Sensex & Nifty Open at Record Highs; Banking & PSU Stocks Rally

Thu, 18 Jan 09:30 am

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Asian stock markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.46% while the Hang Seng is up 0.28%. The Shanghai Composite is trading up by 0.43%. US stocks jumped on Wednesday and the Dow closed above 26,000 for the first time as investors' expectations for higher earnings lifted stocks across sectors.

Back home, India share markets rallied in the opening trade today. The BSE Sensex is trading higher by 300 points while the NSE Nifty is trading higher by 86 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 0.5% & 0.5% respectively.

Barring oil & gas stocks, all sectoral indices have opened the day in green with banking stocks and PSU stocks witnessing maximum buying interest. The rupee is trading at 63.98 to the US$.

2017. What a year this has been for equity investors. The BSE Sensex is trading close to 34,000 mark. The Nifty is trading above 10,500 levels.

India was among the three emerging markets, which gained more than 35% in dollar terms. The other two are Hungary and South Korea.

India Outperforms Emerging Market Peers in 2017

The BSE Sensex earned a 35.1% return in the dollar terms and 28% in the local currency in 2017. However, this wasn't enough to beat the midcap and smallcap indices. The midcap and smallcap indices saw a sharp increase of 47% and 58% respectively in 2017.

With this, the market cap to GDP ratio is close to 100%, indicating market at its peak. So, how will 2018 turn out? Here's what Tanushree Banerjee, Co-head of Research thinks:

• "In 2018, the market would be more volatile and under pressure. Investors should brace themselves for the increasing volatility. Although, earnings are likely to recover, profit margins could get squeezed as companies face rising input cost pressures. Rising oil prices may prompt the government to abandon fiscal prudence at a time when GST collections have been lower than expected.
  
  2018 will, therefore, be critical for Indian companies to justify their valuations with earnings growth. If the earnings growth does not materialize, correction could be on the cards."

Bank stocks have opened the day on a mixed note with J.B. Chemicals and IPCA Labs being the most active stocks in this space. Axis Bank has become the first commercial bank to hike lending rates by 5 basis points to 8.3%.

The hike comes for the first time in three years signaling an upward turn in interest rate cycle. Axis Bank has raised lending rates by 5 basis points across all tenures with effect from today.

Reportedly, other banks could likely follow suit marking the end of easing rate cycle. Country's largest bank, State bank of India (SBI) is yet to announce any such hike in rates.

The hike in the lending rates comes at a time when the yields on the government securities and corporates bonds have risen sharply.

In December quarter alone the 10-year yield had risen by 67 bps which is likely to result into mark-to-market losses between Rs 150 - 250 billion for banks.

Further, the hike in lending rates by Axis bank will impact new borrowers while the existing borrowers will continue to have the benefit of lower rates till the end of lock-in period they have fixed with the bank.

Most home loans have a lock-in period of one year from the time the loan is taken and the new rates will be effective at the end of each year.

Axis Bank share price opened the day up by 1.4%.

Moving on to the news from IPO space. The initial public offer of IT firm Newgen Software Technologies was subscribed 70% on the second day of its listing on Wednesday.

The IPO aims to raise Rs 4.3 billion, received bids for 8.6 million shares against the total issue size of over 12.2 million.

Newgen Software's IPO comprises fresh issue of shares worth up to Rs 950 million by the company and an offer for sale of 13.5 million equity shares by the existing shareholders.

Meanwhile, Amber Enterprises' Rs 6-billion IPO was fully subscribed on the first day of its bidding on Wednesday.

The IPO received bids for 5.1 million shares against the total issue size of 4.9 million scrips, registering a subscription of 1.03 times.

Edelweiss Financial Services, IDFC Bank, SBI Capital Markets and BNP Paribas will manage the company's IPO.

Amber Enterprises India Ltd, a manufacturer of air conditioners, on Tuesday raised around Rs 1787.1 million by selling shares to institutional investors as part of its anchor book allocation, a day before its initial public offering (IPO) opens.

The company will utilize the proceeds from the fresh issue for repayment of debt.

Should you subscribe to the above IPOs? We have analyzed these IPOs and have released our analysis on the companies. You can access it here (subscription required).

To know more, you can download our FREE report - How to Get Rich with IPOs. This guide will show you how to safely profit from the ongoing IPO rush.

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