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Sensex Finishes Weak Ahead of Earnings Season
Wed, 12 Apr Closing

Indian share markets finished in the red ahead of the start of the earnings season, while the sentiment was also hit by geopolitical concerns. At the closing bell, the BSE Sensex stood lower by 145 points, while the NSE Nifty finished down 34 points. Meanwhile, the S&P BSE Mid Cap and the S&P BSE Small Cap finished up by 0.2% and 0.5% respectively. Losses were largely seen in consumer durables stocks, power stocks and metal stocks.

Vedanta share price surged 2.2% in today's trade after Vedanta concluded the merger of Cairn India with itself. The merged company will have a larger pro forma market cap of US$15.6 billion, and a higher free float of 49.9%.

The shareholders of Cairn India will receive for each equity share held, one equity share of Vedanta of face value Rs 1 each and four 7.5% Redeemable Preference Share in Vedanta with a face value of Rs 10 each. Moreover, Cairn India's shareholders as on the said record date, who become shareholders of Vedanta will receive an interim dividend of Rs 17.70 per equity share.

Cairn India share price also surged and finished up by 1.7% on the BSE.

Asian stock markets closed mixed on Wednesday, as tensions continue to ratchet up on the Korean Peninsula following a warning from North Korea of a nuclear attack (Subscription Required) on the U.S. The Hang Seng gained 0.93%, while the Nikkei 225 & the Shanghai Composite fell 1.04% and 0.46% respectively. European markets are higher today with shares in France leading the region. The CAC 40 is up 0.44% while Germany's DAX is up 0.34% and London's FTSE 100 is up 0.30%.

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The rupee was trading at Rs 64.69 against the US$ in the afternoon session. Oil prices were trading at US$ 53.72 at the time of writing.

As per an article in The Livemint, Germany's biggest union, IG Metall, is opposing a joint venture between Thyssenkrupp AG, the nation's top steelmaker, and Tata Steel Ltd. According to IG Metall, the project is "high risk" for Thyssenkrupp and the joint venture will lead to job losses and the closing of steel factories in Germany.

IG Metall's main concern is that the Tata joint venture could be a way for Thyssenkrupp to eventually exit steel entirely. IG Metall raised was how the deal could affect debt levels. Thyssenkrupp is currently seeking a joint venture in which it has equal ownership with Tata. That could result in Thyssenkrupp adding debt to lower its stake.

Thyssenkrupp is under pressure to turn around its steel operations, and has said it would cut costs by €500 million (US$530 million) over the next three years.

Tata steel share price finished the day down by 2.2% on the BSE.

Meanwhile, the government's proposal to give domestic steel makers a preference in government projects should protect them from cheaper imports. In February, domestic steel output rose by 12.9% YoY, as large private steel producers such as Tata Steel and JSW Steel ramped up output. Imports during the first eleven months of FY17 dropped by 39% YoY.

No Takers For Domestic Steel

But the bigger concern is weak consumption growth. The consumption data over the past few months clearly show that there are no takers for domestic steel. So steel makers have been forced to export more, with overseas shipments up by 78% YoY in the fiscal till February.

Moving on to news from stocks in information technology sector. Infosys share price oscillated to either sides of yesterday's closing ahead of the company's quarterly result on Thursday. It is widely expected that the company may disclose its capital allocation strategy in its earnings call on Thursday.

According to a leading financial daily, Infosys has been under pressure to announce a share buyback and there have been indications that it is considering one. Infosys had cash reserves of US$5.25 billion as of December 2016.

Though Infosys' shareholders recently voted on new articles of association (AoA) that enable a buyback, it is unlikely that an announcement will be made on Thursday as per the reports.

In another development, Wipro has reportedly completed the acquisition of InfoSERVER S.A.. Earlier in January, the company had signed an agreement to acquire InfoSERVER S.A. for BRL 27.6 Million (US$ 8.7 million).

InfoSERVER, an IT services provider, which is focused on the Brazilian market, provides custom application development and software deployment services.

Wipro is bullish about the prospects from banking and financial services segment in the Latin American market and currently operates in Argentina, Brazil, Chile, Colombia and Mexico.

The company has been aggressive in building capabilities in digital technologies and adding specialized workforce through acquisitions compared with peers such as Infosys, TCS. Wipro's biggest acquisition last year was Appirio for US$500 million to boost cloud-based service offerings.

Wipro share price finished the day down by 1.8% on the BSE.

In news from the paint industry, Berger Paints India and Chugoku Marine Paints (CMP) of Japan have entered into a Memorandum of Understanding (MoU) for cooperation and collaboration in the field of marine and related industrial paints in India.

The MOU envisages joint efforts in marketing, supplying and purchasing marine related industrial paints. Subsequently, the parties have a view of establishing a joint venture company as their final objective.

Berger Paints share price finished the day on a strong note (up 2.5%) on the BSE.

And here's a note from Profit Hunter:

Tata Steel Ltd was among the top losers in the Nifty 50 Index - down more than 2% for the day.

In an earlier note, we mentioned the importance of the 500 level for the stock, as this served as resistance several times in the past. It is also a 78.6% retracement level of the previous decline from Rs 575 to Rs 200.

The stock has resisted at this level three times in the past thirty trading sessions (see the chart below). But every time the stock resisted, it went to take support from the 50-day exponential moving average (EMA). This led to a range-bound movement in the stock.

Today, again, the stock is trading near the 50 EMA.

Will the stock again test the 500 level after finding support from the 50 EMA or it will break below the EMA and correct even further?

Tata Steel Trading between 500 Level and 50 EMA
 Tata Steel Trading between 500 Level and 50 EMA 

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May 26, 2017 (Close)

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