Indian Indices Trade in Red; IPO Buzz, and Top Stocks in Action

Tue, 3 Jul Pre-Open

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On Monday, share markets in India opened flat and ended the day in red. The S&P BSE Midcap Index ended down by 0.8% while S&P BSE Small Cap Index ended down by 0.9%.

The BSE Sensex closed lower by 159 points to end the day at 35,470. While the NSE Nifty ended down by 59 points to end the day at 10,762.

Among BSE sectoral indices, PSU stocks fell the most by 1.7% followed by stocks in the energy sector at 1.6.%. Tata Motors and ICICI Bank were among the top losers.

Top Stocks in Action

Tata Steel share price will be in focus today as the steel major signed joint venture (JV) agreements with Thyssenkrupp AG to create Europe's second largest steel company.

US President Donald Trump had on Friday threatened to escalate a trade war with Europe by imposing a 20% tariff on all US imports of European Union-assembled cars.

Tata Motors' subsidiary, Jaguar Land Rover (JLR) manufactures vehicles in the EU.

PNB Housing Finance share price is likely to be in focus today, after it was reported that Housing Development Finance Corp (HDFC Ltd) and Kotak Mahindra Bank are competing for a controlling stake in PNB Housing Finance as they aim to gain wider coverage in a mortgage market that's seen among the safest of havens in the lending world.

Manufacturing Activity Continues to Rise

Activity in India's manufacturing sector expanded at its fastest pace in seven months in June supported by strong domestic and export orders.

According to the Nikkei Purchasing Managers' Index (PMI) survey by Markit, India's manufacturing continued to increase the pace of expansion in June after a good showing in in May.

The PMI is the reading of the country's manufacturing sector output and is updated monthly. A reading above 50 indicates expansion, while any score below the mark denotes contraction.

PMI in June stood at 53.1, an increase from the 51.2 reading in May, indicating a sustained expansion. This is the eleventh consecutive month that the manufacturing PMI remained above the 50-point mark, which separates expansion from contraction. Notably, the PMI reading in June expanded at its fastest pace in the last seven months.

A surge in oil prices over the past few months means India's retail inflation has remained above the Reserve Bank of India's (RBI) medium-term target of 4% increasing pressure on the central bank to act sooner than expected.

On the prices front, a build-up of inflationary pressures re-emerged as input cost and output inflation was at the strongest since February due to the upswing in global oil prices.

Though Indian manufacturers remained cheerful about growth prospects, worries about the possibility of unexpected policy decisions and a risk of an international trade war weighed on confidence.

IPO Buzz

After its initial public offering Fine Organic Industries made a modest debut on bourses today. The scrip of the company, which recently concluded its IPO subscription offer, got listed at Rs 815, about 4% premium to its issue price of Rs 783.

The company generates around 70% of its revenues from plastic additives segment and the rest from food and other additives. It currently has three production facilities in Ambernath, Badlapur and Dombivli and offers 387 different products under its Fine Organics brand.

Fine organic industries share price ended the day up 5.1% from its issue price.

The IPO market is gearing up for a burst of activity, with at least 12 companies planning to raise more than Rs 170 billion over the next two months, after a quiet start to the June quarter.

Reportedly, the introduction of the new Indian accounting standards (IndAS) as one of the reasons why IPO-bound companies have not approached the market so far, this quarter.

All companies, including unlisted ones, having net worth of between Rs 2.5 billion and Rs 5 billion have to prepare their financial accounts for the year ended 31 March 2018 as per the IndAS accounting standards. Companies with net worth of Rs 5 billion or more had to implement the new standard a year earlier.

As per the reports, the pipeline in the June quarter will be very healthy. The market/IPO outlook continues to be strong and robust for the next two quarters if not the entire year.

Several major IPOs, including those of HDFC Asset Management Co. Ltd, auto parts maker Varroc Engineering Ltd, non-banking financial company IndoStar Capital Finance Ltd, microfinancier CreditAccess Grameen Ltd and women's apparel maker TCNS Clothing Co. Ltd, are set to hit the market this quarter.

Other companies that may launch their IPOs in the quarter include seafood exporters Devi Seafoods Ltd and Nekkanti Sea Foods Ltd. Both said they would decide on the timing of the launch after they get regulatory approval for their respective share sales.

With so many new IPOs hitting the market, it would be difficult to not get carried away.

A merit-based selection primarily including valuation, business, and management quality is the logical way to go about investing in IPOs. If it means going against the herd, so be it. And going by recent past, this strategy has been proven to be successful more often.

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Indian Share Market Update: Top Gainers and Losers