World Stocks Positive as US Fed Looks to Raise Rates

Sat, 25 Nov RoundUp

   Previous Close   

Global financial markets ended the week on a positive note. Except the Chinese financial markets, all global indices registered gains over the week. In the US, the Dow industrials ended the week up 0.9%. The US indices edged up over a favorable holiday season with the S&P 500 and Nasdaq Composite indices hitting record highs over the week. The US Federal Reserve officials expressed largely optimistic views of economic growth at their most recent meeting but also started to worry that financial market prices are getting out of hand and posing a danger to the economy. From the minutes of the Fed's latest meet, majority of the members were in the favour of a rate hike in the near term.

European equities ended the week higher as they digested minutes of the European Central Bank's latest meeting. Europe's major indexes began the week in the red, however ended the week strong on the back of positive manufacturing and jobs data coming in from France and Germany. French and German markets were up by 1.3% and 0.5% respectively this week, while UK's indices were up by 0.4% over the week.

Chinese stocks declined for the week, after the country's blue-chip index suffered its biggest one-day fall in 17 months.

Key World Markets During the Week

Back home, benchmark indices in India were on an uptrend throughout the week, and ended the week on a positive note. A rally by IT stocks helped the BSE Sensex gain 1% over the week.

BSE Indices During the Week

Now let us discuss some key economic and industry developments during the week gone by

Days after upgrading India's sovereign rating to Baa2 from Baa3 with a stable outlook, global credit rating agency Moody's Investors Services in its latest report has stated that Indian companies will see an improvement in its credit profile in the year 2018.

The report notes the companies will improve on the back of better sales as it expects Goods and Services Tax (GST)-related activity disruption to diminish, leading to an all over recovery in economic activities.

Besides, it noted that refinancing needs in 2018 would be manageable for most companies, given their improving access to capital markets and their large cash balances. It also said that corporates' cross-border bond maturities will also be manageable for the next three years.

The rating agency expects that the country's Gross domestic product (GDP) growth of around 7.6% will result in higher sales volumes, which, along with new production capacities and benign commodity prices, will support an EBITDA (earnings before interest, taxes, depreciation and amortisation) growth of 5-6% over next 12 to 18 months.

Adding further, it said that a further simplification of GST and other structural reforms, or an improvement in commodity prices, resulting in higher operating profit could further improve companies' credit profiles. Apart from this, it noted that an improvement in asset valuations, providing a means of deleveraging for some corporates will also result in improvement in their credit profiles.

Crisil Ratings in its latest report has said that in India bank credit to the micro, small and medium enterprises (MSME) sector, whose current market size is estimated at around Rs trillion, is likely to expand at 11% compound annual growth rate (CAGR) over the next two financial years. It added that this is way faster than the 7% anticipated growth in bank credit to India Inc.

The rating agency said that over the past five fiscals ending 2017, non-banking finance companies recorded a four-fold increase in their credit book to MSMEs. Consequently, their cumulative market share in MSME financing rose to 18% in fiscal 2017 from 8% five years ago. It added that this will rise to over 20% in two years.

Lenders have been trying to protect their return on assets by focusing on smaller loans, where yields are higher, and on unsecured loans. For NBFCs, unsecured loans account for 20% of the MSME portfolio as of March 2017. However, the report noted that while competition has intensified and asset quality has weakened, the overall opportunity remains compelling, given the huge under-penetration of formal finance in the MSME segment. Moreover, structural changes such as the goods and services tax will increase transparency in MSME financials.

It also said the competitiveness of MSMEs would be determined by the extent of tax avoidance, their position in the value chain, labour cost arbitrage, product offering, local market knowledge and proximity to customer.

According to data from industry body Association of Mutual Funds in India (Amfi), equity mutual funds have registered a net inflow of Rs 152.2 billion in October, buoyed by strong participation from retail investors.

This has taken the total inflow into such funds to over Rs 910 billion in the first seven months of the ongoing financial year.

