Hefty Correction in Metal Stocks, IPO of Godrej Agrovet & Top Cues in Action Today

Tue, 26 Sep Pre-Open

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At the New Year's Eve of 2016, BSE Sensex was trading at 26,626 points. It has rallied quite a lot since then. The index closed at 31,626 as of yesterday, leading to returns of 18.5% since beginning of 2017. Now, that is a phenomenal return within a span of less than nine months.

However, the rally seems to be fizzing out. The index has corrected by a handsome 740 points in a matter of two days. The concerns leading to the correction are grim.

First, the Gross Domestic Product (GDP) growth for the June quarter slumped to a three year low to 5.7%. The reasons for the fall is the de-stocking which happened on account of implementation of goods and service tax (GST) coupled with the lingering impact of demonetization.

Second, the luring threat of a full blown nuclear war between the United States of America and North Korea. In a recent statement, North Korea's foreign minister stated that targeting the US mainland with its rockets was inevitable. To which, Trump replied on twitter stating that if North Korea continues to make such statements, they won't be around for much longer.

Geo-political tensions are on the rise and it may weigh on our benchmark index. During this uncertain time, buying gold may provide an excellent hedge towards any political or economic uncertainty. Ray Dalio, the billionaire hedge fund manager, echoed similar thoughts few weeks back. He's advising investors to allocate 5-10% of their portfolios to gold. That's the same allocation we recommend to our readers.

Metal Stocks under Pressure

Post Friday's fall of 4% in the Nifty Metal Index, the index continued to face the heat as it fell by a further 1.2% in yesterday's trade. Stocks such as JSW Steel and Jindal Steel fell by 4% and 3.7% respectively. Heavyweights such as Tata Steel too dropped by 2.2% in yesterday's trade. Since last Friday, the stock of Tata Steel has corrected by around 7%. You can access our latest result update (subscription required) on Tata Steel wherein we have provided a detailed result analysis of the first quarter results coupled with our view on the stock.

Metal companies may continue to be under pressure due to a significant correction in the base metal prices on account of weak global trade sentiment. Downgrade of China's credit rating too may weigh on the metal stocks going ahead.

Godrej Agrovet Eyeing Valuation of US$ 1.27 Billion in Initial Public Offering

Incorporated in 1991, Godrej Agrovet is India based agri-business company offering products including Animal Feed, Crop Protection, Oil Palm, Dairy and Poultry and Processed Foods. Godrej Agrovet is a leading animal feed company and the largest crude palm oil producer in India.

As per an article in Livemint, the IPO proceeds raised would be used for the repayment of working capital facilities as well as for the repayment of commercial papers issued by it.

Ahead of its opening date on October 4, about 50 Godrej group employees have bought shares worth US$ 1.5 million in the pre-initial public offering. A similar pre-initial public offering was also made in Dixon Technology and Prataap Snacks. We would come up with a detailed analysis on this IPO by October 3.

The IPO market is buzzing with activity and the euphoria is something similar to what was seen in 2007-08. When everyone around you is clamoring to get a piece of the IPO pie, it makes sitting tight difficult. And, why should you sit tight when stocks like Avenue Supermart lets you pocket a cool 100% gain from day 1 of the listing?

History suggests that these cases are few and far between. More than 70% of the IPOs listed in 2007 and 2008 are in the red, even today when the Sensex is at an all-time high.

This allows us to stay on the fence when it comes to investing in IPOs. But it doesn't make sense to completely ignore this space. For every Reliance Power - like issue, there have been issues like Maruti, TCS, and Jubilant Foodworks Ltd (with returns over 4,000%, 1,000% and 500% respectively) that have created immense wealth for shareholders. A merit-based selection primarily including valuation, business, and management quality is the logical way to go about it.

Top Stocks in Focus Today

Shoppers Stop stock hit the upper circuit in yesterday's trade. The stock is expected to be in the news as the company's board approved a proposal to sell 5% equity stake in the company for Rs 1.8 billion to Amazon NV Holdings LLC, the investment arm of the world's largest online retailer Amazon Inc.

As per the news, Amazon NV Holdings LLC, will subscribe to about 43.95 lakh shares in Shoppers Stop at Rs 407.78 each on a preferential basis. The above partnership will help Shoppers Stop tap non-metro markets and aid its performance.

ONGC too is expected to be in the news today. As per an article in The Livemint, Oil and Natural Gas Corp. Ltd (ONGC) will acquire the government's 51.11% stake in Hindustan Petroleum Corp. Ltd (HPCL) through a bulk or block deal some time in November or December at the prevailing market price.

ONGC will have to borrow about Rs 250 billion to fund just the purchase of the government stake. Half of the company's Rs 150 billion of cash has already gone into buying Gujarat State Petroleum Corp's stake in a KG basin gas block. Also, after accounting for capital expenditure requirement for the current year, ONGC will be left with Rs 40-50 billion.

Dabur too is expected to be in the news today as it announced a tie up US based e-commerce giant Amazon to set up an online ayurveda marketplace.

Through this portal the company aims to strengthen its presence in the fast-growing space of natural and herbal consumer products.

The online store will sell ayurveda brands, while offering consumers insights into the medicinal properties of ayurvedic products for treating various ailments.

India's herbal and natural products market is on course to grow to about Rs 520 billion by 2020. To grab a slice of the growing market, FMCG majors such as HUL, Colgate-Palmolive, Garnier, Dabur, Emami, and Himalaya have raised the pitch in the past year.

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

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