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Sensex Finishes Firm on Exit Polls; Metal Stocks Rise

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Indian share markets witnessed buying momentum in today's session after exit polls predicted a BJP victory in Gujarat and Himachal Pradesh.

At the closing bell, the BSE Sensex closed higher by 216 points and the NSE Nifty finished higher by 81 points. The S&P BSE Mid Cap finished up by 1% while S&P BSE Small Cap finished up by 1.4%. Gains were largely seen in metal sector, consumer durables sector and realty sector.

Rupee was trading at Rs 64.09 against the US$ in the afternoon session. Oil prices were trading at US$ 57.30 at the time of writing.

Asian stock markets finished broadly lower today with shares in Hong Kong leading the region. The Hang Seng is down 1.09% while China's Shanghai Composite is off 0.80% and Japan's Nikkei 225 is lower by 0.62%. European markets are lower today with shares in Germany off the most. The DAX is down 0.39% while France's CAC 40 is off 0.36% and London's FTSE 100 is lower by 0.07%.

Meanwhile the European Central Bank left interest rates unchanged and upgraded their growth forecasts substantially. They now see the economy expanding by 2.4% this year from 2.2% and raised their 2018 GDP forecast to 2.3% from 1.8%.

These higher growth projections are consistent with the IFO forecast and the latest increase in Eurozone PMIs. The ECB also boosted next year's inflation forecast but left this year's projection unchanged. The euro popped on the back of Mario Draghi's optimism but reversed course halfway through his speech after the central bank President admitted that headline inflation is likely to slow in the coming months.

While Draghi's message was more hawkish than the market anticipated, the main takeaway is that even though the economy is improving, they have no plans to raise interest rates anytime soon.

Draghi repeated that rates would remain at present level well past the end of QE, which puts them behind the Fed's 2018 tightening schedule and explains why EUR/US$ dropped below 1.18. The Swiss National Bank also left interest rates unchanged and upgraded their growth and inflation forecasts. With that in mind, they still want to see the Franc lower and warned of currency intervention as needed.

In news from mining sector, Vedanta share price surged 4.7% in today's trade after it was reported that the company is planning to raise up to Rs 5 billion through issuance of Non-Convertible Debentures (NCDs).

The company proposes to offer rated, secured, redeemable, non-cumulative, NCDs aggregating to Rs 5 billion.

In another development, Cairn, the oil and gas business of Vedanta, has rejigged its management to empower the core leadership team to take crucial decisions and drive its US$1-billion investment plan.

The company plans to undertake exploration drilling in its Krishna Godavari Block in 2018 and has also put in expressions of interest for 15 exploration blocks under the government's new Open Acreage Licensing Policy.

Meanwhile, Coal India share price finished on an encouraging note (up 3%) after it was reported in The Economic Times that the company is expected to report a 23% year-on year jump in revenue from e-auctions for the April-December period, boosted by better margins as China's rising demand and lower supply from Indonesia tightened global supply.

Company executives have pegged the nine-month revenue from e-auctions at Rs 120 billion, saying it will help Coal India meet higher costs, particularly the Rs 56 billion extra outgo on account of a 20% hike in workers' salaries.

This year, the company is expected to sell about 70 million tonnes of coal at e-auctions in the April-December 2017 period at an average realisation of least at Rs 1,600 per tonne. In the year-ago period, the company had sold about 64.71 million tonnes at an average realisation of Rs 1,502 per tonne.

Moving on to news from engineering sector. As per an article in The Economic Times, ABB India has bagged an order from Emami Cement for an automation and electrical system for a greenfield plant in Odisha.

Emami is setting up advanced and energy-efficient cement plants to meet the future demand of cement from the steadily rising infrastructure spend in the country. The solution implemented will minimise energy consumption and enhance the overall plant performance helping the plant support infrastructure growth in the region.

ABB India share price finished the day up by 2.2% on the BSE.

In news from IPO segment, Shalby debuted at Rs 237.00 on the BSE, down by 11 points or 4.44% from its issue price of Rs 248.

Shalby share price finished trading at Rs 239.25, down 3.5% from its issue price. It has touched a high and low of Rs 254.65 and Rs 236.2 respectively.

The offering, which was open for subscription between December 5 and December 7, was subscribed 4.47 times. The issue price was fixed at Rs 248 per share i.e. at upper end of price band of Rs 245 - 248 apiece.

In another development, Khadim India, New India Assurance Co, General Insurance Corporation of India and Indian Energy Exchange, which listed recently, are down 3 to 14% below their issue prices. Some of them even listed at a discount.

The buzz in the IPO market encouraged the government and companies, which launched their issues recently, to aggressively price their offerings.

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.

Below chart clearly shows the underperformance of IPOs.

IPOs Underperform Broad Market Indices

Interestingly, if you take the Avenue Supermarts (D-mart) and HDFC Life out of the equation from the IPOs above, the gains drop to a meager 6%. Compared to this, the Sensex has gained 27%, while the small-cap index surged more than 50%.

What is the reason for this underperformance?

One of the key reasons IPOs have touched the altitude is due to a surge in the Indian equity market backed by liquidity and increasing investor demand for financial assets. Private equity investors and promoters took advantage of the absurd demand and came out with sky-rocket valuations.

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

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