Sensex Ends 170 Points Lower, Realty and FMCG Stocks Witness Selling

Wed, 19 Sep Closing | Rini Mehta, TM Team

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After opening the day on a positive note, share markets in India witnessed volatile trading activity and ended in red. Sectoral indices traded in red, with stocks in the realty sector, and FMCG sector leading the losses.

At the closing bell, the BSE Sensex stood lower by 170 points (down 0.5%) and the NSE Nifty closed down by 45 points (down 0.4 %). The BSE Mid Cap index ended the day down 0.5%, while the BSE Small Cap index ended the day down 1.3%.

The rupee was trading at Rs 72.46 against the US$ in the afternoon session.

Asian stock markets finished on a positive note. As of the most recent closing prices, the Hang Seng was up by 1.2% and the Shanghai Composite was up by 1.1%. The Nikkei 225 was up by 1%.

Shares of asset management companies (AMCs) were in focus today and witnessed selling pressure on fears of the impact on their revenue and profitability after the market regulator reduced the total expense ratio (TER)- the fee funds collect from investors every year.

The development came as the regulator on Tuesday capped the total expense ratio for equity oriented mutual fund schemes (close ended and interval schemes) at 1.25% and for other schemes at 1%. The cap for fund of funds was capped at 2.25% for equity-oriented schemes and 2% for other schemes.

The regulator said that all the mutual fund commissions and expenses must be paid from the scheme itself and that the industry must adopt a full trail mode of commission in all schemes without paying any upfront commission.

The above development will mean lower revenue yields for most AMCs and will further affect their profitability.

On the other hand, it will benefit investors in equity mutual funds from the cut of TER.

The above news sent HDFC AMC and Reliance Nippon AMC trade on a negative note. Stocks of both the companies hit their lowest levels since their trading debut with HDFC AMC share price closing its session down by 8.6% and Reliance Nippon share price closing down by 11.3%.

Metal stocks were also in focus today and were witnessing buying interest after reports stated that the US is likely to exempt Indian steel and aluminium from higher tariff regime announced by Trump administration this March. Stocks such as SAIL and JSW Steel gained the most today on the back of the above news.

Moving on to the news from the IPO space, the state-owned engineering and construction company IRCON International which opened its issue for subscription yesterday was subscribed around 8 times by noon hours today.

The issue has a price band of Rs 470-475 per share and the equity shares are proposed to be listed on BSE and NSE. The public issue comprises an offer for sale of 9.9 million equity shares by its promoter, The President of India, acting through the Ministry of Railways, Government of India.

The net issue proceeds from the IPO will be utilised towards repayment of certain borrowings and for general corporate purposes.

IRCON International Limited is a Mini Ratna government company incorporated by Central Government (Ministry of Railways) under the Companies Act, 1956 on 28th April 1976. It is an integrated engineering and construction company specializing in major infrastructure projects, including railways, highways, bridges, flyovers, tunnels, aircraft maintenance hangars, runways, EHV sub-stations, electrical and mechanical works, commercial and residential properties, development of industrial areas, and other infrastructure activities.

To know more about the company, you can read our IPO analysis of IRCON International Ltd (requires subscription).

Speaking of IPOs, the stock market is gearing up for a burst of IPO activity.

According to EY India IPO Readlines survey report, globally, Indian exchanges recorded the highest IPO activity as the country saw 90 IPO launches that raised US$ 3.9 billion in the first half of this year.

Meanwhile the amount raised by SME IPOs in 2017 stood at Rs 17.9 billion. This is more than three times the amount raised in 2016. The number of SME IPOs launched also doubled from 66 to 132. This is evident from the chart below:

SME IPO Boom in 2017

We believe a merit-based selection, primarily including valuation, business, and management quality, is the logical way to go about investing in IPOs. If it means going against the herd, so be it. And going by recent past, this strategy has been proven to be successful more often.

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