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Sensex Finishes on a Flat Note; Wipro Tumbles 4%
Thu, 14 Sep Closing | Karan Janani, TM Team

Indian share markets were trading marginally higher after inflation based on the wholesale price index hit a fourth month high in August. Wholesale price index-based inflation rose sharply to 3.24% in August from 1.88% in July.

At the closing bell, the BSE Sensex closed higher by 56 points and the NSE Nifty finished up 7 points. The S&P BSE Mid Cap finished up by 0.6% while S&P BSE Small Cap finished up by 0.7%. Metal stocks and realty stocks witnessed majority of the selling pressure. Meanwhile, gains were seen in power stocks and pharma stocks.

BHEL share price was among the top gainers in the market today. The surge comes after it was reported that the company will make rolling stock for bullet trains.

Prime Minister Narendra Modi and his Japanese counterpart Shinzo Abe laid the foundation stone of India's first bullet train project, a high-speed rail link to Mumbai, in Ahmedabad earlier today.

Various media reports said that BHEL and Kawasaki Heavy Industries will collaborate for making rolling stock for bullet train project.Order will be big boost for BHEL which has been struggling recently.

Asian stock markets finished lower today with shares in Hong Kong leading the region. The Hang Seng is down 0.42% while China's Shanghai Composite is off 0.38% and Japan's Nikkei 225 is lower by 0.29%. European markets are mixed. The FTSE 100 is higher by 0.04%, while the DAX is leading the CAC 40 lower. They are down 0.30% and 0.14% respectively.

The rupee was trading at Rs 64.07 against the US$ in the afternoon session. Oil prices were trading at US$ 49.55 at the time of writing.

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As per a leading financial daily, Tata Chemicals is in advanced stages of discussions and negotiations with Indorama Holdings BV, Netherlands (subsidiary of Indorama Corporation, Singapore), for the potential sale of its Phosphatic Fertiliser Business located at Haldia and the trading business comprising of bulk and non-bulk fertilisers.

As per an article in The Hindu Business Line, the company is expected to receive consideration in the range of Rs 4 billion to Rs 5 billion. If the deal goes through, Tata Chemicals will exit the fertiliser business completely. In August last year, Tata Chemicals sold its urea plant in Babrala, Uttar Pradesh, to the Indian unit of Norway-based Yara International for Rs. 26.7 billion.

Production of phosphatic fertiliser at the Haldia plant was suspended for the entire June quarter due to lower sales volumes and higher input costs.

The delay in subsidy receivable from the government is one of the reasons for Tata Chemicals quitting the fertiliser business and focusing on high-margin agriculture products through its subsidiary Rallis India.

Tata Chemicals share price finished the trading day up by 0.5% on the BSE.

Meanwhile, as per an article in The Economic Times, the Indian fertiliser industry is seeing new growth after two years of low margin business, thanks to lower gas prices and appreciation of the rupee, coupled with lower input prices.

Analysts and industry representatives estimate the industry's net margins to improve conservatively to 5.5% in FY18 from 4.9% in FY17 and 2.7% in FY16.

The government has also imposed an anti-dumping duty of up to US$60.35 per tonne on imports of a chemical used in fertiliser industry from four countries -- Russia, Indonesia, Georgia and Iran. This anti-dumping duty is in the range of US$11.42 - US$60.35 per tonne of the chemical and will remain in place for five years.

Moving on to news from airline stocks. Interglobe Aviation (Indigo) share price finished down by 0.9% after it was reported that the company will conduct a share sale to institutional investors on Friday that will raise for the company and its founders as much as Rs 39.45 billion (US$616 million).

The company set a price range of Rs 1,125 to 1,175 a share for the sale of up to 33.6 million shares, comprising of 22.4 million new shares and 11.2 million existing shares. The share sale is aimed at helping the company meet minimum public holding rules.

But the funds raised will also help the airline in its significantly capital-intensive plans. IndiGo has proposed to buy national carrier Air India earlier this year. Reportedly, Indigo also recently expressed its interest in buying Jet Airways if its acquisition of Air India falls through.

Market Share of Indian Domestic Airlines - 2017 (%)

Indigo already has a comfortable market share among domestic carriers. With either of these acquisitions, it would be looking at a 55-60% share of the Indian aviation sector. This move will strengthen its position to increase its share in International traffic. Foreign carriers still dominate international traffic to and from India. Indian carriers are opening up to international routes to increase their revenues and profit margins. International routes traditionally deliver higher margins for airlines.

The aviation industry has been on a high the past year. Warren Buffett invested upwards of US$2 billion a piece into the four largest US airline stocks - American Airlines Group Inc, Delta Air Lines Inc, Southwest Airlines Co, and United Continental Holdings Inc. When crude prices crashed, the lower cost of air turbine fuel suddenly changed the economics of the aviation business.

In news from software sector, Cyient Ltd share price plunged 2.6% after the company said it will divest its 49% equity ownership in joint venture firm Infotech Aerospace Services to its partner Pratt & Whitney.

The consideration received from the transaction is US$1.8 million, post additional dividend disbursement of US$9.1 million from the cash reserves. Infotech Aerospace Services Inc (IASI), a 51:49 joint venture between Pratt & Whitney and Cyient, was set up in 2013 in Isabela, Puerto Rico.

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Meanwhile, Wipro share price witnessed selling pressure today (down 3.8%) as the stock turned ex-date for the proposed buyback.

The company had announced September 15, 2017 as the record date for determining the entitlement and the names of equity shareholders who are eligible to participate in the buyback.

On July 20, 2017, the board of directors of Wipro had approved a buyback proposal for purchase by the company of up to 343.7 million equity shares of Rs 2 each at price of Rs 320 per share from the shareholders of the company.

Speaking of share buybacks, many buybacks 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.

Also, in the past two years, the quantum of share buybacks has far exceeded the amount of new equity capital raised from IPOs.

And here's a note from Profit Hunter:

Bharat Heavy Electricals Ltd (BHEL) surged over 10% intraday after the Japanese PM Shinzo Abe announced that BHEL and Kawasaki Heavy Industries will collaborate to make rolling stock for the Ahmedabad-Mumbai high-speed bullet train project.

After BHEL topped out at 290 in July 2015, it slipped almost vertically to drop to a low of 90 in February 2016. When the broader market indices bottomed out in February 2016, the stock reversed up to hit a 52-week high of 183 in April 2017. But again, the stock traded dull and slipped down to 120 level.

Today, it rallied over 10% intraday with strong volumes as the positive news rolled out. By the end of the session, the stock gave up most of its gain to close at only 3.5% up.

So, will the collaboration help BHEL secure a new 52-week high or will it continue to trade dull? Let's wait to see how things pan out.

BHEL Soared 10% Intraday
BHEL Soared 10% Intraday 

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