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Dull End to the Day; Ashok Leyland Falls 3.4% on Weak Sales
Thu, 1 Jun Closing

Indian share markets continued to trade flat during the afternoon session as data showed weaker-than-expected economic growth. At the closing bell, the BSE Sensex stood lower by 8 points, while the NSE Nifty finished down by 5 points. Meanwhile, the S&P BSE Mid Cap and the S&P BSE Small Cap finished up by 0.5% and 1% respectively. Gains were largely seen in FMCG stocks, pharma stocks and capital goods stocks. Metal stocks and oil & gas stocks witnessed selling pressure.

Slowdown in GDP growth

While investor sentiment is at an all-time high, the Indian economy stumbled to clock a GDP growth of 6.1% in the fourth quarter of 2017. This was the fourth consecutive quarter of fall in GDP growth number in the year. The notebandi impact was fully felt across various sectors. Construction sector was the most affected and declined by 3.7%. The expansion was much lower than analyst estimates of 6.5-7.8%.

Nikkei 225 led broad gains across Asian stock markets, boosted by a weaker yen and upbeat economic news, while the pound extended losses on growing uncertainty about the outcome of next week's British election. The Nikkei 225 gained 1.07% and the Hang Seng rose 0.58%. The Shanghai Composite lost 0.47%. European markets are higher today with shares in France leading the region. The CAC 40 is up 0.73% while Germany's DAX is up 0.32% and London's FTSE 100 is up 0.29%.

The rupee was trading at Rs 64.47 against the US$ in the afternoon session. Oil prices were trading at US$ 48.95 at the time of writing.

In more news from the economy, as per a leading financial daily, India's manufacturing sector growth slipped to a three-month low in May due to softer expansions in new orders and production.

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The seasonally adjusted Nikkei India Manufacturing Purchasing Managers' Index (PMI), a composite single-figure indicator of manufacturing performance, was down to 51.6 in May from 52.5 in April. However, the reading signaled an expansion for the fifth consecutive month, remaining above the no-change mark of 50.

As per the survey, while a further upturn in new business supported GDP growth, incoming new work rose at the weakest pace since February with slowdowns evident in the consumer and intermediate goods categories. The spending patterns remained varied with employment down but quantities of purchases up from April.

On inflation front, the survey said that the rate of inflation softened to the slowest in eight months. However, factory gate charges increased at a slightly quicker pace than in April. Besides, cost burdens facing Indian goods producers continued to rise in May with chemicals, metals, paper, and plastics all reported increase in prices.

While, degree of optimism climbed to a six-month high, business confidence improved in May, with firms expecting new product launches, machinery acquisitions, and marketing campaigns to support output growth in the year ahead.

Moving on to news from automobile sector. Ashok Leyland share price plunged 3.4% in today's trade after the company reported a fall of 8% in May 2017 sales to 9,071 units, as against 9,875 units sold in the same period of last year.

The company has experienced a drop of 18% in its medium and heavy commercial vehicle (M&HCV) products segment to 6,139 units in May 2017, as compared to 7,469 units in May 2016. However, light commercial vehicle (LCV) of the company registered sales of 2,932 units in May 2017, a rise of 22%, as compared to 2,406 units sold in May 2016.

As per an article in The Economic Times, the frenetic pace of road building across India with a likely revival in mining and infrastructure building and a diverse product portfolio is likely to keep sentiment interest high in Ashok Leyland.

Reportedly, the company's sales growth is expected to grow faster than the automobile industry. The company has built 2,700 sales outlets by FY17 from less than 500 a year ago.

Ashok Leyland also has access to less expensive technology the intelligent exhaust gas recirculation for launching CVs that conform to BS-IV standards. This technology will help the company get higher market share, likely providing pricing power to the company that has gained 600 basis points in market share over the past two years.

Automobile stocks finished the day mostly in red with Ashok Leyland share price, Maruti Suzuki share price and Tube Investments share price leading the losses.

In news from telecom sector, Bharti Infratel share price finished on an encouraging note (up 2.2%) after it was reported that the company is sounding out banks about financing a potential offer for a majority stake in Indus Towers.

The company, backed by billionaire Sunil Bharti Mittal, is exploring debt fundraising as it weighs a bid for the combined 53% stake in Indus Towers owned by Vodafone Group Plc and Idea Cellular Ltd. A deal could value their holding in closely held Indus Towers at around US$ 8 billion.

As per an article in The Livemint, any acquisition would add to the US$ 21.8 billion of deals targeting the Indian telecom industry over the past three years. Shares of Bharti Infratel have risen 6.7% this year, giving the company a market value of about Rs 678 billion (US$ 10.5 billion). The company may seek to raise funds after boosting its stake in Indus Towers by selling new equity to a private equity firm or other investors.

Telecom stocks finished the day firm with Reliance Communications share price and ITI Ltd share price leading the gains.

And here's a note from Profit Hunter:

Ashok Leyland is in news today. Let's have a look at its chart.

After the stock bottomed out at Rs 12 in August 2013, it traded in a strong uptrend to hit a high of Rs 99 in August 2015. It then consolidated for six months, finding strong resistance from 97 level. It finally broke out on the upside in March 2016 to hit a new life high of Rs 112.

But the stock again slipped below 97 level, which is acting as strong resistance again.

Yesterday, as the stock approached this level, it encountered strong selling. Today it's down 4%. The volumes are also heavy, indicating selling pressure.

It seems that the bears have taken the charge for the moment and the stock might be heading south. But on the flip side, if the stock overcomes the resistance level of 97, the bulls could be back in the game.

Ashok Leyland Encounters Strong Resistance
Ashok Leyland Encounters Strong Resistance 

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Feb 23, 2018 (Close)