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Sensex Opens Lower; Consumer Durables Stocks Drag
Wed, 28 Jun 09:30 am

Asian stock markets traded mostly lower in morning trade after the softer lead from Wall Street, with the vote on a bill to replace Obamacare in the U.S. delayed. The Nikkei 225 is off 0.29% while the Hang Seng is down 0.57%. The Shanghai Composite is down 0.13%. Stock markets in Europe too closed their previous session in red.

Meanwhile, share markets in India have opened the day on a negative note. The BSE Sensex is trading lower by 24 points while the NSE Nifty is trading lower by 31 points. The BSE Mid Cap Index and BSE Small Cap index opened the day down by 0.4% & 0.6% respectively.

Sectoral indices have opened the day on a mixed note with information technology stocks and energy stocks leading the gains. While consumer durables stocks and capital goods stocks have opened the day in red. The rupee is trading at 64.46 to the US$.

Mining stocks opened the day on a mixed note with Ashapura Minechem & Gujarat Mineral Development leading the losses. As per an article in a leading financial daily, the government's policy think-tank Niti Ayog proposed that India should split the seven units of state-controlled Coal India Ltd into independent companies to make it more competitive.

About 70% of India's power generation is fired by coal. The country is the world's third-largest producer and third-biggest importer of coal, which the government wants to change by boosting local coal production.

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Fresh coal production should come from private sector mines, the government think-tank NITI Aayog said, adding that the move called for reforms in allocating coal blocks to independent companies specialised in coal mining.

NITI Aayog has hence batted for comprehensive reforms in allocating coal blocks on commercial lines to independent companies specialised in coal mining.

While the Centre has been successful in auctioning coal mines to private companies for captive usage, commercial mining is yet to see the light of the day, mostly owning to subdued demand. In the past, similar suggestions have been shot down by the Centre citing efficient operations of Coal India and all its subsidiaries.

Coal India share price opened up by 0.4%.

Moving on the news from the IPO space. AU Small Finance Bank is all set to hit the market with an initial public offering (IPO) today. On offer are 53.42 million shares in the price band of Rs 355-358 apiece. The issue will close on 30 June 2017.

The Jaipur-based company, which has got RBI licence to engage in small finance banking, has already commenced operations.

With a network of 300 branches spread across Gujarat, Maharashtra, Rajasthan, Delhi, Punjab, Haryana, Himachal Pradesh, Madhya Pradesh, Goa and Chhattisgarh, the lender used to serve across 10 states as a non-banking finance company (NBFC) - AU Financiers - before foraying into the small finance bank space.

Should you consider participating in this IPO?

Here's our view on the AU Small Finance Bank IPO.

Speaking of IPOs, primary markets have caught the frenzy of investors. Looking at the performance of IPOs listed in 2017, one could see the reason why. Almost 75% of the IPOs listed in 2017 till date have given positive returns. Although we are nowhere near the euphoria of 2007, we are slowly but surely getting there.

However, according to Hindu Business Line, till June 2016, only 40% of the IPOs launched between 2004 and 2011 were trading above their issue price, as can be seen from the chart below.

Are IPOs a Sure Shot Way to Make Money?

We, at Equitymaster, have always recommended IPOs cautiously. Here's Rahul Shah, co-head of research at Equitymaster, explaining our rationale behind the approach:

  • 'We know what a dirty game the IPO business is. We've seen it over and over again: It's a game where the odds are stacked against investors. So for us, the equation is simple. We'd rather face criticism in the short run than see our subscribers lose money over the longer term. We weren't afraid to do this during the hot IPO days of 2007, and we're not afraid to do it today.'

The Bottomline: You need to evaluate each IPO on its merits by considering its fundamentals, and most importantly, the valuations. And this is particularly important when the hype surrounding IPOs is at its peak.

We have reviewed each of them and have released their recommendation notes. You can check the same on their IPO page.

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