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Strong Start to the Week; Sensex Scales 29,000 Mark

Mon, 6 Mar Closing

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Stock markets in India continued to trade strong in the afternoon session and finished well above the dotted line. At the closing bell, the BSE Sensex stood higher by 216 points, while the NSE Nifty finished up by 66 points.

Meanwhile, the S&P BSE Mid Cap and the S&P BSE Small Cap finished up by 0.7% and 0.6% respectively.

BSE Small Cap Index recently hit a 9 year high. One look at this data might lead one to believe that Small caps are the area to look at while searching for multi baggers.

BSE Small Cap Index 2007-17

But when one takes a holistic view of the Smallcap index over a period of 10 years, the point to point returns have been negligible. To put it plainly, if someone had invested Rs. 100 in the small cap Index on Dec-07 and kept it till Mar 2017, he would have made absolutely no gain whatsoever.

Gains were largely seen in oil & gas stocks, power stocks & autostocks.

Bharti Airtel share price finished up by 1.8% in today's trade after the company entered into an agreement with Millicom International Cellular S.A. (Millicom) for Tigo Ghana and Airtel Ghana to combine their operations in Ghana. As per the agreement, Airtel and Millicom would have equal ownership and governance rights in the combined entity.

The combined business would cover more than 80% of Ghana's population with high speed data, providing the widest 3G coverage across the country, and would have revenues close to US$300 million, making it one of the largest communications companies in Ghana.

Information technology (IT) stocks came under pressure and finished in red as the United States announced that from April 3 it would temporarily suspend the 'premium processing' of H-1B visas that allowed some companies to jump the queue as part of its efforts to clear the backlog.

Asian stock markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 0.48% and the Hang Seng rose 0.18%. The Nikkei 225 lost 0.46%.European markets are lower today with shares in Germany off the most. The DAX is down 0.57% while London's FTSE 100 is off 0.37% and France's CAC 40 is lower by 0.32%.

The rupee was trading at Rs 66.76 against the US$ in the afternoon session. Oil prices were trading at US$ 53.08 at the time of writing.

According to a leading financial daily, Foreign Direct Investment (FDI) into the country's services sector increased by 77.6% to US$7.55 billion during April- December 2016-17 supported by government's various initiatives to improve ease of doing business, as compared to US$ 4.25 billion in the same period last year. Moreover, the overall foreign inflows in the country increased by 22% to US$35.84 billion during April-December 2016-17.

Indian services sector, which includes banking, insurance, R&D, outsourcing, courier and technology testing, represents over 60% share in the country's GDP and accounts for 17% of total foreign investment inflows. The Commerce and Industry Ministry is also considering relaxing FDI norms in certain sectors including retail to further boost inflows.

The other sectors where inflows recorded growth during the nine-month period of 2016-17 were telecom, which saw an inflow of US$5.54 billion, trading US$2 billion, computer software and hardware US$1.81 billion and automobile at US$1.45 billion.

FDI is considered crucial for economic development of a country and to attract maximum FDI into the country, the government has been relaxing the foreign investment norms in various sectors.

At present, the Commerce and Industry Ministry is also considering relaxing FDI norms in certain sectors including retail to further boost inflows. Meanwhile, India needs around US$1 trillion to overhaul its infrastructure sector such as ports, airports and highways to boost growth.

Moving on to news from stocks in pharma sector. Cipla share price finished the trading day on an optimistic note (up 0.4%) after it was reported that the company has entered into agreements with the group companies of Ascendis Health, South Africa.

Cipla through its wholly owned subsidiary Inyanga Trading 386 Proprietary (Inyanga), plans on divesting its animal health business in South Africa and Sub-Saharan Africa.

Under the agreements, Cipla will divest its 100% stake in Cipla Agrimed Proprietary (Cipla Agrimed), South Africa and Cipla Vet Proprietary (Cipla Vet), South Africa. The total consideration of transaction would be ZAR 375 million with potential revision linked to FY2017 performance along with customary adjustment (within the price band of R250m and R500m) in relation working capital and net debt/cash adjustments (Subscription Required).

Cipla Vet operates in the companion animal segment with sales primarily to wholesalers. Cipla Vet has a strong presence in the South African market, with leading positions in Proton Pump Inhibitors, Non-steroidal Anti-inflammatory Drugs (NSAIDs) and supplements.

In another development, Dr Reddy's Laboratories Ltd has announced the completion of the acquisition of 100% stake in Imperial Credit Private Ltd, a non-banking finance company, based in Kolkata.

The acquisition has been made for a consideration of Rs. 20.5 million and the acquisition consummated on receipt of regulatory approvals. The pharma major proposes to undertake the group's captive financial activities through this entity.

Meanwhile, Dr Reddy's Lab sees no major improvement in current quarter and anticipates most headwinds to continue in quarter to March 2017.

Price erosion in the North American market due to new competitor's entry into some key molecules has also impacted the drug maker's profit margins during quarter ended December 2016.

The company suffered 9% drop in global generics business at Rs 30.64 billion largely owing to over a sixth of fall in revenues from the North American market at Rs 16.59 billion, followed by over a tenth of decline in contribution from Europe at Rs 2.15 billion, apart from 7% reduction in sales from emerging markets at Rs 5.95 billion.

Following the unfavorable environment, Dr Reddy's plans to prune down exposure to the Venezuela market by rationalizing its operations.

Dr Reddy's Laboratories share price finished the trading day down by 0.6% on the BSE.

And here's a note from Profit Hunter:

In our earlier note, we mentioned how Steel Authority of India (SAIL) Ltd falling more than 6% in one day did not surprise us. It was trading at its strong resistance level of 66. The resistance is coming from the falling trend line and horizontal resistance line.

The stock fell more than 12% after it encountered the Rs 66 resistance level.

The resistance from the falling trend line shifted to Rs 64, the level at which the stock faced resistance last week. This indicates the falling trend line is acting as an important resistance for the stock.

Even if we see the stock going above this falling trend line, it will need to overcome the horizontal resistance line at Rs 66.

If we see sustained close above the resistance zone of Rs 64-66, the stock might gain some strength. But if it fails to overcome this zone, it might prove to be tough time for the bulls.

SAIL Trading Close to Strong Resistance Zone

 

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