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Strong Finish to the Week; Metal & Bank Stocks Rally
Fri, 13 Oct Closing | Karan Janani, TM Team

Indian share markets continued to trade higher in the afternoon session to finish in green in nine out of eleven trading session. The sentiments also remained upbeat on strong Asian markets.

At the closing bell, the BSE Sensex closed higher by 250 points and the NSE Nifty finished up by 71 points. The S&P BSE Mid Cap finished flat while S&P BSE Small Cap finished up by 0.1%. Gains were largely seen in metal stocks, realty stocks and bank stocks.

Asian stock markets finished higher today with shares in Japan leading the region. The Nikkei 225 is up 0.96% while China's Shanghai Composite is up 0.13% and Hong Kong's Hang Seng is up 0.06%. European markets are mixed. The DAX is higher by 0.12%, while the FTSE 100 is leading the CAC 40 lower. They are down 0.19% and 0.08% respectively.

Rupee was trading at Rs 64.93 against the US$ in the afternoon session. Oil prices were trading at US$ 51.52 at the time of writing.

In news from the economy, Finance Minister Arun Jaitley has said that the issue of bringing the sector under the purview of the Goods and Services Tax (GST) will be discussed in the next meeting of the GST Council, identifying real estate as the one sector where maximum amount of tax evasion and cash generation takes place.

He also expects that the move would benefit the consumers who will only have to pay one final tax on the whole product. As a result of this, the minister stated that the final tax paid on the whole product in the news tax regime would almost be negligible.

He also said that the reduction in eventual expenditure along with incentivizing people to enter the tax net may also help reduce the size of shadow economy. He indicated that a 12% GST is levied on the construction of a complex, building, civil structure or intended for sale to a buyer, wholly or partly, however, land and other immovable property have been exempted from the GST.

Besides, according to the National Housing Bank (NHB), India's real estate sector is set to become a US$180-billion industry by 2020, building on initiatives such as smart city mission and tax sops for investment trust REIT.

On the basis of the Smart City projects, land record digitisation, withdrawal of corporate tax from REIT structure, the real estate sector growth is bound to attract funds and confidence of the investors as well in a big way.

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Moving on to news from engineering sector. As per an article in The Economic Times, Larsen & Toubro (L&T) expects state-run ONGC to finalise 3-4 projects worth around Rs 50 billion before March and would be bidding for them.

On Wednesday, L&T announced that its arm L&T Hydrocarbon Engineering has bagged an order worth Rs 11.5 billion for ONGC's Daman Development Project. L&T would do the engineering, procurement and construction for the project, which is a part of ONGC's strategy to extract gas from Daman Field.

The decline in crude oil prices led to global energy majors slashing their capex, hurting order flows to companies like L&T. However, the company now believes that the industry has accepted a price range of US$45-US$60 for crude oil and is revising and reviving investment plans.

L&T has shifted its focus back to the domestic market where public-sector units continue to invest on expansion even as things remain sluggish in the Middle East. ONGC alone has a capex plan of 300 billion for 2017-18. But some orders in the domestic markets are facing delays.

L&T share price finished the day down by 0.4% on the BSE.

In news software sector, TCS share price finished the day up by 0.3% despite the company's second-quarter profits dropping 2.2% year-on-year to Rs 64.5 billion. However, the revenues grew 4.3% to Rs 305.4 billion.

The revenue performance was in line with Street expectations, and was helped by improved business from clients, but profits were ahead of analysts' estimates aided by better margins and other income.

TCS operating profit margins for the September quarter expanded 170 basis points on a sequential basis to 25.1%.

Further, digital revenues continued to increase and accounted for 19.7% of TCS' overall revenues for the quarter. On a year-on-year basis, digital revenues grew 31%. India's most valued firm by market capitalisation declared a dividend of Rs 7 per share as its revenues increased 4.3% to Rs 305.4 billion.

The top 4 IT companies have underperformed the benchmark. With the sector, heavily dependent on US customers, Trump's protectionist policy announcements have further dampened the mood in this sector.

Underperformance of Top IT Stocks

Also, with automation on the horizon, Indian IT companies' low cost labor outsourcing is turning into a thing of the past. IT companies need to re-invent itself.

Automation is needed in their traditional businesses like BPO, application management, and infrastructure management.

While near term challenges are there, current valuations of top IT companies are at multi-year lows. But is this the new normal? The challenge is to find the companies better placed than others to adapt to this structural change.

In news from IPO segment, the Rs 113.7 billion mega initial public offer (IPO) of General Insurance Corporation of India (GIC Re) got fully subscribed on Day 3 day of the bidding process thanks to huge demand from qualified institutional buyers (QIBs).

GIC's IPO is India's third biggest after Coal India's Rs 152 billion and Reliance Power's Rs 117 billion issues in 2008.

And here's a note from Profit Hunter:

The Nifty 50 Index traded another week on a strong note. On Monday, it opened the session a bit higher and continued to trade positive until mid-week, where it found some selling pressure. But, the bears couldn't hold the index down as the up-move resumed on Thursday, where the index rose nearly 120 points. On Friday, the index opened gap up and continued the bullish momentum to apex to a fresh lifetime high of 10, 192. It finally ended the weekly session 2% up.

Last time we mentioned that the index is stuck in a range of 9,700 - 10,150 since July. Today, the index broke above the range and finished at a new life high just above the 10,150 resistance level.

Now, if the index sustains itself above the 10,150 level, the bulls party might continue. But on the flip side, if the index slips below this level, it might again trade in a broad range of 9,700 - 10,150.

Nifty 50 Index at a New Lifetime High
Nifty 50 Index at a New Lifetime High 

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Oct 17, 2017 (Close)

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