Sensex Trades Higher; IT & Pharma Stocks Gain

Mon, 21 Jan 12:30 pm

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Share markets in India are presently trading on a positive note. Sectoral indices are trading mixed with stocks in the energy sector, IT sector and healthcare sector witnessing maximum buying interest while telecom stocks and<realty stocks are witnessing selling pressure.

The BSE Sensex is trading up by 242 points (up 0.7%), while the NSE Nifty is trading up by 60 points (up 0.6%). The BSE Mid Cap index is trading on a flat note and the BSE Small Cap index is trading down by 0.3%.

The rupee is trading at Rs 71.39 against the US$.

Extending its fall, the rupee opened lower by 18 paise at 71.36 against the US$.

Rupee fell in the latter half of the session on Friday primarily as global crude oil prices continued to rally after supply cuts led by OPEC supported prices.

Last week, OPEC's monthly report showed it had made a strong start in December before the pact went into effect, implementing the biggest month-on-month production drop in almost two years.

In the news from the IT sector, Wipro share price is witnessing selling pressure today as the company lowered margin guidance for its IT services business in the range of $2,047 million to $2,088 million for the March quarter, which translates into a flat 2% sequential growth.

The IT company on Friday posted a strong 31.8% YoY jump in its consolidated net profit at 25.4 billion and announced a 1:3 bonus share offer.

Wipro share price is presently trading down by 2.5%.

To know more about the company, you can read Wipro Q3FY19 Result Analysis and Wipro Annual Report Analysis on our website.

You can also read our recently released Q3FY19 results: Zee Entertainment's latest result analysis, Reliance Industries, Federal Bank, Infosys, TCS, Trident, HDFC bank, NIIT Technologies, Cyient.

Moving on to the news from the engineering sector, L&T share price is in focus today as the markets regulator denied approval to the company's Rs 90 billion share buyback plan.

As per an article in a leading financial daily, the buyback was rejected, citing compliance issues over its post-buyback debt-equity ratio.

Here's an excerpt from the article:

• Since the ratio of the aggregate of secured and unsecured debts owed by the company after buy-back (assuming full acceptance) would be more than twice the paid-up capital and free reserves of the company based on consolidated financial statements of the company, the buyback offer is not in compliance.

L&T share price fell around 3.5% in early trade today on back of the above news and is presently trading down by 1%.

In August last year, the company's board approved its first buyback in 80 years of the company's history, for up to 4.3% of its paid-up equity capital, aggregating to a value of about Rs 90 billion.

Ankit Shah has shared the final update on the buyback of the company. You can read it here. (requires subscription).

Speaking of buybacks, the number of buyback offers in 2017-18 were at an all-time high. Never, in the last two decades, had Indian markets seen fifty-nine companies announcing buyback plans.

But what is truly surprising is that unlike in the past, the buybacks this time seem skewed in favour of short term investors rather than long term ones.

Who Benefits from Such Buybacks?

Here's what Tanushree Banerjee, Co-head of Research at Equitymaster, wrote about it in The 5 Minute WrapUp...

• Look at the history of buybacks since 2002. Logically promoters should offer to buyback shares at a premium when the stock is undervalued. And this logic held true until recently. The number of buybacks peaked when market valuations were low. And in times of peak valuations (like 2007 and 2011), promoters refrained from doing so.
  
  But not this time. The trend of rising buybacks in the last two years, resembles the sentiment of a momentum investor. The appetite to buy shares kept rising with the rising markets. And the latest buybacks of stocks like TCS and MOIL, came at a time, when neither the broader index (Sensex) nor the stocks themselves, are undervalued.

At Equitymaster, we believe, as a shareholder in cash rich companies, you should not only be wary of expensive buybacks. But if possible use it to your advantage to rake in some cash.

As per Rahul Shah, co-head of Research, investors should not assume buybacks are always good. Here's an excerpt of what he wrote in one of the editions of The 5 Minute Wrapup:

• The reason behind the buyback must be investigated. At the end of the day, an increase in earnings should be more a function of the inherent robustness of the business, as that's what will help it continue to grow at a healthy pace.

The topic also brings us to ask: Do buy-backs offer an arbitrage opportunity for retail investors? Ankit Shah has answered this question in one of the editions of Equitymaster Insider. You can access the issue here (requires subscription).

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

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