Strong Start to the Week; Tata Steel Gains
Closing

Indian share markets continued to flourish in today's session. At the closing bell, the BSE Sensex closed higher by 295 points and the NSE Nifty finished higher by 85 points. The S&P BSE Mid Cap finished up by 1.3% while S&P BSE Small Cap finished up by 1.6%.

Gains were largely seen in realty stocks, capital goods' stocks and power stocks.

Asian stock markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 0.78%, while the Nikkei 225 & the Hang Seng fell 2.32% and 0.03% respectively. European markets are sharply higher today with shares in Germany leading the region. The DAX is up 2.05% while France's CAC 40 is up 1.64% and London's FTSE 100 is up 1.45%.

Rupee was trading at Rs 64.28 against the US$ in the afternoon session. Oil prices were trading at US$ 60.55 at the time of writing.

The Market cap to GDP ratio for Indian companies too is close to dangerously high levels. While this is still some way off the peak of FY-08, when it had once reached close to 150, it's relatively high.

FY17 saw this ratio reach close to 80. It is also expected to increase further given the moderate growth expectations in India's GDP for FY18. Warren Buffett once considered this as one of the best valuation metrics to gauge the markets.

Past history shows some correlation between the ratio and the share market. 2008 saw Sensex decline by 38%, when this ratio crossed the 100 mark. Also, the market has bounced back sharply when this ratio was low.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

The basic assumption in this ratio is that whenever the GDP of the country grows, the market performance will reflect it. Also, when stocks do well, it can be extrapolated to assume the Indian economy is doing well.

Tata steel share price continued to gather momentum and finished up by 4.2% after the company said its third-quarter earnings jumped more than fivefold, replenishing the company's coffers as it plans to double production capacity in India. The company's profit rose to Rs 12.9 billion for the three months through December, from Rs 2.43 billion a year earlier.

In news from energy sector, ONGC share price surged 1.6% after it was reported that the company's international arm - ONGC Videsh (OVL) led Indian consortium comprising of Indian Oil Corporation (IOC) and the international arm of Bharat Petroleum Corporation has been awarded 10% stake in Lower Zakum Concession, Offshore Abu Dhabi.

The Indian Consortium would contribute a sign-up bonus of US$600 million to enter the concession for a 10% stake.

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The current production of this field is about 400,000 bopd and Indian consortium annual share shall be about 2 MMT. The field profile is to set to achieve plateau target of 450,000 bopd by 2025.

In news from power sector, NTPC is planning to borrow around Rs 160 billion in next financial year to add 6,900 MW of fresh electricity generation capacity by March 2019. In this regard, the company may hit the bonds or debt market to borrow the said amount. The company is currently working on adding 21,000 MW capacities and projects are at different stage of execution.

Moreover, the company has planned capital expenditure of Rs 230 billion for 2018-19, which includes both debt and equity, essentially for capacity addition through the greenfield route.

NTPC share price finished the day on an encouraging note (up 1.1%).

Moving on to news from banking sector. Indian banks' gross non-performing assets (NPAs) or bad loans fell marginally to 9.8% during Q2 (July-September) of FY18, as compared to 10% in the previous quarter.

Union Minister of State for Finance Shiv Pratap Shukla has highlighted that as per RBI's financial stability report (FSR) released on December 2017, the gross non-performing advances ratio of scheduled commercial banks (SCBs) increased from 9.6% to 10.2% between March and September 2017.

Shukla has stated that the problem of bad loans of banks has been addressed holistically through transparent and realistic recognition of NPAs, provision for expected losses and unprecedented recapitalisation, and putting in place a clean recovery system.

Besides, he noted that under 'Indradhanush' roadmap announced in 2015, the government provided for Rs 700 billion till 2018-19 for strengthening PSBs' balance-sheets, as a result of which despite high NPA and consequential provisioning, banks were successful in complying with capital adequacy norms.

SBI share price finished the day down by 2.7% on the BSE after the bank reported a net loss of Rs 24.16 billion for the fiscal third quarter after setting aside funds to cover rising bad loans and losses on its bond portfolio.

It had reported a net profit of Rs 15.82 billion in the September quarter. This was the lender's first quarter under the chairmanship of Rajnish Kumar, who took over in October.

