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Asian equity markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.06% while the Hang Seng is down 0.92%. The Nikkei 225 is trading up by 0.23%. The US markets closed higher in their previous trading session as market focus shifted from geopolitical tension to earnings.
Meanwhile, share markets in India have opened the day on a strong note as investors awaited positive corporate results. The BSE Sensex is trading up by 189 points while the NSE Nifty is trading up by 46 points. The BSE Mid Cap index and BSE Small Cap index both have opened the day up by 0.4%.
Indian Oil Corporation share price surged 2% after it was reported that the government will sell stakes in seven blue-chip state-run companies, including Indian Oil Corp and Steel Authority of India, as it looks to raise cash to fund its ambitious infrastructure and social projects.
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The sales could fetch the government about Rs 345 billion at the last closing price of their stocks. The companies listed for part sale include the National Thermal Power Corp, Rural Electrification Corp, Power Finance Corp, Neyvelli Lignite Corp and NHPC.
Information Technology stocks opened the day on a positive note with NIIT Ltd and HCL Infosys witnessing maximum buying interest. According to an article in a leading financial daily, shareholders of Tata Consultancy Services Ltd. (TCS) has approved a planned buyback of up to Rs 160 billion, which is the biggest in the history of Indian capital markets.
The buyback proposal was approved with an overwhelming 99.81% majority in an extraordinary general meeting. This will be the company's first buyback since it listed in 2004. The proposed shares under the buyback represent 2.85% of the total paid-up capital at Rs 2,850 per equity share.
Reportedly, Tata Sons is set to be the biggest beneficiary of this plan as the holding company will get Rs 117.2 billion. The enterprise's financial re-engineering would include Chandrasekaran paring its US$25-billion debt, shoring up Tata Sons' holdings in mainline group entities and increasing investments in businesses with high growth potential.
One must note that, the Indian IT companies have been under pressure to return excess cash on their books to shareholders through large dividends and buybacks. As the chart below shows, TCS has been quite generous with dividends in the past. TCS has paid out almost 45% of its profits between FY11 and FY16. This would be the company's first buyback.
While the company's payout has increased steadily, cash has continued to build up on the balance sheet. This is due to two reasons, very few acquisitions and no buy backs.
Tanushree Banerjee, Co-head of Research has written everything you need to know about the share buybacks in the IT sector and has offered insights on how the firms deal with the huge cash piles (Subscription Required). Here's a snippet of what she wrote:
The nod comes ahead of TCS' fourth quarter and full fiscal (2016-17) results, scheduled to be announced today. According to the analysts, TCS is expected to report a 2% degrowth sequentially in profit at Rs 66.4 billion while revenue may increase 0.4% to Rs 298.6 billion in the quarter ended March 2017.
TCS share price opened the day up by 0.2%.
Moving on to the news from stocks in engineering sector. As per an article in a leading financial daily, Bharat Heavy Electricals Limited (BHEL) has successfully commissioned two units of 270 MW Thermal Power Project at Rattan India Nasik Power Limited's 5x270 MW plant located at Sinnar in Nasik District of Maharashtra.
Significantly, with the commissioning of these units, BHEL has now commissioned eight sets for Rattan India in Maharashtra, three sets at Nasik and five sets at Amravati. In addition, two more 270 MW units are presently in advanced stages of completion at Nasik.
Further, scope of work in the project envisaged design, engineering, manufacture, supply, erection and commissioning of steam turbines, generators, boilers, associated auxiliaries and electricals.
Considering engineering stocks, 2016 has been a mixed year. Despite the near-term headwinds, companies from this sector are expected to start doing well once the recovery in the Indian economy becomes more meaningful. In our recent edition of The 5 Minute WrapUp, we wrote about the performance of the stocks in this space. We have also highlighted the difficulties faced by BHEL (Subscription Required) and cited probable reasons for the same. Here's an excerpt:
"BHEL has lost around 25% so far in 2016. The reason is the subdued set of numbers the company has been announcing for the past several quarters now. For instance, in FY16, the company saw its revenues fall by 15% YoY and reported a net loss of Rs 9 billion. A lot of BHEL's current problems are to do with state of the power sector today."
Bhel share price opened the day up by 0.7%.
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