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Sensex Finishes the Day in Red on Weak Corporate Earnings
Fri, 28 Jul Closing

Indian share markets finished the trading week below the dotted line as the August derivatives series began on a subdued note amid disappointing earnings by corporates.

At the closing bell, the BSE Sensex closed lower by 73 points and the NSE Nifty finished down 6 points. The S&P BSE Mid Cap finished up by 0.5% while & S&P BSE Small Cap finished up by 0.4%. Losses were largely seen in pharma stocks, metal stocks and realty stocks. Software stocks and FMCG stocks finished in the green.

Asian stock markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 0.11%, while the Nikkei 225 & the Hang Seng fell 0.60% and 0.56% respectively. European markets are lower today. The CAC 40 is down 1.22% while the FTSE 100 is down 0.69%. The DAX is off 0.73%.

The rupee was trading at Rs 64.14 against the US$ in the afternoon session. Oil prices were trading at US$ 49.09 at the time of writing.

In news from the economic sector, global credit rating agency Standard & Poor's (S&P) ratings expects large Indian corporates' revenues to witness growth of around 10% annually over next 2 fiscal years. In its latest report, the agency has said that the credit quality of top corporates which is on the path of recovery is likely to improve over the next two years and will lead to revenue growth.

The report based on 'the analysis of top 100 companies according to market capitalisation' said that the corporates' profitability will also be supported by rising demand and moderate inflation.

It further noted that growth trends are reversing in India's corporate field, as commodity focused sectors set to grow faster than export-focused industries such as information technology and pharmaceuticals and heavy industries' progress is also likely to be more pronounced. However, S&P found that asset-light industries will face headwinds.

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S&P expects the oil and gas sector to maintain its vastly improved EBITDA margins, while telcos are likely to see a compression in margins due to intense competition. It further noted that the key for deleveraging is to keep the debt levels under check through low capex as demand is still elusive. The report also sees increasing consolidation in domestic focused sectors, asset sales in infrastructure & power utilities and outbound acquisitions in export-focused sectors over the next two years.

Moving on to news from bank stocks. ICICI Bank share price plunged 3.6% in today's trade after the bank reported a marginal rise of 3.5% in consolidated net profit for the first quarter of current fiscal on asset quality woes.

The bank reported a marginal rise of 3.5% in consolidated net profit at Rs 26.04 billion for the first quarter of the current fiscal. The bank's net profit in the corresponding April-June quarter of 2016-17 stood at Rs 25.15 billion.

The bank's asset quality deteriorated with gross non-performing assets (NPAs) or bad loans rising to 7.99% of the gross advances as on June 30, 2017, compared to 5.28% as on 30 June 2016. Net NPAs rose to 4.86% of the net loans from 3.01% a year earlier.

Meanwhile, according to Reserve Bank of India data, credit off-take was down to a decade low of 5.1% in FY17 compared to 10.7% a year ago. This was despite a declining cost of borrowing. The data shows the economy might still be reeling from the aftershocks of notebandi.

Credit Growth at Lowest Levels in a Decade

Rural regions bore most of the brunt of the lending slowdown. RBI data shows that growth in rural loans between 30 September 2016 and 31 March 2017 was a mere 2.5%. The picture becomes clearer when you compare it with growth of 12.9% in the second half of 2015-16.

Moving on to news from FMCG sector. As per an article in The Economic Times, ITC plans to soon foray into fruits, vegetables and other perishable products with investment underway to create climate-controlled infrastructure for an efficient supply-chain. Reportedly, annual consumer spend on the brands from the new FMCG businesses now stands at nearly Rs 140 billion.

ITC reported a rise of 7.37% in its net profit at Rs 25.6 billion for the quarter ended June 30, 2017, as compared to Rs 23.84 billion for the same quarter in the previous year.

Total income of the company increased by 4.41% at Rs 142.77 billion for Q1FY18 as compared Rs 136.73 billion for the corresponding quarter previous year.

ITC share price finished the day up by 0.9%

Moving on to news from pharma sector. Dr Reddy's share price plunged 6.1% in today's market after it posted 53.2% year-on-year fall in consolidated net profit at Rs 0.6 billion for the quarter ended 30 June 2017 against Rs 1.3 billion in the corresponding quarter last year.

In another development, Dr Reddy's and biopharma company CHD Bioscience today announced a global licensing agreement for the clinical development and commercialisation of Dr Reddy's phase III clinical trial candidate, DFA-02.

As per an article in The Economic Times, under the terms of the agreement, Dr Reddy's would receive equity in CHD valued at US$30 million upon an IPO of CHD or a minimum of US$30 million in cash within 18 months of execution of the agreement. Dr Reddy's will also receive additional milestone payments of US$40 million upon USFDA approval. In addition, CHD will pay Dr Reddy's double-digit royalties on sales and commercial milestones.

Pharma stocks closed on a weak note.

And here's a note from Profit Hunter:

The Nifty 50 Index ends its July expiry this week. Let's have a look how the index performed during the expiry.

The index traded on a strong note during the expiry. It opened gap down on the first day of the expiry and hit a low of 9,449. But the selling was temporary as the index recovered later that day and went on to hit a fresh life high in the second week of the expiry. The bulls did not stop and the index kept hitting new life highs to achieve the landmark figure of 10,000 in the last week of the expiry. Finally, it ended the expiry 5.44% up.

In our previous rollover report, we mentioned that it would be quite difficult for the bears to penetrate the 9,400 level as indicated by the strong open interest (OI) outstanding in the 9,400 put. As a result, the index reversed up from 9,449.

But as indicated, the bulls also needed to push the index above its 20-day exponential moving average (EMA) as well as the RSI indicator above 50 to regain strength, which they did in the first week of the expiry. This lead bulls to dominate the expiry and the index hit the 10,000 mark in no time.

So will the bulls continue to dominate in the August series as well? Watch out for our next rollover report in Profit Hunter newsletter in the Market Notes section.

Nifty 50 Index Ends July Expiry Above 10,000
Nifty 50 Index Ends July Expiry Above 10,000 

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