In another development, Marico share price gained 4.1% to Rs311.60 per share after the company reported a 16.51% increase in its consolidated net profit at Rs 2.23 billion for the quarter ended December 2017 on account of higher income led by market share gains.

And here's a note from Profit Hunter:

The Indian indices are trading on a positive note. Despite this, National Aluminum (NALCO), which was trading 7% up in the morning has finished the day only 2% up.

The company released its Q3FY18 results on Friday evening after the market hours. And today, the stock opened gap up but did not sustain up for long and slipped lower during the day.

The stock is currently trading at an interesting point. It bottomed out with overall market in February 2016 at Rs 29. It rallied strongly to hit a 52-week high of 97 in November 2017. It corrected a bit and resumed it up move after finding support from rising trendline.

But it couldn't make a new high as it slipped lower from 89 level in January 2018. During this down move, the stock broke below the rising trendline indicating weakness in the price action. It has also formed a head and shoulder pattern on the daily chart.

The stock broke below the pattern just a few days back to hit a low of 66. It recovered a bit and it is now trading near the neckline of the head and shoulder pattern which usually act as a resistance post break out.

So does this mean the stock will now resume its down move as indicated by head and shoulder pattern? Let's keep a close watch on it.

National Aluminum Near H&S Neckline
National Aluminum Near H&S Neckline 

Indian Indices Continue Momentum; Healthcare Stocks Witness Buying
01:30 pm

After opening the day on a positive note, stock markets in India have continued their momentum and are presently trading in the green. Sectoral indices are trading on a positive note with stocks in the realty sector, healthcare sector and capital goods sector witnessing maximum buying interest.

The BSE Sensex is trading up 224 points (up 0.7%) and the NSE Nifty is trading up 61 points (up 0.6%). The BSE Mid Cap index is trading up by 1.4%, while the BSE Small Cap index is trading up by 1.8%. The rupee is trading at 64.28 to the US$.

In news from stocks in the pharma sector. Cadila Healthcare share price is among the top gainers on the bourses today.

The surge came after the company reported that the US Food and Drug Administration (USFDA) successfully completed the audit and inspection of it facility in Moraiya, Ahmedabad, without any adverse observations.

Cadila's Moraiya facility was audited by USFDA as a surprise inspection which was triggered due to the product recalls last year. Moraiya is key facility for Cadila as significant number ANDAs are filled from this facility. This facility had been under import alert prior to its clearance by the USFDA last year.

At the time of writing, Cadila Healthcare share price was trading up by 3%.

The Indian pharmaceutical industry has come under a lot of regulatory pressure in the past few years.

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The sector has faced great volatility over the years.

We had written about the current predicament of Indian pharma companies in one of the premium editions of the 5 Minute WrapUp:

  • Over the past few years, risk in the US markets has increased. The US Food and Drug Administration has become stricter on products entering US borders. Surprise inspections have increased and companies are being issued warning letters. This has impacted the business and earnings of Indian pharma players, causing major volatility for the sector.
Is the Worst Over for all the Pharma Stocks?

The list of pharma sector woes is long. So, is there light at the end of the tunnel? Girish Shetty, Research Analyst thinks there is.

As per him, it doesn't make sense to paint all pharma stocks with the same brush. The leaders of the industry will certainly survive this phase. There are interesting, niche pharma stocks that are worth your attention.

Facing pricing pressures in the domestic and export markets, currency fluctuations, as well as manufacturing issues related to their plant, there is a transformation happening in the overall sector as to how business is done and will be done in the future.

Moving on to news from stocks in the engineering sector. L&T share price is in focus today after the company's unit bagged new orders.

L&T Hydrocarbon Engineering Ltd (LTHE), a wholly owned subsidiary of Larsen & Toubro Ltd, has signed a major field development engineering, procurement and construction (EPC) contract with Al Dhafra Petroleum Operations Company Limited, Abu Dhabi, UAE.

Al Dhafra Petroleum is a joint venture between ADNOC and Korea National Oil Corporation (KNOC) and GS Energy, which is represented by Korean Abu Dhabi Oil Consortium (KADOC).

The contract is worth over Rs 22 billion. And its scope includes Engineering, Procurement, Construction & Commissioning of flow lines, gathering facilities & pipelines to transfer crude oil & gas from Haliba fields to processing facility at Asab and installation of 132 kV and 33 kV overhead electrical transmission lines to supply power.

