, giving more insight into global oil supply and demand.

CCI Nod with riders for Sun-Ranbaxy merger

The Competition Commission of India (CCI) has approved the proposed merger between Sun Pharmaceutical Industries and Ranbaxy Laboratories, which will result in a combined entity with annual sales worth $4.3 billion, making it the fifth-largest generic drug maker globally.

However, to ensure that there is no monopoly, the commission has asked the companies to sell assets relating to seven drugs and has given a time of six months to effect the sale.

Sun Pharma will have to divest all products containing tamsulosin and tolterodine, currently marketed and supplied under the Tamlet brand. For Ranbaxy, all products containing leuprorelin, marketed and supplied under the Eligard brand, will have to be divested. 

In case Sun Pharma doesn?t divest the distribution rights of Eligard within six months, it will have to divest its products containing leuprorelin that are currently marketed and supplied under its Lupride brand, according to the CCI report

Ranbaxy will have to divest the brands Terlibax, Rosuvas EZ, Raciper L, Terlibax, Triolvance, Olanex F.  For the merger, the two companies will also have to secure clearances from the US Federal Trade Commission and the High Court of Punjab and Haryana.

The divestment will not have a major impact on the company in terms of market share and revenue. The combined entity will have around 300-400 brands and divesting seven of those will not be much of an issue.

Current Account deficit deteriorates

Current Account Deficit (CAD) for Q2 of FY 15 rose to 5 quarter high at US$ 10.1 billion (2.1% of GDP). The CAD was US$ 7.8 billion (1.7% of GDP) in the preceding quarter and US$ 5.2 billion (1.2% of GDP) in Q2FY14.

The deterioration is largely because of

?    Deceleration in export growth

?    Increase in imports.

Merchandise export growth during the period decelerated to 4.9 % in Q2 FY15 from 11.9 % a year ago, whereas, merchandise imports increased by 8.1 % in as against a decline of 4.8 % of last year, largely due to a sharp rise in gold imports.
 In the financial account, net flows through foreign direct investment were stable; however, portfolio investment recorded inflows of US$ 9.8 billion as against an outflow of US$ 6.6 billion in Q2FY14.

For H1FY15, lower trade deficit coupled with a marginal rise in net services receipts moderated the CAD to US$ 17.9 billion in H1 FY15 (1.9% of GDP) from US$ 26.9 billion in H1 FY14 (3.1% of GDP). Lower CAD and rise in flows under financial account resulted in an accretion to India?s foreign exchange reserve to the tune of US$ 18.1 billion in H1FY15 as against a drawdown of US$ 10.7 billion in H1FY14.

Government may decide on easing FDI for medical devices sector

The government is expected to soon take a decision on liberalising foreign direct investment (FDI) policy for the cash-starved medical devices sector, media reports suggest.

The proposal to relax the policy was mooted by Commerce and Industry Ministry. The final note was sent to the Cabinet Secretariat and the Union Cabinet is likely to take up the issue this week.

The government is looking at relaxing the policy for the cash-starved medical devices sector so as to attract more investments and boost domestic manufacturing. At present, the medical devices sector falls under the pharmaceutical category and is accordingly subjected to FDI limits and other conditions such as mandatory government nods.

India allows 100 per cent FDI in pharma sector. While FDI is permitted through automatic route in the case of greenfield investment or new venture, the Foreign Investment Promotion Board (FIPB) approval is required in the case of brownfield or in existing companies.

Besides, there are several other riders. FDI in medical devices sector is permitted through the government-approval route and the industry has been demanding that it be put under the automatic route.

As per estimates, India imports about 70 per cent of its requirement of medical devices. The industry size in the country is about $7 billion.

Insurance bill set for approval as Congress signals support

The Congress has dropped its opposition to the insurance bill with the select committee of Rajya Sabha proposing an increase in the foreign equity investment to 49% from the present 26%, paving the way for possible passage of the 10-year-old reform legislation during the current session.

