Sensex, Nifty Close at Record Highs; Energy and Metal Stocks Witness Buying

Mon, 20 Aug Closing

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Indian share markets continued their momentum during closing hours of trade and ended the day at their fresh record high levels. Gains were largely seen in the metal sector and energy sector.

Both, the Sensex and Nifty, ended their day at record closing highs. At the closing bell, the BSE Sensex stood higher by 331 points (up 0.9%) and the NSE Nifty closed higher by 81 points (up 0.7%). The BSE Mid Cap index ended the day up by 1.1%, while the BSE Small Cap index ended the day up by 0.1%.

Asian stock markets finished on a mixed note as of the most recent closing prices. The Hang Seng stood up by 1.39% and the Nikkei was trading down by 0.32%. The Shanghai Composite stood higher by 1.09%.

European markets were trading on a positive note. The FTSE 100 was up by 0.42%. The DAX was up by 0.86% while the CAC 40 was up by 0.53%.

The rupee was trading at 69.82 to the US$ at the time of writing.

In the news from global financial markets, China and the US will be holding lower-level trade talks this month. The news comes as a welcome breather in that the two nations might resolve the ongoing trade war.

As per the news, a Chinese delegation led by Vice Minister of Commerce Wang Shouwen will meet US representatives led by Treasury Under Secretary for International Affairs David Malpass.

The talks in Washington would take place on August 22 and 23, just as new US tariffs on US$ 16 billion of Chinese goods take effect.

Note that earlier this month, the Trump administration announced to impose 25% tariffs on imports of 279 items from China amounting to US$ 16 billion.

The US Trade Representative said that the move is a part of the US' response to China's unfair trade practices related to the forced transfer of American technology and intellectual property.

This is the second tranche of such tariffs and is set to come into effect on August 23.

US had already imposed tariffs on US$ 34 billion worth of goods on July 6 but held off on a final US$ 16 billion in goods as a result of concerns from US companies.

How this trade war pans out remains to be seen. Meanwhile, we will keep you updated from all the developments from this space.

In other news, as per a leading financial daily, the government is looking to raise Rs 100 to 120 billion through share buybacks in 6 to 8 public sector undertakings (PSUs) in the ongoing financial year.

As per the news, Indian Oil Corporation (IOC), NTPC, ONGC, and Oil India are among the companies that will likely buy back some shares from the government.

Speaking of buybacks, the number of buyback offers in 2017-18 were at an all-time high. Never, in the last two decades, had Indian markets seen fifty-nine companies announcing buyback plans.

But what is truly surprising is that unlike in the past, the buybacks this time seem skewed in favour of short term investors rather than long term ones.

Who Benefits from Such Buybacks?

Here's what Tanushree Banerjee, Co-head of Research at Equitymaster, wrote about it in The 5 Minute WrapUp...

• Look at the history of buybacks since 2002. Logically promoters should offer to buyback shares at a premium when the stock is undervalued. And this logic held true until recently. The number of buybacks peaked when market valuations were low. And in times of peak valuations (like 2007 and 2011), promoters refrained from doing so.
  
  But not this time. The trend of rising buybacks in the last two years, resembles the sentiment of a momentum investor. The appetite to buy shares kept rising with the rising markets. And the latest buybacks of stocks like TCS and MOIL, came at a time, when neither the broader index (Sensex) nor the stocks themselves, are undervalued.

At Equitymaster, we believe, as a shareholder in cash rich companies, you should not only be wary of expensive buybacks. But if possible use it to your advantage to rake in some cash.

It's a matter of time before you get to use the cash for buying stocks, you've always wanted to, at attractive bargains.

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

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