L&T's Hydrocarbon segment secured fresh domestic orders of Rs74.6 billion during Q3FY18.

At the time of writing, L&T share price was up by 1.6%.


Indian Indices Trade on a Positive Note; Realty Sector Up 2.3%
11:30 am

After opening the day on a positive note, stock markets in India have continued their momentum. Sectoral indices are trading on a positive note with stocks in the realty sector, healthcare sector and capital goods sector witnessing maximum buying interest.

The BSE Sensex is trading up 200 points (up 0.6%) and the NSE Nifty is trading up 62 points (up 0.6%). The BSE Mid Cap index is trading up by 1.4%, while the BSE Small Cap index is trading up by 1.7%. The rupee is trading at 64.29 to the US$.

In the news from the IPO space, Aster DM Healthcare - one of the largest private healthcare service providers operating in multiple GCC states (Cooperation Council for the Arab States of the Gulf) based on numbers of hospitals and clinics - has opened its subscription offer from today.

The company has set the price band of Rs 180-190 per equity share for its IPO.

The company currently operates in all the GCC states, which comprises the United Arab Emirates, Oman, Saudi Arabia, Qatar, Kuwait and Bahrain, in Jordan, India and the Philippines. The company's GCC operations are headquartered in Dubai, while the United Arab Emirates and Indian operations are headquartered in Kochi, Kerala.

The company operates in multiple segments of the healthcare industry, including Hospitals, Clinics and Retail Pharmacies and provides healthcare services to patients across economic segments in several GCC states through their various brands 'Aster', 'Medcare' and 'Access'.

As of 30th September 2017, the company had 323 operating facilities, including 19 hospitals with a total of 4,754 installed beds.

To know our view on this IPO, you can read our IPO note on Aster DM Healthcare (requires subscription).

Also, if you want to know more about IPOs and whether they are right for you, you can download our free special report - How to Get Rich with IPOs.

In the news from the banking space, as per an article in the Economic Times, an audit by the Reserve Bank of India (RBI) showed about US$ 3.6 billion of bad loans in the books of the country's biggest bank - the State Bank of India (SBI).

The above reported figure is higher than what SBI reported for the end of March 2017.

The above audit and underreporting further amplified questions about distress in the financial sector.

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Owing to the above development, SBI share price is witnessing selling pressure and is presently trading down by 1.8%.

Presently the rule is that Indian banks must disclose such discrepancies if the gap between the reported numbers and the RBI's audit findings is more than 15%.

The underreporting of SBI is striking as the lender is often seen as a proxy for the nation's economy, where the ratio of bad loans has surged to be among the highest in the world.

Note that the problem of bad loans at Indian PSBs has grabbed many headlines lately. And to clean up the bad loan mess and revive lending, the government announced the recapitalisation plan last year. Under the plan, it is set to inject Rs 2.11 trillion into public sector banks over a period of two years.

But if historical data is anything to go by, implementation of such initiatives take a long time, especially in India. Recovery takes the longest time here as compared to other developed nations. India takes an average of 4.3 years to resolve insolvencies as compared to one year in the US. Also, recovery rates in India are amongst the lowest at 26.4%, as can be seen from the chart below:

Loan Recovery Data of Major Economies

Although recapitalisation will benefit PSBs, it appears to be a temporary cure for a recurring disease. The main problem is the lending and corporate governance processes these banks follow. If there is improves in these operational processes, PSBs will continue to underperform in the long term.


Sensex Opens 240 Points Up; ONGC Rallies
09:30 am

Asian stocks are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.38% while the Hang Seng is up 0.68%. Meanwhile, the Dow Jones industrial average rebounded more than 300 points Friday, paring deep losses for investors in what still amounted to the worst week in two years.

Back home, India share markets opened on a strong note. The BSE Sensex is trading higher by 241 points while the NSE Nifty is trading higher by 68 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 1.1% & 1% respectively.

All sectoral indices have opened the day in green with metal stocks and realty stocks witnessing maximum buying interest. The rupee is trading at 64.37 to the US$.

Oil & gas stocks opened the day on a mixed note with Gulf Oil Lubricants & ONGC leading the gainers. As per an article in a leading financial daily, a consortium of Indian companies led by Oil and Natural Gas Corp. Ltd (ONGC)'s overseas arm, ONGC Videsh Ltd, has bought a 10% stake in the UAE's offshore oil and gas field Zakum.