Inflows in April-October have already been robust. With 5 months to go in this fiscal and the burgeoning number of SIPs (Systematic Investment Plans) in equity and balanced funds, 2017-18 may go down as the best year yet for mutual fund inflows, the reports noted.

According to the data with Amfi, equity funds, which also include equity-linked saving schemes (ELSS), saw net inflows of Rs 160 billion in October, compared to Rs 189.4 billion in the preceding month. This also marks the 19th straight month of inflows into equity schemes. Prior to that, such funds had witnessed a pullout of Rs 13.7 billion in March 2016.

The strong inflows have pushed the asset base of equity mutual funds by more than 7% to Rs 7.08 trillion at the end of October, from Rs 6.6 trillion in the month before.

Moreover, the strong inflow in equity funds has also helped in pushing the assets under management of the 42-player mutual fund industry to an all-time high of Rs 21.4 trillion at the end of October, from Rs 20.4 trillion in September-end.

One shall note that, the mutual fund industry has grown at an annual rate of 18% in the past decade, and is expected to grow by 20% over the next five years.

However, the share of mutual funds in financial savings remains abysmally low at 2.9%. Currency and deposits, on the other hand, have a lion's share of 40% whereas insurance and pension contribute a quarter each to overall financial savings.

No wonder, India has the lowest mutual fund penetration globally. The total Assets under Management (AUM) to GDP ratio of India stands at a mere 10%, way below the global average of 55%. Countries like Australia and the US have AUM to GDP ratios of over 100%.

So, the mutual fund industry in the country provides huge scope for growth and development. Real estate and gold have become less attractive forms of investments post notebandi. Even the reduction in bank deposit rates in the past year has led to a shift in investment to mutual funds and the stock markets.

Global ratings agency, Fitch Ratings in its latest report has said that Indian passenger vehicles (PV) and two-wheelers sales are likely to continue growing in high single digits in the near-term highlighting auto industry's quick revival from the negative impact of note ban.

Indian auto industry is likely to grow further backed by sustained low cost of ownership and healthy rural spending due to good monsoons and higher public-sector wages.

It further said that CV sales are expected to benefit from the government's infrastructure spending and more- efficient interstate movement of goods after the GST came into effect

Fitch Ratings also noted that automobile manufacturers' spending on research and development is expected to remain high due to focus on new BS VI emission compliant models.

Leading automakers intend to invest in electric vehicles (EVS) after the government took steps to promote the switch to EVs over the long term. Fitch Ratings further said that component suppliers will benefit from growth in India and key overseas markets, including the CV market in the US, which showed signs of recovery in 2017.

Movers and Shakers During the Week

Top Gainers During the Week (BSE Group A)
Company	17-Nov-17	24-Nov-17	Change	52-wk High/Low
GITANJALI GEMS LTD	69	94	36.4%	99/52
OPTO CIRCUITS	8	11	31.5%	12-Jul
MCLEOD RUSSEL	166	199	19.7%	204/137
FUTURE ENTERPRISES	47	53	13.8%	62/16
RELIANCE COMMUNICATIONS	12	14	11.6%	41/10
Top Losers During the Week (BSE A Group)
VIDEOCON INDUSTRIES	14	13	-9.9%	110/12
SHREE CEMENT	18,300	17,073	-6.7%	20,560/13,162
JAYPEE INFRATECH	15	14	-6.3%	25/'7
JET AIRWAYS	690	655	-5.2%	727/332
MMTC LTD	81	77	-5.1%	102/45

Source: Equitymaster

Some of the key corporate developments in the week gone by

State-run Power Grid Corporation of India and private sector firms Sterlite Power and Adani Transmission, along with engineering players such as KEC International are vying for orders from Brazil to make up for the slack business in the domestic market.

Earlier this year, Brazil invited bids for power transmission projects that would cumulatively attract investments of US$4 billion.

Power Grid is looking at expanding its business overseas from only consultancy jobs to turnkey projects, and is keen to win projects in Brazil under the build-own-operate-transfer (BOOT) model while KEC International, plans to tap into the opportunity in Brazil by entering pre-bid pacts with international developers. The company already has a presence in Brazil through its acquired subsidiary, SAE Towers.

