Sensex Ends Marginally Higher; Telecom and Oil & Gas Stocks Witness Buying

Fri, 14 Dec Closing

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Indian share markets continued to trade near the dotted line during closing hours and ended the day marginally higher. Gains were largely seen in the telecom sector and oil & gas sector, while healthcare stocks witnessed selling pressure.

At the closing bell, the BSE Sensex stood higher by 33 points (up 0.1%) and the NSE Nifty closed higher by 14 points (up 0.1%). The BSE Mid Cap index ended the day up by 0.1%, while the BSE Small Cap index ended the day flat.

Asian stock markets finished on a negative note as of the most recent closing prices. The Hang Seng stood down by 1.6% and the Nikkei was trading down by 2%. The Shanghai Composite stood lower by 1.5%.

European markets were also trading on a negative note. The FTSE 100 was down by 0.9%. The DAX was down by 1.1% while the CAC 40 was down by 1%.

The rupee was trading at 71.81 to the US$ at the time of writing.

From the energy space, Indian Oil Corporation share price was in focus today. Shares of the company witnessed buying interest after the company announced a buyback of 3.06% equity share at a price of Rs 149 per stock for a consideration not exceeding Rs 44 billion.

The buyback decision was taken by the company's board in its meeting held yesterday.

The company's board also recommended an interim dividend of 67.5% (i.e. Rs 6.75 per share) for FY19.

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, wrote about it in one of the editions of 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 up the question: 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).

In the news from the macroeconomic space, according to the government data released today, Inflation based on wholesale prices (WPI) fell to a three-month low of 4.64% in November. This was seen as prices of food articles, especially vegetables, softened.

The Wholesale Price Index (WPI)-based inflation stood was 5.28% in October and 4.02% in November last year.

As per the data, food articles witnessed softening of prices with deflation at 3.31% in November, against 1.49% in October. Vegetables also became cheaper with deflation at 26.98% in November, compared to 18.65% in October.

Inflation for the fuel and power basket however continued to rule high at 16.28% on account of lowering of prices of petrol and diesel. But this was lower than 18.44% in October.

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

In the news from the banking space, Yes Bank share price was in focus today after a report suggested that Brahm Dutt could be a part-time Non-Executive Chairman of the lender.

Currently Brahm Dutt is serving as Independent Director of the bank since July 24, 2013.

The lender yesterday said it is on track to name new Managing Director and Chief Executive Officer within the deadline given by the Reserve Bank of India (RBI).

The bank said its nomination and remuneration Committee (N&RC) and Board of Directors have finalised the recommendation for non-executive part-time chairman position and shall be promptly seeking requisite approvals from the RBI.

It further added that the 'Search & Selection Committee' (SSE) has discussed and deliberated on the final shortlisted external and internal candidates presented by Korn Ferry post their comprehensive interviews and assessment.

The final recommendation will be submitted to the RBI by the board of directors post their next meeting scheduled on January 9, 2019.

The development comes as the lender was hit by a series of resignations lately.

The stock of the bank plunged to its lowest levels in over two years earlier this month after credit rating agencies ICRA and CARE ratings downgraded the bank's debt instruments.

ICRA downgraded domestic long-term ratings of the bank's senior debt instruments to 'ICRA AA' from 'ICRA AA+' and its subordinate debt instruments to 'ICRA AA-' from 'ICRA AA'.

Meanwhile, CARE Ratings cut domestic ratings of Yes Bank's senior debt instruments to 'CARE AA+' from 'CARE AAA' and subordinate debt instruments to 'CARE AA' from 'CARE AA+'.

Earlier last week, Moody's also downgraded the bank's foreign currency issuer rating and changed the outlook on the bank to 'negative' from 'stable'.

To know more about the company, you can access to Yes bank Q2FY19 result analysis and Yes bank Stock Analysis on our website.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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

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