Sensex Opens in Green; Cipla Surges 6.2%

Thu, 8 Feb 09:30 am

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Asian stocks are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.83% while the Hang Seng is up 0.53%. The Nikkei 225 is trading up by 0.26%. Overnight, US stocks ran out of steam on Wednesday after an early surge, in a sign that investors are still spooked by the market's recent retreat and wary more fallout is to come.

Back home, India share markets opened on a positive note. The BSE Sensex is trading higher by 82 points while the NSE Nifty is trading higher by 18 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 0.5% & 0.6% respectively.

Barring metal stocks, all sectoral indices have opened the day in green with consumer durables stocks and realty stocks witnessing maximum buying interest. The rupee is trading at 64.14 to the US$.

Cipla share price surged 6.3% after it reported a 4.8% growth year-on-year in profit at Rs 4 billion in Q3FY18. The growth was largely supported by better-than-expected operational performance and tax reversal but restricted due to lower other income. Profit in year-ago quarter stood at Rs 3.9 billion.

Finance stocks opened the day on a mixed note with IIFL Holdings & Prime Securities leading the gainers. As per an article in a leading financial daily, Bangalore-based builder Prestige Estates Projects has entered into a strategic partnership with HDFC Capital Advisors to support its business in the mid-Income and affordable housing segment.

This dedicated real estate platform will have a capital to the tune of Rs 25 billion, which will be combination of equity and debt.

The primary focus of this platform will be on expanding the builder's residential business by identifying strategic land parcels with the potential of developing large-scale residential projects in the mid- income segment.

One shall note that, HDFC Capital has been offering long-term equity capital to select real estate developers, mainly to develop affordable housing, preferred by builders and investors alike.

Last October, Mahindra Lifespace Developers Ltd, the real estate arm of Mahindra Group, partnered with HDFC Capital to jointly invest Rs500 crore over the next three years to develop affordable housing projects across geographies.

In line with the government's aim to provide housing for all by 2022, the Union budget on 1 February proposed to set up an affordable housing fund under the National Housing Bank (NHB).

The 2017 budget had proposed assigning infrastructure status to affordable housing projects and facilitate higher investments.

Meanwhile, asset quality in the housing loan space, especially that of affordable housing segment, has deteriorated during FY17.

As per the monthly report by the Reserve Bank of India (RBI), a majority of the slippages for housing finance companies (HFCs) have taken place in the affordable home loan slab of up to Rs 0.2 million. The bad loan ratio in this segment shot up by 0.6% in FY17 to 10.4%.

Further, HFCs bore the major brunt with the bad loan ratio jumping by 2.5% to 8.6% by the end of FY17, as can be seen in the chart below:

Asset Quality Pitfalls in Affordable Housing

As per India Rating and Research, affordable housing finance is estimated to be a Rs 6 trillion business opportunity by 2022 and will be the principal growth driver for home loans.

Note that HFCs are likely to be the major beneficiaries of the affordable housing boom in India. Though banks with a share of more than 60% are the biggest players in the home loan market, it's the housing finance companies (HFCs) that have established their presence in niche markets, such as small ticket-size loans, and the non-salaried or self-employed segment in small towns and cities.

That said, one needs to be watchful of the slippages and bad loans for these companies. It's because not all but the ones that balance growth with asset quality through stringent risk management will be wealth creators in the long run.

Moving on to the news from IPO space. Speciality chemicals manufacturer Galaxy Surfactants has made its stock market debut today after concluding its initial public offer last week.

Galaxy Surfactants' Rs 9.4-billion IPO was subscribed 20 times during January 29-31.

The portion reserved for qualified institutional buyers (QIBs) was subscribed 54.3 times, non-institutional investors 7 times and retail investors 6 times.

The IPO was of up to 6,331,674 equity shares (including anchor portion of 18,99,500 equity shares).

The IPO was in a price band of Rs 1,470-1,480 per share.

To know more about the company, you can read our IPO analysis of Galaxy Surfactants (subscription required).

Speaking of IPOs, the demand for IPO's has reached sky-high levels. Avenue Supermarts was seen as the first company last year to cross the 100-time subscription mark swiftly followed by CDSL and Dixon technologies, among others.

This 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.

A merit-based selection primarily including valuation, business, and management quality is the logical way to go about investing in IPOs. If it means going against the herd, so be it. And going by recent past, this strategy has been proven to be successful more often than not.

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.

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

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