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Sensex Ends 181 Points Higher; Telecom & Metal Stocks Witness Buying
Fri, 4 Jan Closing | Monish Vora, TM Team

Indian share markets witnessed buying interest during closing hours and ended on a positive note. Gains were seen in the telecom sector, finance sector and metal sector, while IT stocks and consumer durable stocks witnessed selling pressure.

At the closing bell, the BSE Sensex stood higher by 181 points (up 0.5%) and the NSE Nifty closed higher by 55 points (up 0.5%). The BSE Mid Cap index ended the day up 0.5% and the BSE Small Cap index ended the day up by 0.1%.

Asian stock markets finished on a positive note. As of the most recent closing prices, the Hang Seng was up by 2.3% and the Shanghai Composite was up by 2.1%. The Nikkei 225 was down 2.6%.

The rupee was trading at 69.78 against the US$.

The rupee strengthened tracking gains in Asian currencies as the dollar fell on weak US manufacturing data.

In the news from the retail sector, Future retail share price was in focus today after the government tightened rules for e-commerce companies.

The government last week announced changes to e-commerce policy to check predatory pricing and deep discounting.

Shares of the company have plunged as much as 21% in eight trading sessions on back of the above news.

In the news from the IT sector, Mphasis share price was in focus today as the company has extinguished 73,20,501 fully paid up equity shares of Rs 10 each in dematerialized form and 54 fully paid equity shares of Rs 10 each in physical form consequent to conclusion of buyback of 73,20,555 equity shares of the company.

Further to the above, the paid-up share capital of the company, post buyback, is 1,86,09,65,530 equity shares of Rs 10 each.

In another news, Wipro share price is also considering a share buyback of up to $1-1.2 billion in the January-March quarter.

Reportedly, the National Company Law Tribunal (NCLT) is currently looking at Wipro's proposal of merging Wipro Technologies Austria, Wipro Information Technologies Austria, NewLogic Technologies SARL and Appirio India Cloud Solutions with the company.

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Like Infosys share price, Wipro is coming off the one-year temporary prohibition for a share buyback and is expected to buy back shares at a 20-25% premium to the current share price.

A buyback can only be done once in 12 months and Wipro last had a share buyback programme in November-December 2017.

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 commodity space, oil prices rose by more than 1%, shaking off earlier losses, after China said it would hold talks with the US government next week to look for solutions to a trade dispute between the world's two biggest economies.

The two nations have been locked in a trade war for much of the past year, disrupting the flow of hundreds of billions of dollars' worth of goods and stoking fears of a global economic slowdown.

Crude oil prices, however, are on a decline over the last few weeks over concerns of a supply glut.

Oil prices fell in early trade after the US showed signs of following Asia into an economic slowdown, although supply cuts by producer club the Organization of Petroleum Exporting Countries (OPEC) kept declines in check.

OPEC oil supply fell by 460,000 barrels per day (bpd) between November and December, to 32.7 million bpd, as top exporter Saudi Arabia made an early start to a supply-limiting accord, while Iran and Libya posted involuntary declines.

It would be interesting to see how this pans out. 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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