Sensex Falls 250 Points; Metal & Realty Stocks Drag

Wed, 24 Jul 12:30 pm

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Share markets in India are presently trading on a negative note. All sectoral indices are trading in red with stocks in the metal sector, realty sector and capital goods sector witnessing maximum selling pressure.

The BSE Sensex is trading down by 239 points (down 0.6%), while the NSE Nifty is trading down by 76 points (down 0.7%). The BSE Mid Cap index is trading down by 1.3%, while the BSE Small Cap index is trading down by 1%.

The rupee is currently trading at Rs 69.02 against the US$.

Speaking of share markets in general, there's been a heavy sell-off in the Indian stock markets following the Union Budget 2019. Since the Budget announcement, investor wealth worth Rs 8.8 lakh crore has been wiped out.

The biggest sellers in the ongoing correction are foreign investors.

Why are foreign investors dumping Indian stocks?

Ankit Shah answers this question in one of the latest edition of The 5 Minute WrapUp. Here's an excerpt of what he wrote...

• One of the main reasons is the higher tax burden on the super-rich in the form of additional surcharge.
  
  All individuals and association of persons (AOPs) come under the purvey of this additional surcharge.
  
  Why does this bother foreign investors?
  ,br>Here's the thing - several foreign portfolio investors (FPIs) are structured as AOPs, limited liability partnerships and trusts.
  
  As such, if they earn over Rs 2 crore a year, they will be subjected to the higher tax surcharge.
  
  So, for a foreign investor earning between Rs 2 crore and Rs 5 crore, the effective tax rate goes up from 35.88% to 39%. And those earning more than Rs 5 crore income in India, the tax rate goes up from 35.88% to 42.74%.
  
  FPI were hoping that the Finance Minister would relax the tax burden for them. But Nirmala Sitharaman stayed her ground and rejected the pleas. Here's what she suggested them to do instead: 'FPIs should consider the option of structuring themselves as companies rather than trusts to avoid paying the increased surcharge announced in Budget 2019.'

FPIs have been on a selling spree in the latest month. Have a look at the chart below that shows the net monthly flows of foreign investors in the Indian stock markets:

Foreign Investors Turn Net Sellers After Five Months of Buying

In the month of July, foreign investors have so far sold off equities worth Rs 7,143 crore.

It's certainly not a small amount. But one must also see the sell-off in the larger context - foreign investors have been net buyers of Indian equities in 2019.

Since the start of the year, their net investment in Indian equities is worth Rs 71,937 crore. They have been net buyers in five out of seven months.

So, the ongoing sell-off should not be seen as foreign investors exiting India for good. They will come back when the valuations get more attractive to compensate for the higher tax burden.

So, look out for the stocks that will rise fast when the tide of the market turns up.

Moving on, market participants are tracking Oberoi Realty share price, Bharti Infratel share price, and Asian Paints share price as these companies are set to announce their June quarter (Q1FY20) results later today.

You can read our recently released Q1FY20 results: TVS Motors, Jyothy Labs, DCM Shriram, United Spirits.

In news from the finance sector, M&M Financial Services reported a sharp 75% year on year (YoY) decline in its standalone net profit at Rs 680 million in Q1FY20, due to higher provisioning for stressed assets. The company had posted profit of Rs 2690 million in the year-ago quarter.

Shares of the company tanked 15%, to Rs 289 per share on back of the above news and were trading at their lowest level since March 2017.

Net interest income (NII) during the quarter grew 17% YoY to Rs 12.7 billion from Rs 10.8 billion in the corresponding quarter of the previous fiscal. The provisioning more than doubled from Rs 2.9 billion to Rs 6.2 billion during the June quarter.

Gross non-performing assets (GNPA) ratio came in at 5.7% for Q1FY20, up by about 90 basis points from 4.8% in March 2019 quarter. GNPA for the year-ago period was 6.3%.

Net NPAs rose to 7.4% during the quarter from 5.9& in the previous quarter. Asset quality for the automotive and tractors finance improved on an annual basis but deteriorated sequentially.

Reports state that higher cost of ownership, increased fuel price, higher insurance expense, dearer interest rates, increased safety norms resulted in reduction of company's growth rate.

In a result presentation, the company said, "the lower finance availability is hurting MHCV sales, while CV lending rates increased marginally. The reduction in sale price of secondhand vehicles is resulting in slower buying of new vehicles. The advancement of purchase expected since BS-VI implementation shall increase prices".

M&M Financial Services share price is presently trading down by 8%.

Moving on to news from the pharma sector, Torrent Pharma has reported a rise of 82.8% in its net profit at Rs 2.2 billion for the quarter under review as compared to Rs 1.2 billion for the same quarter in the previous year.

Total income of the company increased by 10% at Rs 16.3 billion for Q1FY20 as compared Rs 14.9 billion for the corresponding quarter previous year.

Meanwhile, Cadila Healthcare has launched Ramelteon Tablets (US RLD -Rozerem Tablets), 8 mg upon receiving the final approval from the US Food & Drug Administration (USFDA).

Ramelteon is used to treat insomnia that is associated with having trouble falling asleep. The drug will be manufactured at the group's formulations manufacturing facility at SEZ, Ahmedabad.

The group now has 270 approvals and has so far filed over 360 ANDAs since the commencement of the filing process in FY 2003-04.

Torrent Pharma share price and Cadila Healthcare share price are presently trading up by 5.7% and 0.1%, respectively.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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