Sensex Opens Firm; Energy and Automobile Stocks Lead

Thu, 18 Apr 09:30 am

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Asian stock markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.1% while the Hang Seng is down 0.3%. The Nikkei 225 is trading down by 0.8%. US stocks ended slightly lower on Wednesday as a drop in healthcare shares overshadowed a string of positive corporate earnings. All major US stock indices ended the session in negative territory, with the S&P 500 remaining just within a percent below its record high reached in September.

Back home, India share markets opened on a firm note. The BSE Sensex is trading up by 130 points while the NSE Nifty is trading up by 27 points. Both, the BSE Mid Cap index and BSE Small Cap index opened up by 0.1%.

Sectoral indices have opened the day on a mixed note with energy stocks and automobile stocks leading the pack of gainers. IT stocks and realty stocks have opened the day in red.

The rupee is currently trading at 69.51 against the US$.

In the news from the IT sector. Wipro share price will be in focus today as it posted better-than-expected revenue growth for the fiscal fourth-quarter but offered a disappointing revenue growth outlook of -1% to 1.0% for the June quarter.

Wipro also announced a bonus of 1 free share for every 3 shares held by shareholders. The Wipro board also approved a Rs 105 billion buyback plan under which it will acquire up to 323 million shares at Rs 325 apiece.

Wipro's dollar revenue improved 9% year-on-year (y-o-y) to US$2.2 billion in the quarter ended 31 March. Revenue grew 7% on a quarter-on-quarter basis.

In dollar terms, Wipro's net profit declined to US$359.1 million in the fourth quarter from US$366 million at the end of the third quarter.

Consequently, the company's operating margin fell to 19% in Q4 from 19.8% in Q3. In constant currency terms, Wipro managed a 7.5% y-o-y growth in Q4 revenue although it fell 1% sequentially.

In rupee terms, Wipro's revenue for the fourth quarter of FY19 rose to Rs 150 billion, from Rs 137.7 billion a year earlier. Revenue in the last financial year grew 7.5% to Rs 585.8 billion from Rs 544.9 billion.

Wipro's net profit in rupee terms jumped 38% to Rs 24.8 billion for the fourth quarter from Rs 18 billion a year earlier. For the full year ended 31 March, net profit increased 12% to Rs 90 billion.

Wipro's revenue from clients in banking, financial services and insurance (BFSI), comprised 31.5% of overall revenue, compared to 28.7% in the same period a year earlier, in constant currency terms. US and Europe accounted for majority of the revenues in Q4.

Further, Wipro's buyback programme is its second in about 15 months and the third since 2016. It had undertaken a Rs 25 billion programme in 2016, and another Rs 110 billion buyback offer in November-December 2017.

Speaking of buybacks, the numbers of buyback offers in FY18 were at an all-time high. Never, in the last two decades, had Indian markets seen fifty-nine companies announcing buyback plans.

But what is truly surprising is that unlike in the past, the buybacks this time seem skewed in favour of short-term investors rather than long term ones.

Who Benefits from Such Buybacks?

Here's what Tanushree Banerjee, Co-head of Research at Equitymaster, wrote about it in The 5 Minute WrapUp...

• Look at the history of buybacks since 2002. Logically promoters should offer to buyback shares at a premium when the stock is undervalued. And this logic held true until recently. The number of buybacks peaked when market valuations were low. And in times of peak valuations (like 2007 and 2011), promoters refrained from doing so.
  
  But not this time. The trend of rising buybacks in the last two years, resembles the sentiment of a momentum investor. The appetite to buy shares kept rising with the rising markets. And the latest buybacks of stocks like TCS and MOIL, came at a time, when neither the broader index (Sensex) nor the stocks themselves, are undervalued.

At Equitymaster, we believe, as a shareholder in cash rich companies, you should not only be wary of expensive buybacks. But if possible use it to your advantage to rake in some cash.

As per Rahul Shah, co-head of Research, investors should not assume buybacks are always good. Here's an excerpt of what he wrote in one of the editions of The 5 Minute Wrapup:

• The reason behind the buyback must be investigated. At the end of the day, an increase in earnings should be more a function of the inherent robustness of the business, as that's what will help it continue to grow at a healthy pace.

Moving on to the news from pharma sector. As per an article in a leading financial daily, Cipla is acquiring 30% stake in South African company Brandmed to increase its exposure to the connected healthcare segment.

Besides the upfront cash payment, the transaction also involves milestone payments spread over three years on meeting profit targets. The transaction worth Rs 320 million will be executed by Cipla's South African arm Cipla Medpro.

In February, Cipla had announced a similar partnership in India with Wellthy Therapeutics to offer a clinically-validated digital disease management platform to patients in cardio-metabolic health.

Founded in 2014, Brandmed has developed an integrated solution to address outcomes and value-based care for patients with chronic lifestyle and non-communicable diseases.

According to the World Health Organisation, more than 38 million people die annually from non-communicable diseases like cardiovascular ailments, cancers, chronic respiratory disorders and diabetes.

To know more about the company, you can access to Cipla's Q3FY19 result analysis and Cipla's Stock Analysis on our website.

Cipla share price opened the day up by 0.1%.

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

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

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