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Sensex Ends Volatile Week in Green; Telecom Stocks Tank
Fri, 11 May Closing

After opening the day in green, share markets in India witnessed positive trading activity throughout the day and ended the day on a positive note. Sectoral indices traded on a mixed note, with stocks in the banking sector and stocks in the capital goods sector, leading the gains.

At the closing bell, the BSE Sensex stood higher by 290 points (up 0.7%) and the NSE Nifty closed up by 90 points (up 0.8%). The BSE Mid Cap index ended the day up 0.4%, while the BSE Small Cap index ended the day down by 0.1%.

The rupee was trading at Rs 67.29 against the US$ in the afternoon session. Oil prices were trading at US$ 71.49 at the time of writing.

Global financial markets this week closely followed oil prices. Oil was steady around a three-year high, heading for a second week of gains after the U.S. pulled out of the Iran nuclear deal. Key macro-economic data such as US inflation data meant that global markets were volatile throughout the week.

Asian stock markets finished mixed over news of a cooling US inflation rate. As of the most recent closing prices, the Hang Seng was up by 1% and the Shanghai Composite was down by 0.2%. The Nikkei 225 was up by 1.2%. Meanwhile, European markets, were trading on a negative note. The FTSE 100 was flat, The DAX, was down by 0.4% while the CAC 40 was down by 0.4%. Whereas, the US benchmark, Dow was trading up by 0.8%.

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In news from stocks in the telecom sector. Bharti Airtel share price and Idea Cellular share price were in focus today after the market disruptor Reliance Jio launched new postpaid tariff plans.

Reliance Jio announced the plan at almost half the price and with more data than those offered by its rivals, expanding the tariff war to the post-paid segment, which makes up around 25% of the industry's revenue.

Airtel share price ended the day down by 6.4%, while Idea share price ended the day lower by 11.8%.

The entry of Reliance Jio and the fierce tariff war it has triggered has set off brisk activity in the telecom industry for fundraising and consolidation, as the incumbents look for ways and means to fend off the competition.

Telecom Sector: A decade of Underperformance

Note that the whole telecom business has been an underwhelming story so far. While the telecom subscriber base has increased from 300 million in 2008 to 1.2 billion in 2017, investors have little to cheer. The BSE Sensex has gone up 3.25 times in nine years, but the BSE Telecom Index has not moved an inch from its levels of 2008.

Telecom companies are straddled with high debt, intense competition, and lack of pricing power. High spectrum costs and regulatory issues have hampered the sector. While consumers have benefited from low costs and new players fighting for their share, investors have suffered.

With the entry of Reliance Jio, the competition has intensified further. Reliance Jio's low cost offerings and strategy of capturing market share will further dent the sector. The sector has been a classic 'value trap'. While it always looks cheap compared to other sectors, it has failed to provide any reasonable returns. We also believe the situation is unlikely to change in the near future. For an investor, it's important to differentiate between 'value' and 'value traps'.

Moving on to news from stocks in the auto sector. Tata Motors share price was in focus today after the company reported positive global sales for April.

Tata Motors today reported a 39% rise in global sales, including that of Jaguar Land Rover, at 102,297 units in April. The company had sold a total of 73,691 units in the same month last year.

Global wholesale of all Tata Motors' commercial vehicles and Tata Daewoo range in April 2018 more than doubled to 39,678 units as against 18,844 units in the same month last year

The company's global sales of all passenger vehicles were at 62,619 units, higher by 14 per cent from 54,847 units in April 2017.

Global sales of Jaguar Land Rover were 45,284 units. Jaguar wholesales for the month were 14,874 vehicles, while Land Rover wholesales stood at 30,410 vehicles.

Tata Motors share price ended the day down 0.8%.

Speaking of auto sales, one of the major indicators to determine growth in the India economy, is the volume of vehicles sold.

For the first nine months of FY18 at least, the auto industry has done well to grow in double digits after some lean years.

Vehicle sales grew by 11.3% YoY during this period. The best performing of the lot were commercial vehicles (CVs), volumes of which grew by 15% YoY. Two-wheelers also did well growing by around 12% YoY.

In fact, in a recent conference call, the management of the largest two-wheeler company in the country - Hero Motocorp - said they expect the two-wheeler industry to grow in double digits in FY19 as well.

We're keeping a close eye on auto stocks.

And here's a note from Profit Hunter:

The Nifty 50 Index ended the week on a strong note. It opened the session gap up on Monday and continued the momentum throughout the week. It witnessed minor pullbacks, but bulls were in complete control. The index finally ended the weekly session 1.77% up.

Last week, the index found resistance from the gap area placed at the 10,750 level and slipped lower. But this week, the index closed above the gap area breaking the immediate resistance level.

If the index sustains above this level, it might re-test the 11,000 - 11,100 zone which is the all-time high. The all-time high levels usually act as a good resistance. On the flip side, if the bears manages to push the index below 10,800 it might fall all the way down to 10,400 - 10,500 zone which is the next support zone for the index.

Nifty 50 Index Witnesses Buying Interest
Nifty 50 Index Witnesses Buying Interest 

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