According to rating agency Crisil, power transmission is India's most attractive infrastructure segment to invest in. The country envisages investment of US$3.5 billion in the green energy corridor alone by 2021-22.

Bank of Baroda received an approval to raise up to Rs 60 billion through rights issue or qualified institutions placements (QIP).

The finance committee of the bank's board approved the proposal on Tuesday.

Meanwhile, Union Bank of India has also started its roadshows in Singapore, Hong Kong, London and New York to raise Rs 20 billion.

Public sector banks are queueing up to raise funds from the equity market, especially through QIPs against the backdrop of improved investor sentiment on account of the government's bank recapitalisation plan and a recent upgrade of India's sovereign rating by Moody's Investors Service.

After the government announced the Rs 2.11 trillion bank recapitalisation plan in October, PSU banks have announced plans to raise more than Rs 130 billion through QIPs since 24 October as against a total of Rs 84.2 billion raised in the last four years.

According to Prime Database, during the current fiscal public sector banks have raised over Rs 160 billion through QIP of which SBI's issue alone was worth Rs 150 billion. Now, more banks are coming forward to tap the equity market.

However, the amount envisaged in the recapitalisation programme will not be sufficient to spur growth and the lenders would need capital over and above that announced by the government.

India Ratings and Research has pegged the overall capital requirement for PSU banks at Rs 2.5 trillion as against Rs 2.1 trillion announced by the government.

One shall note that, PSBs are in a big mess. They already have a huge amount of bad loans piled up. There is a sense of urgency towards the recapitalisation move. This is because banks have to be recapitalised by 2019 to be compliant with the Basel-III frameworks.

However, using recapitalisation bonds can only act as a short-term measure to the crisis afflicting Indian public sector banks today. Such a measure will not address the structural issue in the banking system, i.e. the poor standard of lending and poor governance system.

Our big picture editor, Vivek Kaul, talks about moral hazard risk arising out of recapitalization. He writes:

• "If the government bails them around this time around, the banks know that they can count on the government bailing them out the next time around as well. And this means that they can follow fairly loose standards of lending, in order to lend money quickly."

In such an environment, it makes sense for investors to be selective while buying stocks. Focus on value and the underlying fundamentals of the business. Then, they need not worry about the market.

So, what is key to identifying potential multibagger stocks? How does one pick them at the right time and ride them to their full potential? How many multibaggers do you really need to achieve the big riches that you desire?

Most importantly, are there any stocks right now that could turn out to be multibaggers? Click here to know everything that you need to know right now about mutlibagger stocks...

Steel Authority of India Ltd (SAIL) and ArcelorMittal are likely to sign a joint venture agreement to set up a Rs 50-billion plant to make steel for automobiles early next year.

Reportedly, it would be a JV (joint venture) of 1.5 million tonne capacity steel plant which would produce high-end steel which would be used in car manufacturing.

The proposed joint venture will construct a cold rolling mill and other downstream finishing facilities in India, touted as one of the fastest growing automotive markets in the world with the production expected to double between 2014 and 2020, from 3.6 million units to 7.3 million units.

The plant will be a 50:50 joint venture, with SAIL supplying the raw material from its Rourkela plant. This is part of a plan drawn up by SAIL to improve its topline.

The government is keen the venture (for which a memorandum of understanding was signed in 2015) takes off as it wants to unlock value in successful state-run companies through partnerships with foreign players, who will bring in the latest technology, the reports noted.

Mahindra and Mahindra Ltd is looking at capturing a major share in the e-rickshaw segment. The market is primarily dominated by unorganised and local players.

M&M has launched e-Alfa Mini in Delhi, Lucknow and Kolkata, to tap the e-rickshaw market. They will expand in more cities across the country.

With the launch of its e-Alfa Mini, M&M becomes one of the first organized players to enter this segment. The e-Alfa Mini is priced at Rs 127,000 (for Bengal market); as compared to indigenous variants that are prices between Rs 75,000 and Rs 100,000.

