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Sensex Finishes Marginally Lower; Oil & Gas Stocks Lead Losses
Thu, 8 Jun Closing

Indian share markets continued to trade flat during the afternoon session amid mixed international markets. At the closing bell, the BSE Sensex closed lower by 58 points, while the NSE Nifty closed lower by 17 points. Meanwhile, the S&P BSE Mid Cap and the S&P BSE Small Cap finished up by 0.2% and 0.3% respectively. Gains were largely seen in metal stocks, pharma stocks, and power stocks. Software stocks and oil & gas stocks witnessed selling pressure.

Earnings Yet to Catch Up with Valuations

The markets are touching record highs every day. It makes sense to sit back and evaluate if the fundamentals are in place for such heady growth. When one looks at corporate earnings over the past 5 years, it paints a different picture.

The corporate results for the fourth quarter of financial year 2016-17 also highlighted the slowdown in the economy. The combined results of 2200 odd companies largely showed decent numbers, but still a sharp decline from the third quarter of 2016-17.

Housing finance companies finished the trading day higher as the Reserve Bank of India (RBI) on Wednesday made it possible for banks to lend more to home buyers, that too at lower interest rates in a move that should benefit customers as well as real estate developers. The central bank did this by reducing the amount of money that the banks have to set aside (as security) on home loans.

Previously, they had to set aside 0.4%, or Rs 400 per lakh. This has now been reduced to 0.25%, or Rs 250 per lakh. Housing Development Finance Co Ltd (HDFC) share price rose 2.3%, GIC Housing Finance Ltd share price rose 1.5%, Indiabulls Housing Finance Ltd share price finished up by 0.6%.

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Reliance Communications (RCom) Ltd share price continued to fall and finished down by 3.1% to Rs 18.75 after global agencies Moody's Investors Service and Fitch Ratings downgraded the long-term debt rating of the company and its US$ 300 million worth of senior bonds.

For the second time in a span of a week, Fitch downgraded RCom to the lowest category with some hope for recovery of principal or interest amount while Moody's Investors Service downgraded the firm to the second lowest category.

Asian stock markets finished mixed as of the most recent closing prices. The Hang Seng gained 0.34% and the Shanghai Composite rose 0.32%. The Nikkei 225 lost 0.38%. European markets too are mixed today. The DAX is up 0.39% while the CAC 40 gains 0.22%. The FTSE 100 is off 0.02%.

The rupee was trading at Rs 64.36 against the US$ in the afternoon session. Oil prices were trading at US$ 46.10 at the time of writing.

As per an article in The Economic Times, the Department of Investment and Public Asset Management (DIPAM) will shortly seek cabinet approval for Oil and Natural Gas Corp. (ONGC) to buy the government's entire stake in refiner Hindustan Petroleum Corp. Ltd (HPCL).

This is in line with the oil ministry's proposal of creating a domestic oil giant. Reportedly, the ministry has suggested the divestment in HPCL should be retained as a separate unit of ONGC and not merged with it.

At current prices, a sale of the entire HPCL stake could fetch the government about Rs 280 billion. An ONGC-HPCL combine will, however, be much smaller than global giants such as ExxonMobil (US$340 billion), Shell (US$222 billion), Total (US$128 billion) or BP (US$120 billion).

The budget announcement had fueled speculation that state oil firms may be radically reorganized into fewer units with each having a presence in both upstream and downstream segments. Currently, there is no other proposal for reorganizing state firms, barring ONGC's proposed acquisition of HPCL.

The acquisition would also give ONGC control over HPCL's 14,500 filling stations, about a quarter of the domestic transport fuel market. ONGC's subsidiary MRPL too has licenses to operate petrol pumps but hasn't been able to make much headway so far.

ONGC share price fell 1.2% while, HPCL share price fell 0.3% in today's trade.

Meanwhile, GAIL share price slumped 3.4% after Motilal Oswal downgraded the stock citing likely threat of losses from its US contracts. The sentiments also remained weak in oil & gas stocks as crude oil prices tanked.

Also, Petronet LNG share price fell 3.3% to their lowest in over two weeks after GDF International sold its entire 10% stake of 75 million shares, raising Rs 31.50 billion (US$489.23 million).

Moving on to news from mining sector. According to an article in The Financial Express, India's coal imports in May declined by 6% to 18.15 million tonne (MT), year-on- year due to lackluster demand from the power sector and sufficient supply of domestic fuel. The government is planning to cut coal imports for power PSUs to zero in the ongoing fiscal.

Reportedly, government is aiming to bring down to zero thermal coal imports of power PSUs like NTPC in the current fiscal, a move that would reduce the country's import bill by around Rs 170 billion.

The government had said it would also convince the private companies operating in the power space to totally stop the import of thermal fossil fuel. The coal ministry has said it will make available to the power PSUs the supply of thermal coal through domestic sources in sufficient amount which would prompt the companies to not resort to import of fossil fuel.

In another development, Coal India Ltd is awaiting a response from the Mozambique government for exploration rights for new prospective coal blocks in the African country.

Coal India Africana Limitada, a wholly-owned subsidiary of Coal India was granted prospecting licenses for two coal blocks, covering a total area of 224 sq km by the Ministry of Mineral Resources, Government of Mozambique.

Coal India is also looking to diversify its operations in the face of long-term uncertainty for coal because of the government's thrust on renewable energy and considering entering mining of metals and minerals.

Coal India share price finished the day down by 0.5% on the BSE.

And here's a note from Profit Hunter:

Housing Development Finance Corporation (HDFC) Ltd is among today's top gainers in the Nifty 50 Index - up 2%. Let's have a look at its chart.

The stock rallied from a low of Rs 1,011 to a high of Rs 1,464 in September 2016. Demonetisation in November led the stock to correct around 18% in two months. But the uptrend did not stop. It rallied strongly and gained 36% from the January 2017 low to hit a new life-high of Rs 1,635 in today's session after the company said it will issue secured redeemable non-convertible debentures on a private placement basis to raise a total of Rs 20 billion.

But the RSI indicator, which shows the strength of the trend, is making lower highs with every higher high in the price, as you can see in the chart. This indicates that the uptrend is losing steam.

So is the stock due for correction or is there still some upside left?

HDFC Ltd Hits Life High
HDFC Ltd Hits Life High 

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