Reportedly, the Indian side will pay a sign-up bonus of US$600 million as part of the deal inked in Abu Dhabi between company executives and UAE officials.

The deal gives the Indian consortium, which includes Indian Oil Corp. Ltd and Bharat Petroleum Corp. Ltd's overseas arm Bharat PetroResources Ltd, access to about two million tonnes of annual share from the field which produces about 400,000 barrels of oil a day.

Backed by diplomatic efforts, Indian energy companies have been aggressively pursuing a share in the world's most prolific oil and gas fields. In 2016, Indian Oil, Oil India Ltd and Bharat PetroResources had bought stakes in two assets in Siberia owned by Russia's state-backed PJSC Rosneft Oil Co. for US$3.3 billion.

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Although global oil prices have been rising recently, it is far below the US$100-plus levels seen three years ago, forcing many oil-rich nations to narrow their budget deficits by selling assets and diversifying into non-oil sectors of the economy.

US exporters stepping up their supplies is also helping to reduce the effectiveness of the supply cuts by the Organization of the Petroleum Exporting Countries (Opec), aimed at propping up prices.

Further, ONGC Videsh stated that stake acquisition in Zakum is the first time that Indian oil and gas companies have been given a stake in the development of Abu Dhabi's hydrocarbon resources. The deal has a term of 40 years.

Meanwhile, the country's energy subsidy burden has come down over the past few years. As per a report by the International Institute of Sustainable Development, the value of energy subsidies the central government doled out declined by 38%, from Rs 2.17 trillion to Rs 1.35 trillion between FY 14 - 16.

Steady Decline in Energy Subsidies (in Rs billion)

During this period, India lowered its overall subsidy bill with a steep 70% cut in Oil and Gas subsidies.

Although subsidies given to the renewable segment have risen four folds, it still constitutes a miniscule 6.9% of the overall energy subsidies. This means that the lion's share of subsidies still favour fossil fuels rather than renewable sources.

However, electricity remains inaccessible to a sizeable population, and fossil fuel still dominates the energy mix in the country.

The pertinent question here is, how will India find the balance between fulfilling its energy needs while honouring its commitment towards global climate change?

ONGC share price opened the day up by 3.5%.

Moving on to the news from steel sector. Tata Steel share price surged 2.9% after it reported a five-fold jump in its fiscal third-quarter net profit on the back of strong volume growth in the domestic market and a hike in steel prices.

For the quarter ended 31 December 2017, Tata Steel reported a net profit of Rs 12.9 billion (US$201) million), compared with Rs 2.4 billion in the comparable quarter of the previous fiscal.

Consolidated revenue from operations grew 15% to Rs 334.5 billion, compared to Rs 276.8 billion in year-ago.

Further, its Indian business showed a 10.6% growth year-on-year at Rs 156 billion and European sales grew 20.7% to Rs 146.9 billion, while revenue from Indian operations grew 22%.

Tata Steel stated that its Indian business reported earnings before interest and tax (EBIT) growth of 37% at R 46.5 crore and Europe business reported an EBIT degrowth of 10.6% at Rs 6.3 billion compared to same quarter last year.

Quarterly steel deliveries were up nearly 8% at 6.56 million tonnes, with domestic market accounting for about 50% of the total.

The company's gross debt decreased by Rs 16.6 billion to Rs 886 billion since the quarter ended September 2018.

The liquidity position of the group remains robust with approximately Rs 225.4 billion, comprising Rs 126.8 billion in cash and Rs 98.6 billion in undrawn credit lines.


Volatile US Markets; SBI & Tata Steel Q3 Performance & Other Top Cues to Sway the Markets Today
Pre-Open

Indian stock markets ended over 1% lower on Friday as stock markets around the world continued to be under pressure.

Losses were seen across most sectors with stocks in the banking sector and stocks in the auto sector, leading the losses.

At the closing bell, the BSE Sensex stood lower by 407 points (down 1.2%) and the NSE Nifty closed down by 122 points (down 1.2%). The BSE Mid Cap index ended the day flat, while the BSE Small Cap index ended the day up by 0.2%.

Results Corner

SBI share price is expected to be in limelight today after the bank reported a net loss of Rs 24.16 billion for the fiscal third quarter after setting aside funds to cover rising bad loans and losses on its bond portfolio. It had reported a net profit of Rs 15.82 billion in the September quarter. This was the lender's first quarter under the chairmanship of Rajnish Kumar, who took over in October.