In value terms, e-three wheelers in the country is estimated at around Rs 10 billion as per market estimates. The market size in West Bengal is estimated at 10% of the national sales. The company aims to retain a strong position in the small commercial vehicle market (below 3.5 tonnes).

Reportedly, the company is initially targeting a sale of 10000 units per month. The company already has electric three-wheelers, passenger vehicles and small commercial vehicles while launch of commercial buses have been lined up.

One shall note that, the government is pushing for a shift to electric vehicles across the country as a part of its plan to move to the cleaner fuel by 2030.

Rahul Shah, Co-head of Research, offered his views on electric vehicles segment recently. Here's an excerpt of what he wrote:

• "If you think car companies are resisting this change, you will be surprised. Volvo, the Swedish/Chinese car company has announced it will only offer electric or hybrid vehicles by 2019.
  
  Mercedes is planning on launching two SUVs and two sedans as EVs by the end of this decade. Volkswagen has big electric plans too. It has set a goal of 30 new EVs and two to three million plug-in sales by 2025. MM, India's largest EV manufacturer, recently forged a partnership with Ford to work on electric cars."

So, how should you play this trend? What are the companies best positioned to extract the maximum mileage?

Stay tuned. Rahul Shah has got a close eye on this megatrend - and he doesn't plan to miss a thing.

Moving on to the news from pharma sector. As per an article in a leading financial daily, Dr. Reddy's Laboratories has received the Establishment Inspection Report (EIR) from the US Food & Drug Administration (USFDA) for its Formulations Manufacturing Facility at Vishakhapatnam.

Reportedly, the USFDA explained that the inspection has not closed, and the site's status remains unchanged, but that USFDA released the EIR in order to be transparent about its regulatory process.

The company is planning to request a re-inspection in 2018 after further discussion on scheduling with USFDA, the reports noted.

One shall note that, as per the Indian Pharmaceutical Alliance, the pace of drug approvals has gained momentum after they complained to FDA about delays last year.

Approvals for drugs have also picked up after USFDA concerns at some of the manufacturing units were addressed. Companies such as Divi's Laboratories, Cadila Healthcare, Sun Pharmaceuticals and Dr Reddy's Laboratories got regulatory clearances for some of their plants during the year. But several companies are still grappling to resolve FDA concerns.

However, FDA's move to speed up generic drug approvals in a bid to reduce healthcare costs is likely to provide some earnings relief to domestic pharma companies.

After being adversely affected by import bans and the suspension of new drug approvals from manufacturing facilities in the past three years, there has been a sharp pick-up in new drug approvals in FY17.

With an aim to lower the overall healthcare costs in the country, USFDA approved a record 763 generic drugs for the financial year ending 30th September.

As per Mint Analysis, Indian pharma companies received 295 approvals accounting for 40% of the overall approvals during the year.

Even the total filings of abbreviated new drug applications (ANDAs) for generic drugs rose to 1,292 in FY17 from 852 in the previous year.

In such an environment, it makes sense for investors to be selective while buying stocks. Focus on value and the underlying fundamentals of the business. Then, they need not worry about the market.

And here's an update from our friends at Daily Profit Hunter...

The Nifty 50 Index traded on a positive note during the week. On Monday, it opened the session on a higher note before slipping down only to recover immediately to close the session in the positive. It opened gap up the next day and gradually inched higher for the remainder of the week. Finally, on Friday, the Nifty index continued the positive momentum and ended its weekly session 1% up.

Last week, we mentioned that the index found a strong support from the 50-day exponential moving average (EMA), and horizontal support level (previous resistance now support). After bouncing up from this support level, the index is gradually moving higher. And now, it is only 100 points away from its life-time high.

So will the index hit a new life-time high in the week to come? Let's wait and watch...You can read the detailed market update here...