The panel may submit its report in Rajya Sabha today and it could be taken up for approval next week. Finance minister Arun Jaitley said he was hopeful that the insurance market would expand once the bill was passed by Parliament. Jaitley expressed satisfaction over the recommendations made by the select committee with regard to the Insurance Amendment Bill.
The likely passage of the crucial bill, pending approval for over a decade, will come ahead of the visit of US President Barack Obama for the Republic Day function.

The insurance sector was opened up in 1999 by the then NDA government headed by Atal Bihari Vajpayee but the issue of raising the FDI cap has been caught in the political crossfire for over a decade.

OBC cuts rates on select term deposits by 0.10%

Oriental Bank of Commerce (OBC) has cut interest rates on select deposits by 0.10 per cent to 8.90 per cent.  OBC has revised interest rate on term deposits with maturity period 1 year to less than 2 years from 9 per cent to 8.90 per cent.

The new rates for term deposits less than Rs 1 crore will be effective 9 December, 2014, the bank said.

Last week, State Bank of India (SBI), the country's largest lender, had cut the deposit rates on maturities of over one year by 0.25 per cent, following reduction in deposit rates by private sector peers ICICI Bank and HDFC Bank.

Onmobile global board to meet on Dec 11 to consider buy back

OnMobile Global Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on December 11, 2014, inter alia, to consider and approve a proposal for buy back of securities of the Company. Promoters holds 48.68% as on September 30,2014.
 
Wall  Street skids on Oil

Plunging crude oil prices made the U.S. Indices post their worst drop in 7 weeks.
The Dow Jones Industrial Average slumped 107 points or 0.59% to 17,852. The blue-chip Index  dropped as much as 150 points during the day before bottom fishers appeared on the scene after 2 pm.

McDonalds, which came out with dismal results and the oil majors took their toll on the benchmark. ExxonMobil and Chevron also weighed on the index, dropping 2.3% and 3.7% respectively.

The S&P 500 plunged 15 points or 0.74% to 2060, as Apple, its largest component  skidded 2.3%. The tech heavy Nasdaq slipped 40 points or 0.83% to 4,741. 

Crude prices hit a five-year low with West Texas Intermediate down 4.2% to just over $63 a barrel after several investment banks, including Morgan Stanley and Bank of America, cut 2015 forecasts for oil.

Plunging Oil prices pummeled oil majors, which impacted the major indices. Chevron tumbled down 3.7%  while BP slid 2.8%. Exxon fell 2.3% and Total SA dropped 2.4%. The Energy Select Sector SPDR ETF tanked 4.1%.

Morgan Stanley analysts slashed their outlook for Brent crude to bottom as low as $43 a barrel in 2015 in its worst-case scenario. Bank of America reduced its West Texas Intermediate forecast to $72 by the end of next year.

Oil companies are beginning to cut capital expenditure, including ConocoPhillips COP which announced a 20% reduction in capex next year, but it will take time for production levels to slow. This is because lot of the wells they've drilled already are still in the ramp-up phase. That means even as companies cut, there's still going to be a lag effect to when production actually slows.

Downbeat economic reports form China, Japan and Europe also dented sentiment. Nervousness among investors was evident from a jump in 10-year Treasury yields, rising five basis points and a 20% jump in the CBOE Vix index.

Concerns about the health of the global economy resurfaced on Monday after disappointing Chinese trade numbers and data showing Japans economy contracted more than initially forecast in the third quarter. Figures from Germany showed industrial production expanded less than expected in October.

The euro traded around a 28-month low after Ewald Nowotny, member of the European Central Bank?s Governing Council, said the currency union is the weak spot in the world economy.

Biotech stocks were one of the bright spots on Wall Street. Shares of Celgene Corp jumped 3.6% on news that the biotech company extended its partnership with Agios to work on a cancer drug.

Among mergers, Cubist Pharmaceuticals soared 35% after drug giant Merck & Co agreed to buy the smaller antibiotics maker for $8.4 billion. Merck shares closed 0.6% higher.

Asian markets got their first chance to react to the solid U.S. jobs report issued Friday, sending indexes in Japan and China higher. China?s Shanghai Composite closed above 3,000 for the first time since 2011.

Among metals, gold prices rose 1.2% while the dollar slipped against the yen after the data showed the Japan?s GDP shrank more than previously estimated.