Sensex Continues Uptrend; Auto Stocks Witness Buying

Thu, 16 Nov 01:30 pm

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After opening the day on a positive note, the Indian share markets have continued the momentum and are currently trading comfortably in green. All sectoral indices are trading in green, with stocks in the IT sector and the auto sector witnessing maximum buying interest.

The BSE Sensex is trading up 260 points (up 0.8%) and the NSE Nifty is trading up 78 points (up 0.8%). Meanwhile, the BSE Mid Cap index is trading up by 0.7%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 65.32 to the US$.

In news from the auto sector. Automobile stocks are witnessing buying interest today after the government announced advanced rollout of BS-VI fuel in Delhi-NCR to cut pollution.

Car makers cautiously welcomed the decision by the ministry of petroleum and natural gas to make BS-VI fuel available in Delhi-NCR from April 2018.

The government had earlier decided to leapfrog to BS-VI by April 1, 2020, skipping BS-V.

Previously, fuel meeting Euro-IV, or Bharat Stage (BS)-IV, specifications were to be supplied throughout the country by April 2017 and BS-V, or Euro-V, fuel by April 1, 2020.

Oil refining companies had invested over Rs 550 billion for production and supply of BS-III/IV fuel and had planned to invest Rs 800 billion in upgrading their petrol and diesel quality to meet BS-VI specifications by 2020.

However, the auto industry said that while the government's move to advance introduction of BS VI fuels in the capital is a step in the right direction to fight pollution, the industry is not in a position to launch vehicles complying with the strict emission norm before April 2020.

Industry players also said there has to be a holistic approach to combat pollution in the national capital and focus must also be on phasing out old vehicles.

Notably, BS-IV emission norms for both fuel and automobiles were implemented across the country from April 1, 2017. This saw a ban on BS-III compliant vehicles, affecting the auto industry significantly.

Inventory Pile of Unsold BS-III Vehicles

Two-wheeler manufacturers are did not fully recover from the notebandi induced sales slowdown. However, their woes were far from over as most of them were staring at the possibility of booking losses on old inventory. This has been the fallout after the recent Supreme Court ban on the sale and registration of BS-III compliant vehicles from 1st April 2017.

This decision left automobile companies saddled with a large inventory of BS-III vehicles estimated to be worth Rs 60-70 billion at the end of the month.

It will be interesting to see how the implementation of BS-VI compliant vehicles and fuel plays out in the coming days.

Moving on to news from the IPO space. HDFC Standard Life Company Ltd. (HDFC Life) which came out with its initial public offering (IPO) on 7-9 November, is set to list on the bourses tomorrow.

Prior to opening its offer to the public, HDFC Life raised Rs 23.2 billion from anchor investors through allocation of 80.6 million equity shares at Rs 290 per share, the upper end of the price band.

It would be the third life insurance company getting listed on bourses; and is the first initial public offering by a company promoted by HDFC, since the initial public offering of HDFC Bank in 1995.

HDFC Life is the first private life insurance company to register in India and was established in 2000 as a joint venture between HDFC Limited and Standard Life Aberdeen plc through its wholly owned subsidiary, Standard Life Mauritius.

It had set a price band of Rs 275-290 and planned to raise up to Rs 86.95 billion.

But do the company's fundamentals justify the price it is asking for in the primary market? We have released an IPO note, with our recommendation for the HDFC Life IPO, you can access it here.

One space which tests the investor's contrarian philosophy is the IPO space. The demand for IPO's has reached sky-high levels. Avenue Supermarts was the first company this year to cross the 100-time subscription mark swiftly followed by CDSL and Dixon technologies lately, with MAS Financial Services being the newest entrant to the list.

The market 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. 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 than not.

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

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