Nifty 50 Index Inched a Percent Higher

 

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

Read the latest Market Commentary

Top Gainers TodayTop Gainers over 1-WeekTop Gainers over 1-MonthTop Gainers over 1-YearTop Gainers over 3-YrsTop Gainers over 5-YrsTop Losers TodayTop Losers over 1-WeekTop Losers over 1-MonthTop Losers over 1-YearTop Losers over 3-YrsTop Losers over 5-YrsOnly BuyersOnly SellersMost Active StocksMost Popular Stocks52 Week High Stocks52 Week Low Stocks

INDICESBSE (Rs 0 to 1)BSE (Rs 1 to 2)BSE (Rs 2 to 4)BSE (Rs 4 to 10)BSE (Rs 10 to 20)BSE (Above Rs 20)BSE - AllBSE-30BSE-100BSE-200BSE-500BSE AutoBSE BankexBSE Capital GoodsBSE Consumer DurablesBSE FMCGBSE HealthcareBSE ITBSE MetalBSE Oil & GasBSE PSUBSE TeckBSE RealtyBSE PowerBSE A GroupBSE B GroupBSE Mid-CapBSE Small-CapBSE Basic MaterialsBSE Consumer DiscretionaryBSE IndustrialsBSE UtilitiesBSE Sensex 50BSE Sensex Next 50BSE Bharat 22BSE 150 MidCapBSE 250 SmallCapBSE 250 LargeMidCapBSE 400 MidSmallCapBSE AllCapBSE LargeCapBSE SmallCap SelectBSE 100 LargeCap TMCBSE InfraBSE ManufacturingBSE CPSEBSE Private BankBSE Diversified FinancialsBSE MomentumBSE Low VolatilityBSE QualityBSE Enhanced ValueBSE Divident StabilityS&P BSE IPOBSE SMEIPOBSE 100 ESGBSE CarbonexBSE GreenexNSE (Rs 0 to 10)NSE (Rs 10 to 20)NSE (Above Rs 20)NSE - AllNSE-50NSE ITNSE Nifty Midcap 50NSE JR. NiftyNSE Bank NiftyNIFTY Next 50NIFTY 100NIFTY 200NIFTY 500NIFTY MidCap 100NIFTY SmallCap 250NIFTY SmallCap 50NIFTY SmallCap 100NIFTY LargeMidCap 250NIFTY MidSmallCap 400NIFTY AutoNIFTY Consumer DurablesNIFTY FinanceNIFTY FMCGNIFTY MediaNIFTY MetalNIFTY PharmaNIFTY Private BankNIFTY PSU BankNIFTY RealtyNIFTY Oil & GasNIFTY SME EmergeNIFTY CommoditiesNIFTY CPSENIFTY EnergyNIFTY India ConsumptionNIFTY InfraNIFTY MNCNIFTY PSENIFTY Serv SectorNIFTY100 Liquid 15NIFTY Midcap Liquid 15NIFTY Midcap 150 Quality 50NIFTY50 Equal WeightNIFTY100 Equal WeightNIFTY100 Low Volatility 30NIFTY100 Alpha 30NIFTY Alpha 50NIFTY Dividend Opportunities 50NIFTY High Beta 50NIFTY Low Volatility 50NIFTY200 Quality 30NIFTY 500 Value 50NIFTY 100 Quality 30SECTORSAgricultureAirlinesAluminiumAsset Management CompaniesAutomobilesAuto AncillariesBanks (Private)Banks (PSU)BankingCementChemicalsDefenceDiagnosticsDronesEngineeringElectric VehicleElectric Vehicle BatteryEnergy SourcesESGEthanolFertilizersFintechFMCGFoodGreen HydrogenHotelsInfrastructureInsuranceInvestment and FinanceInvITIT (Large)IT (Others)LogisticsMediaMetalMiningIndia's Big Tech StocksIndian PharmaMNC PharmaPSUPaintPaperPlasticPowerRating AgenciesReal EstateREITsRenewable EnergyRetailingSemiconductorShippingSteelSugarSupply ChainTelecomTextilesTravel Support Services

10 results 25 results 50 results 100 results All results

Indian Share Market Update: Top Gainers and Losers