Tata steel share price continues to gather momentum and is expected to be in action today as well after the company said third-quarter earnings jumped more than fivefold, replenishing the company's coffers as it plans to double production capacity in India. The company's profit rose to Rs 12.9 billion for the three months through December, from Rs 2.43 billion a year earlier.

HPCL share price finished the previous trading session down by 1.5% on the BSE. HPCL reported a 22.6% increase in profit from a year earlier to Rs 19.49 billion for the quarter ended 31 December. HPCL had posted a profit of Rs 15.9 billion in the December quarter a year earlier.

Top Stocks to Watch Out

Mahindra & Mahindra share price is expected to see momentum after the company said it will sell 22% of its stake in joint venture firm Mahindra Sanyo to Sanyo Special Steel Co Ltd for Rs 1.46 billion. MSSSPL is a joint venture (JV) between M&M (51%) India, Sanyo Special Steel Co Ltd (29%) Japan and Mitsui & Co Ltd (20%) Japan.

As per an article in The Economic Times, it is estimated that Electric Vehicles could emerge as a key segment in the overall automobile sector. Assuming a market share of 15% by 2030, EVs can result in incremental power demand of nearly 160 billion units by 2030. Coal India Limited (CIL) has commissioned this study to assess the future demand scenarios for the coal sector up to 2030.

Fortis Healthcare share price should see some momentum today after the company stated that its subsidiary Fortis Hospitals will receive back the Rs 4.73 billion loan it gave to certain companies by the end of the first quarter (Q1) of FY19. The company response comes after reports pointed out that the loan was given to companies that are a part of its promoter's group.

As per an article in The Livemint, Tata Global beverages defers its plan to sell 41% stake in Amalgamated Plantations. At least two leading tea producers, Kolkata-based Dhunseri group and M.K. Shah Exports Ltd, had shown interest in acquiring Tata Global's stake in Amalgamated Plantations, and held preliminary discussions with the seller. Amalgamated Plantations produces around 41 million kg of tea a year, of which 26 million kg is from its own crop.

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IPO Segment

Aster DM Healthcare - one of the largest private healthcare service providers operating in multiple GCC states (Cooperation Council for the Arab States of the Gulf) based on numbers of hospitals and clinics - is coming with its IPO today.

The company has set the price band of Rs 180-190 per equity share for its IPO.

The company currently operates in all the GCC states, which comprises the United Arab Emirates, Oman, Saudi Arabia, Qatar, Kuwait and Bahrain, in Jordan, India and the Philippines. The company's GCC operations are headquartered in Dubai, while the United Arab Emirates and Indian operations are headquartered in Kochi, Kerala.

After such stellar response to IPOs in 2017, all focus and attention will shift to the major IPOs in the upcoming new year 2018 which includes IPOs of HDFC Asset Management Company, NSE and IRCTC to name a few.

To know more, you can download our FREE report - How to Get Rich with IPOs. This guide will show you how to safely profit from the 2017 IPO rush.

However, 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.

Bitcoin Remains Stable

The price of bitcoin and other cryptocurrencies is mostly remaining stable, despite major moves in the broader financial markets. Bitcoin has gained 0.26% over the last day, and has been mostly flat in recent days. The same pattern has been seen in other major cryptocurrencies, like ethereum and ripple.

US Markets Swing Back

The Dow climbed 330 points on Friday in another extremely turbulent day of trading. At one point the index was down 500 points. At another it was up 500.

Fears about inflation and soaring bond yields drove the Dow down about 1,300 points on the week. The 5.2% sell-off was the worst weekly decline in two years.

Although the weekly losses came close to the scary days of the crisis, the market and economy are in vastly better shape than in 2008. Unemployment is the lowest in 17 years, and the banking system has mostly healed. The recent turmoil follows a prolonged period of booming stock prices with virtually no sharp declines. Such a rapid rise is unusual, and market analysts long warned that a pullback was overdue.

Oil Prices Finish Lower

A crushing oil price rout extended into sixth day, with U.S. crude nearly falling below US$58 a barrel, as rising production, a strong dollar and a broad financial asset sell-off combined to weigh down the market.

To keep a tab on the movements in crude oil and other commodities, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency and commodity markets.