Of Share Buybacks, GST Cess on Motor Vehicles, and Top Stocks in Focus Today

Thu, 24 Aug Pre-Open

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Indian share markets witnessed buying interest on Wednesday and finished their session in the green for the second straight session. Heavy buying was seen 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.

Top Stocks in Focus

Stocks in the PSU sector will be in focus today as the Union Cabinet gave an in-principle approval for merger of PSU banks. The development has paved the way for the government's ambitious plan for consolidation among state-run lenders to help them gain efficiency and scale. It also 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.

Market participants will also be tracking Gail India share price today. The stock witnessed buying interest yesterday after it 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.

Infosys share price will be in focus today. This comes as the stock climbed 2% yesterday after it was announced that Nandan Nilekani will likely head Infosys. The stock is also in news of late on the back of its share buyback worth Rs 130 billion. Shares of Infosys had last Friday slumped over 13%, eroding Rs 248.4 billion from its market valuation, after the resignation of Vishal Sikka.

Share Buybacks

Speaking of share buybacks, many buybacks, mainly from the IT sector 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.

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 a 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.

The topic also brings us to ask: Do buy-backs offer an arbitrage opportunity for retail investors? Ankit Shah has answered this question in the recent edition of Equitymaster Insider. You can access the issue here.

GST Cess on Larger Vehicles

Market participants will also be tracking stocks from the automobile sector today. This comes as the Cabinet considers increasing the cess on mid-size and large cars and sports utility vehicles to 25% from 15% earlier under the Goods and Services Tax (GST) regime.

The GST Council had earlier this month approved a proposal to change the GST compensation law to raise the ceiling of the cess that can be levied on motor vehicles.

The development will mean imposing a cess of less than 25% and should partially alleviate the fears of car makers about an increase in the cess forcing them to raise prices after having just dropped them following the rollout of the Goods and Services Tax (GST) on July 1.

Automobile manufacturers may face some hiccups on the back of above development. Also, executives from auto industry say they may re-evaluate their business plans owing to the above development. Meanwhile, we'll keep you posted on the recent developments from this space.

Apex Frozen IPO

On Monday we shared our detailed analysis of the IPO of Apex Frozen Foods. Our research suggests this IPO could be worth applying to. The IPO is already subscribed 1.46 times. If you haven't applied already, do note today is the last day of application for this IPO.

The IPO is comprised of fresh issue as well as offer for sale. The company proposes to use the net proceeds to establish a new shrimp processing unit with a proposed capacity of 20,000 tonnes per annum in Andhra Pradesh.

IPOs are all the rage in the share markets these days. With new companies listing by the day, all with promises of superior returns. We have each of the IPOs and have released their recommendation notes. You can check the same on our IPO page. Also, to know more on the topic you can download our FREE report on How to Get Rich with IPOs. This guide will show you how to safely profit from the 2017 IPO rush.

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

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Indian Share Market Update: Top Gainers and Losers