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Sensex Finishes on a Strong Note; Bank & Realty Stocks Rally
Wed, 23 Aug Closing

Indian share markets surged further in the afternoon session and finished in the green for the second straight session on heavy buying in realty stocks, metal stocks and bank stocks.

At the closing bell, the BSE Sensex closed higher by 276 points and the NSE Nifty finished up 87 points. The S&P BSE Mid Cap finished up by 1.4% while & S&P BSE Small Cap too finished up by 1.2%. FMCG stocks finished in red.

Asian stock markets finished mixed as of the most recent closing prices. The Hang Seng gained 0.91% and the Nikkei 225 rose 0.26%. The Shanghai Composite lost 0.08%. European markets are lower today with shares in France off the most. The CAC 40 is down 0.09% while London's FTSE 100 is off 0.03% and Germany's DAX is lower by 0.03%.

The rupee was trading at Rs 64.13 against the US$ in the afternoon session. Oil prices were trading at US$ 47.67 at the time of writing.

The Inter-Ministerial Group (IMG) on telecom industry, in its latest meeting has hinted on extending the timeline for deferred spectrum payment by telcos to 16 years instead of 10. This news is a big sigh of relief to telecom operators.

This proposal would improve the cash flow of telecom companies. Currently, a portion of spectrum auction amount is taken as upfront payment by the Department of Telecom (DoT) and the balance after a two-year moratorium is paid out every year in 10 installments.

IMG discussed different proposals including convergence between DoT and RBI guidelines on the issue of allowing spectrum as collateral and shifting from prime lending rate (PLR) to marginal cost of funds-based lending rate (MCLR) for interest and penalty payments, pertaining to license fee and spectrum usage charges.

Telecom companies finished the trading on a firm note with Bharti Airtel share price and Idea Cellular share price surging 2.4% and 3% respectively.

Moving on to news from energy sector. GAIL India share price surged 2% in today's trade after the company signed three time-swap deals to sell some of its US liquefied natural gas (LNG) as it rejigs the supply portfolio in line with domestic demand.

Under the deals, the state-owned utility will buy LNG from international companies this year and sell equivalent amount of Henry Hub-indexed volumes during 2018-19. The company is also seeking destination swaps to cut shipping costs of US LNG.

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GAIL said it is trying to market LNG to anchor customers such as refineries, steel plans along planned and existing pipelines. It is also in talks to supply LNG to new fertiliser plans and expect firm agreements in 2017.

In news from banking sector, as per a leading financial daily, the Union Cabinet has given an in-principle approval for merger of PSU banks, paving the way for the government's ambitious plan for consolidation among state-run lenders to help them gain efficiency and scale.

The government is pushing for consolidation among the state-run banks in order to help the lenders gain efficiency and scale, and operate without the support of repeated capital infusion to bolster their balance sheets. The development comes close on the heels of State Bank of India's move to merge its five associate banks.

PSU banks rallied with Allahabad Bank share price and Bank of India share price leading the charts.

In another development, Infosys share price climbed 2% after it was reported Nandan Nilekani is likely to head Infosys. The sentiment remained strong as the company's third largest institutional investor, Oppenheimer Funds, has said its views on the company have not been materially impacted by CEO Vishal Sikka quitting.

The views assume significance as large investors take on Infosys and their buy-in will be critical in shaping the company's narrative in the next few days. Shares of Infosys had last Friday slumped over 13%, eroding Rs. 248.39 billion from its market valuation, after Vishal Sikka, the first non-founder CEO of the company, resigned.

Meanwhile, Share buybacks, led primarily by IT companies, are set to hit a new record this financial year. As per Prime Database, in the first five months of FY18, at least twenty companies have offered to buy back shares worth Rs 480 billion.

Share Buybacks on Record Spree

The trend has been gathering momentum since the government imposed an additional dividend distribution tax (DDT) in the Budget 2016-17.

This fiscal's buybacks include offers from IT giants Wipro and Infosys, which announced buybacks of Rs 110 billion and 130 billion, respectively.

As per Rahul Shah, Co-head of Research, investors should not assume buybacks are always good. Here's an excerpt of what he wrote in the recent edition of The 5 Minute Wrapup:

  • "The reason behind the buyback must be investigated. At the end of the day, an increase in earnings should be more a function of the inherent robustness of the business, as that's what will help it continue to grow at a healthy pace."

And here's a note from Profit Hunter:

PSU Bank stocks are witnessing buying interest today. Most of them are up more than 3% for the day.

Punjab National Bank (PNB) is trading at a very interesting point. The stock bottomed out at 70 levels in February 2016 after forming a double bottom pattern on the daily chart. It then rallied strongly but found resistance at 135 level in July 2016. In September 2016, the stock broke above 135, which then acted as good support for the stock on reactions. The stock eventually went on to hit a high of Rs 185 in in May 2017.

Thereafter, the stock corrected but again found support near 135 levels in June. It also formed a head and shoulder pattern on the daily chart with the neckline at 135 level.

Today, the stock is up 3% after finding support at this level. If the stock rallies from here, it will negate the head and shoulder pattern.

So it will be interesting to see if PNB can negate the pattern or if it will slip below the 135 level and open up further downside.

PNB at a Crucial Level
PNB at a Crucial Level

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Jun 22, 2018 (Close)