Weak Global Markets; Falling Oil Prices; ONGC, Vedanta & Other Cues to Sway the Market Today

Thu, 16 Nov Pre-Open

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Indian share markets continued to witness selling pressure in yesterday's trading session as trade deficit widened to an almost 3-year high. The sentiments also remained subdued due to disappointing quarterly earnings and weak international markets.

At the closing bell yesterday, the BSE Sensex closed lower by 181 points and the NSE Nifty finished down by 69 points. The S&P BSE Mid Cap finished down by 1% while S&P BSE Small Cap finished down by 1.5%. Losses were largely seen in metal stocks, realty stocks and consumer durables' stocks.

BSE Metal index fell 3% after global commodity prices slumped. A Bloomberg gauge of commodity prices slumped the most in six months after Chinese data Tuesday pointed to slowing industrial output, fixed-asset investment and retail sales.

Top Stocks to Watch Out

ONGC share price and Vedanta share price is expected to be in news today as the two companies emerged as the biggest bidders for oil and gas blocks, putting in 41 out of 56 bids received in India's maiden auction under open acreage licensing regime. ONGC put in expression of interest for 41 areas while Vedanta's oil unit, Cairn India sought rights over 15 areas. India in July opened 2.8 million sq km of sedimentary basins for oil and gas exploration in a bid to raise domestic production and cut excessive dependence on imports.

In news from banking sector, as per an article in The Livemint, State Bank of India (SBI) has initiated the process of selling Rs 15.8 billion of bad loans to financial institutions, including asset reconstruction companies (ARCs). The bank has put on block 11 non-performing assets (NPA) for sale through a bidding process. In the first half of fiscal 2018, the bank managed to sell Rs 7.63 billion of bad loans to ARCs.

L&T share price may witness some momentum today as the company's subsidiary Larsen & Toubro Infotech will acquire Luxembourg-based Syncordis SA along with its subsidiaries in France, UK, Luxembourg and India for 15 million euros (about Rs 1.15 billion). The transaction, which is expected to close within 6-8 weeks, will help LTI expand its core banking implementation capability.

Panacea Biotech share price is expected to see some action as the company surged 10.3% in yesterday's trade. The company said it has signed an agreement with the government for the financial assistance of Rs 289.9 million to develop Dengue tetravalent vaccine.

Dr Reddy's Lab share price could see momentum today after the company launched Clofarabine injection, a therapeutic and generic equivalent of Clolar injection of Genzyme Corporation, in the US market.

IPO Segment

Seven Islands Shipping has received Sebi's go-ahead to raise an estimated Rs 4.5 billion through an initial public offering (IPO). Seven Islands Shipping is a liquid sea-borne logistics company and operates under two categories- crude oil trade and liquid products trade.

Going by the preliminary papers, the Seven Islands Shipping IPO comprises fresh issue of shares worth Rs 2 billion, besides a sale of scrips to the tune of Rs 2.5 billion by private investor Wayzata Investment Partners and promoters. Funds raised through the issue will be used to buy a very large crude carrier and for other general corporate purposes.

In another development, the IPOs of United India Insurance and Oriental Insurance are likely to be deferred to the end of the next calendar year. While the government had given a go-ahead for the listing of state-owned general insurers in 2016, the two insurers are in the process of shoring up their capital to 150%.

Meanwhile, as per an article in The Livemint, a buoyant initial public offering (IPO) market has prompted investors to invest in so-called pre-IPO financing rounds as a means to placing sizeable bets on companies that are about to go public.

So far this year, companies have raised at least US$600 million through pre-IPO funding rounds. As per the reports, one of the major factors for the surge in pre-IPO funding rounds is the need of investors to achieve meaningful allocation of shares.

The market euphoria is something similar to what was seen in 2007-08. When everyone around you is clamoring to get a piece of the IPO pie, it makes sitting tight difficult. And, why should you sit tight when stocks like Avenue Supermart lets you pocket a cool 100% gain from day 1 of the listing?

History suggests that these cases are few and far between. More than 70% of the IPOs listed in 2007 and 2008 are in the red, even today when the Sensex is at an all-time high.

This allows us to stay on the fence when it comes to investing in IPOs. But it doesn't make sense to completely ignore this space. For every Reliance Power - like issue, there have been issues like Maruti, TCS, and Jubilant Foodworks Ltd(with returns over 4,000%, 1,000% and 500% respectively) that have created immense wealth for shareholders. A merit-based selection primarily including valuation, business, and management quality is the logical way to go about it.

Global Markets Remain Weak

Global stock markets continued to pull back following losses in Wall Street, with global equities slammed by sliding oil prices and US tax doubts. The Nikkei 225 tumbled 1.57% to close lower for the sixth straight session.

Metal stocks all over finished lower following weaker than expected economic data from China, which sent prices down for nickel, copper and other base metals. China's industrial output expanded 6.2% year-on-year in October, slowing from September and below analyst expectations, raising worries about the world's second biggest economy.

Oil prices Fall

After falling heavily on Tuesday on warnings of slowing demand and rising stockpiles, crude oil futures extended the decline again on Wednesday. Oil prices extended losses after settling nearly 2% lower on Tuesday following a report from the International Energy Agency which reduced its projection for oil demand for this year and the next.

To keep a tab on the movements in crude oil and other commodities, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency and commodity markets.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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