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Sensex Closes Marginally Higher; Eicher Motors Hit 52 Week High
Mon, 8 May Closing

Indian share markets continued to trade marginally higher in the afternoon session and finished on a positive note. At the closing bell, the BSE Sensex stood higher by 67 points, while the NSE Nifty finished up by 29 points. Meanwhile, the S&P BSE Mid Cap and the S&P BSE Small Cap finished up by 0.5% and 0.7% respectively. Gains were largely seen in realty stocks, software stocks and power stocks.

FIIs Not Very Bullish at the Moment

Despite record inflows into mutual funds, it is the foreign investor that drives stock prices. Relative to India's market capitalization, foreigners are less enthused about India compared to some other emerging market countries.

As per an article in the Business Standard, FII flows in 2017 have been impressive at US$ 6.3 billion. But it is only 0.32% of the market cap of the Indian stock market. 1% is considered a sign of a full-fledged bull market.

However, the biggest reason has been the failure of earnings to catch up with valuations. So far, the indices have rallied about 12% this year. If FII flows continue at the current pace and the markets absorb the huge flows, it could result in a bubble. The only way that can be avoided will be due to a pickup in earnings.

Asian markets closed mostly higher on Monday with the Nikkei share average hitting its highest level since December 2015. The Nikkei 225 gained 2.31% and the Hang Seng rose 0.42%. The Shanghai Composite lost 0.79%. Meanwhile, European stocks and the euro pulled back on Emmanuel Macron's emphatic victory in France's presidential election as investors' focus shifted from politics to monetary policy. France's CAC 40 is down 0.83% while Germany's DAX is off 0.42% and London's FTSE 100 is lower by 0.09%.

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The rupee was trading at Rs 64.21 against the US$ in the afternoon session. Oil prices were trading at US$ 46.25 at the time of writing.

Indian bank stocks continued to gain as India tweaked its laws last week to help tackle a record US$ 150 billion in bad loans. The government authorized the Reserve Bank of India to direct banks to initiate an insolvency resolution process in the case of a default under provisions of the bankruptcy code.

State Bank of India share price gained 0.9% while Bank of India share price and Bank of Baroda share price rose 0.6% and 0.9% respectively.

Meanwhile, ICICI bank share price continued to rally (up 1.6%). The bank announced that it will soon consider fund raising. The bank said offshore fund raising in single/multiple tranches in any currency through public/private placement by way of issuances of debt instruments. The stock gained for the third consecutive session. So far, this year it has gained about 19%.

In news from the economy, projecting a 7.5% growth in the current fiscal, Economic Affairs Secretary Shaktikanta Das has said that the soon to be rolled out Goods and Service Tax (GST) regime will help the country to grow close to 8% in next fiscal 2018-19. He argued that impact of GST this year will be felt for nine months. By next year, the GST would have stabilized much more and the full-year impact of the GST will be seen by that time.

Economic Affairs Secretary further noted that the GST will club nearly a dozen central and state levies into a single national sales tax, helping the country integrate into one market. He further praised the continuous efforts of government such as the demonetisation move which had led to widening of tax base and curbing of a parallel shadow economy, procedural reforms which are stepping up public investment in infrastructure and added that all these factors put together will add to the maintenance of GDP growth.

The International Monetary Fund too expects the adoption of the GST to help raise India's medium term GDP growth to over 8%. Das further expressed confidence that even with the 3.2% (fiscal deficit target) spelt out in Budget of current year and 3% in next two years, it should be possible for the government to achieve a debt to GDP of 60% by 2023 and said that once fiscal deficit targets are achieved, there is a very good probability that revenue deficit will be as per the road map.

Moving on to news from cement sector. Ambuja Cements and ACC, the Indian units of the world's biggest cement maker LafargeHolcim, are exploring a possible merger to combine the strengths of both the businesses.

The merger can unlock synergies for the two companies across many fronts - profitability, marketing, distribution, and sourcing, among others.

ACC share price and Ambuja share price surged 3.6% and 5.9% respectively in today's trade.

In news from automobile sector, Eicher Motors share price surged to its 52-week high in today's trade and finished up by 4.2% after the company reported a 33.9% jump in its consolidated net profit at Rs 4.59 billion against Rs 3.43 billion during the same period last year. Meanwhile, its consolidated total income rose 23.3% at Rs 21.32 billion against Rs 17.29 billion during the corresponding quarter in the last year.

Royal Enfield, a part of Eicher Motors posted its best ever performance in Q4 March 2017. In this quarter, Royal Enfield sold 178,345 motorcycles, registering its best ever quarterly sales and posting a growth of 20.8% over 147,618 motorcycles sold in the same period last year.

Meanwhile, as per an article in The Times of India, Royal Enfield is understood to have been approached to acquire Italian superbike maker Ducati, owned by Germany's embattled Volkswagen group.

Royal Enfield, a part of Eicher Motors, has been witnessing healthy growth in India even as it expands aggressively in overseas markets across Europe, North America, and Asia. Reportedly, Eicher Motors - which is looking to attain global leadership for Royal Enfield in the middle-engine category - is examining the terms related to the acquisition, possible asking price, and how Ducati could fit within its own fast-growing operations.

Ducati sold 55,451 units last year (at a growth of 1.2%), and enjoys a cult branding across the world with a healthy network in many developed markets.

And here's a note from Profit Hunter

ACC cement and Ambuja Cement's share prices surged 5.1% and 6.8% respectively in early trading after it was reported that their respective boards have agreed to start the evaluation of a potential merger 'with a view to combine the strengths of both businesses'.

In an earlier note, we saw that after ACC announced its Q4FY17 results it rallied 7.70%, but still it underperformed the Nifty 50 Index by 8%.

Today, the stock is almost at par with Nifty. Volumes are healthy.

But now the stock is facing resistance from 1,735-1,775, its all-time high. Last time the stock came near this level, it tanked 27%.

So it will be interesting to see if the merger news can help ACC post a new lifehigh and outperform the Nifty or if the stock will again find resistance from 1,735-1,775.

ACC Near All-Time High
ACC Near All-Time High 

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