Sensex Trades Higher; IT & Energy Stocks Gain

Thu, 31 Jan 12:30 pm

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Share markets in India are presently trading on a positive note. All sectoral indices are trading in green with stocks in the energy sector, IT sector and oil & gas sector witnessing maximum buying interest.

The BSE Sensex is trading up by 386 points (up 1.1%), while the NSE Nifty is trading up by 93 points (up 0.9%). The BSE Mid Cap index is trading on a flat note and the BSE Small Cap index is trading up by 0.5%.

The rupee is trading at Rs 70.98 against the US$.

The rupee appreciated by 26 paise to 70.86 against the US dollar in opening trade today, driven by weakening of the greenback in overseas markets after the Federal Reserve kept interest rate unchanged.

On Wednesday, the rupee had weakened by just 1 paise to close at 71.12 against the dollar.

Market participants are tracking Bharti Airtel share price, SBI share price, Vedanta share price and Hero MotoCorp share price as these companies are set to announce their December quarter results later today.

You can also read our recently released Q3FY19 results: Reliance Industries, Federal Bank, Infosys, TCS, Trident, HDFC bank, Maruti Suzuki, DHFL, Gruh Finance.

Coal India share price is in focus today as the company said its board would meet on February 4^th to consider and approve a share buyback.

The company had announced that it would raise about Rs 10.6 billion by selling shares to its subsidiaries MCL (Mahanadi Coalfields Limited), SECL (South Eastern Coalfields Limited) and NCL (Northern Coalfields Limited).

This will be the company's second buyback in two years. Coal India had gone for a buyback in 2017, when the government raised about 26.4 billion from the buyback.

According to reports, the company is likely to buy back 1% of the paid-up equity.

In another news, HEG share price is also in focus today as the company has fixed 9 February 2019, as the record date for the buyback.

Shares of the company gained 10% in early trade today on back of the above news.

Ankit Shah has shared the buyback update of the company. You can read it here.

Speaking of buybacks, the number of buyback offers in 2017-18 were at an all-time high. Never, in the last two decades, had Indian markets seen fifty-nine companies announcing buyback plans.

But what is truly surprising is that unlike in the past, the buybacks this time seem skewed in favour of short term investors rather than long term ones.

Who Benefits from Such Buybacks?

Here's what Tanushree Banerjee, Co-head of Research at Equitymaster, wrote about it in The 5 Minute WrapUp...

• Look at the history of buybacks since 2002. Logically promoters should offer to buyback shares at a premium when the stock is undervalued. And this logic held true until recently. The number of buybacks peaked when market valuations were low. And in times of peak valuations (like 2007 and 2011), promoters refrained from doing so.
  
  But not this time. The trend of rising buybacks in the last two years, resembles the sentiment of a momentum investor. The appetite to buy shares kept rising with the rising markets. And the latest buybacks of stocks like TCS and MOIL, came at a time, when neither the broader index (Sensex) nor the stocks themselves, are undervalued.

At Equitymaster, we believe, as a shareholder in cash rich companies, you should not only be wary of expensive buybacks. But if possible use it to your advantage to rake in some cash.

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 one of the editions 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 one of the editions of Equitymaster Insider. You can access the issue here (requires subscription).

Moving on to the news from the finance sector, DHFL share price is witnessing selling pressure today.

As per an article in The Economic Times, the government has launched a probe into allegations of financial mismanagements against the company.

Shares of the company fell around 14% on back of the above news.

On Tuesday, Cobrapost said that DHFL diverted funds to shell companies to buy assets, and that firms linked to DHFL's controlling shareholders - the Wadhawan group made political donations beyond mandated levels.

Note that DHFL is also facing questions about its financial health after the IL&FS default pushed up the cost of funds for the mortgage lender and made borrowing difficult.

How this all pans out remains to be seen. Meanwhile, we will keep you updated on all the developments from this space.

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

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