Sensex Ends Volatile Day Flat; TCS Up 2.5%

Wed, 13 Jun Closing

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After opening the day flat, share markets in India witnessed volatile trading activity throughout the day and ended the day flat with a positive bias. Sectoral indices traded on a mixed note, with stocks in the IT sector and stocks in the pharma sector, leading the gains.

At the closing bell, the BSE Sensex stood higher by 47 points (up 0.1%) and the NSE Nifty closed up by 14 points (up 0.1%). The BSE Mid Cap index ended the day down 0.5%, while the BSE Small Cap index ended the day down by 0.2%.

The rupee was trading at Rs 67.65 against the US$ in the afternoon session. Oil prices were trading at US$ 75.99 at the time of writing.

Asian stock markets finished in red. As of the most recent closing prices, the Hang Seng was down by 1.2% and the Shanghai Composite was down by 1%. The Nikkei 225 was up by 0.4%. Meanwhile, European markets, were trading on a positive note. The FTSE 100 was up by 0.5%, The DAX, was up by 0.4% while the CAC 40 was up by 0.3%

In news from the . The first quarter of 2018 was the best quarter on record for solar installations in the country. Solar installations increased by 34% to 3,269 mw in the first quarter of 2018, compared to the previous quarter. Installations were also up when compared to the 2,991 MW installed in Q1 of 2017.

The surge in installations in first quarter of ongoing calendar year was primarily on account of completion of projects which were scheduled for commissioning the previous quarter, but had experienced delays due to grid connection issues. This was the first quarter of over 3 gigawatts (GW) installed in the Indian solar market and the fifth quarter in a row where at least 2 GW of solar installations.

Even though Q1 was a record quarter, solar procurement activity has been muted over the last few quarters. But with an anticipated decline in module prices, we expect to see tariffs decline and distribution companies ramp up procurement activity.

The cumulative solar installed capacity totaled 22.8 GW at the end of Q1 2018

Renewable Energy Generation Target Over the Years

In 2018-19, the government is eyeing 22,150 MW power capacity addition from renewables, including 16,000 MW (solar), 5,200 MW (wind), 850 MW (biomass) and 100 MW from small hydro power (of up to 25 MW). Moreover, the increased use of indigenous renewable resources is expected to reduce India's dependence on expensive imported fossil fuel.

Of the many industries facing disruption, energy sector tops the list. It's not just the oil and gas prices. The rise of renewable energy, especially solar energy, is an emerging threat for conventional energy companies.

Does this mean every direct player in solar sector stands to gain?

We don't think so. In India itself, solar tariffs are dropping to record lows. Solar developers recently bid a record low tariff of Rs 2.44 per unit. With average tariffs for thermal plants hovering at Rs 3.2 per unit, solar tariffs are nearly 25% cheaper.

As the solar developers get aggressive to win bids, we wonder if the projects are even viable at these ultra-low rates.

This is another example where rise in an industry may not benefit the direct players. That said, there could be some indirect players that could gain from the government's ambition to add 100 GW of solar power capacity till 2022.

These indirect companies, that stand to gain from supplying to a rising trend or direct players are what Hidden Treasure team hunts for.

Moving on to news from stocks in the IT sector. TCS share price is in focus today after the country's largest software services firm said that its board will consider a proposal for a buyback at the end of the week.

The company, however did not disclose the details of the buyback.

Just last year, the company had undertaken a Rs 160 billion mega-buyback offer, with Tata Sons tendering 36 million shares accounting for over 64% of the total shares bought back by the company.

Notably, in the last financial year, TCS returned over Rs 268 billion back to shareholders through dividend and buyback.

Indian IT companies have been under pressure to return excess cash on their books to shareholders through generous dividends and buybacks. Many IT firms, including Infosys (Rs 130 billion) and HCL Technologies (Rs 35 billion) had undertaken buyback schemes last year.

In the last two years, buybacks have gained currency as a tool to reward shareholders after the government imposed an additional 10% tax on dividends.

Any dividend received in excess of Rs 1 million is now taxable at a rate of 10% in the hands of the recipient. This is in addition to the Dividend Distribution Tax (DDT) already levied on the company.

The measure - aimed at those receiving significant amounts of dividends - did not go down well with India Inc. Rather than pay dividends, many companies opted to use their surplus cash on share buybacks, which carry no such levy.

With multiple IPO offers lined up, it will be interesting to see if the trend of more buybacks than IPOs continues.

TCS share price ended the day up by 2.4%.

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