Sensex Ends Day in Red; TCS Plunges 5%

Tue, 13 Mar Closing

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After opening the day in green, share markets in India traded flat throughout the day and ended the day on a negative note. Sectoral indices were mixed, with stocks in the telecom sector and stocks in the IT sector, leading the losses.

At the closing bell, the BSE Sensex stood lower by 61 points (down 0.2%) and the NSE Nifty closed up by 5 points (up 0.1%). The BSE Mid Cap index ended the day up 1%, while the BSE Small Cap index ended the day up by 1.1%.

Asian stock markets finished mixed. As of the most recent closing prices, the Hang Seng was flat and the Shanghai Composite was down by 0.5%. The Nikkei 225 was up by 0.7%. Meanwhile, European markets, were trading on a positive note. The FTSE 100 was up by 0.1%, The DAX, was up by 0.2% while the CAC 40 was up by 0.4%.

The rupee was trading at Rs 64.86 against the US$ in the afternoon session. Oil prices were trading at US$ 65.09 at the time of writing.

In news from stocks in the banking sector, HDFC share price was in focus today after the lender said that it will sell over 4% stake in its asset management arm HDFC Asset Management Co. Ltd (HDFC AMC) through an initial public offer (IPO).

The mortgage lender said that the committee of directors set up by the HDFC board has approved offering up to 8,592,970 equity shares of HDFC AMC at Rs 5 each, representing 4.08% of the paid-up share capital, for sale in the IPO.

Last November, HDFC had approved the IPO of HDFC AMC. The HDFC board had approved to offer part of its shares held in HDFC AMC to the public in one or more tranches so that its holding remains at least 50.01% in the AMC arm.

HDFC's partner, Standard Life too is expected to dilute its stake, bringing a total stake dilution through the IPO to 12%.

According to news reports, the offer document will be filed in the next couple of days, and the IPO is expected to take place in May-June after approval from the regulator comes through.

The IPO listing would make HDFC AMC the second AMC to list in India after Reliance Nippon Life made its debut in early November.

HDFC said HDFC AMC will continue to be its subsidiary post-IPO.

HDFC share price ended the day up by 0.5%.

Speaking of IPOs, if you've been tracking the demand for IPOs, you would certainly think that 2017 is the year of IPOs. For one, IPO subscriptions were at sky high levels. But if the performance of recently listed IPOs are anything to go by, they have flattered to deceive.

Poor IPO Returns Post Listing

Of the five recent high-profile IPOs which listed on the stock market, four have given negative returns as of yesterday's closing price.

The IPO activity in FY17 is mainly driven by Offer for Sale (OFS) rather than fresh issues. An OFS is a route through which existing promoters and private equity investors offload their stake. Here, the money from the sale goes to the selling shareholder. Whereas, in a fresh issue, the money raised goes to the company who, normally, utilizes this money to repay debt, for capital expenditure, etc.

Also, the number of Private Equity (PE) investors exiting these companies raised a red flag. These PE investors had bought a stake in the IPO recently at a fraction of the listed price. Sensing the frenzy, they were able to offload their stake with multifold returns.

The only person left high-and-dry here was the retail investor. And, this is not a recent occurrence. The IPO euphoria is something similar to what was seen in 2007-08. More than 70% of the IPOs listed in 2007 and 2008 were in the red, even today when the Sensex is at an all-time high.

But it doesn't make sense to completely ignore this space. The IPO space has also given us names like Maruti, TCS, and Jubilant Foodworks Ltd (with returns over 4,000%, 1,000% and 500% respectively) that have created immense wealth for shareholders.

For the retail investor, it is very important to ignore the noise and focus on the fundamental and valuations on the table. And more often than not, this approach works much better than following the herd.

Moving on to news from stocks in the IT sector. Tata Consultancy Services (TCS) share price was among the top losers on the bourses today after its parent, Tata Sons sold a 1.48% stake in it, to raise Rs 81.2 billion (US$ 1.3 billion) as it looks to retire debt and invest in group firms across sectors such as auto and steel.

Further, TCS witnessed a series of block deals, in which around 25.4 million shares or 1.5% stake of the company changed hands. After the block deal, Tata Sons will hold about 73% in TCS, which generated US$18 billion in revenues in fiscal 2017.

Our team of Equitymaster analysts have been working on a project to track the smartest minds in value investing. They have compiled a special report on them, called The Superinvestors of India.

Now, because of insights from these interactions, the team has glued their eyes on insider activity and bulk and block deals...

As per them...

• "The three approaches - tracking superinvestor shareholdings, catching these moves early through bulk and block deal disclosures, and keeping tabs on changes in promoter holdings - have unveiled some critical smart money secrets..."

TCS share price ended the day down by 5.2%.

And here's a note from Profit Hunter:

Tata sons is selling 1.5% stake in TCS worth nearly US$1.3 billion (Rs 85 billion) through the stock exchanges between 13-15 March. This resulted in the stock's decline today by -5.40%, making it the Nifty 50 index's worst loser.

The last time we reviewed the stock, it had touched a new life-time high of 3,135 after rallying 25% in just one month. The rally was quite steep and that was the reason we expected a correction. The stock continued the upside momentum for two more sessions to touch a new life high of 3,259.

But it corrected, and today it is nearly 12% down from this high.

The stock is now approaching its support level of 2,780 which was previously a strong resistance.

So will the stock find support at this level or will it continue to correct? Let's keep a track of it.

TCS Plunged 5% for the Day

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

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