Sensex Ends Day in Red; Realty Stocks Top Losers
Closing

After opening the day in green share markets in India  witnessed choppy trading activity and ended the day well below the dotted line. Sectoral indices too ended the day in red, with stocks in the realty sector and stocks in the metal sector leading the losses.

At the closing bell, the BSE Sensex stood lower by 253 points (down 0.8%) and the NSE Nifty closed down by 100 points (down 1%). The BSE Mid Cap index ended the day down 1.6%, while the BSE Small Cap index ended the day down by 2%.

Asian stock markets finished mixed. As of the most recent closing prices, the Hang Seng was flat and the Shanghai Composite was up by 0.3%. The Nikkei 225 was down by 0.9%. Meanwhile, European markets, were trading on a negative note. The FTSE 100 was down by 1.3%, The DAX, was down by 0.9% while the CAC 40 was up by 0.7%.

The rupee was trading at Rs 65.06 against the US$ in the afternoon session. Oil prices were trading at US$ 65.91 at the time of writing.

In news from stocks in the automobiles sector. Tata Motors share price is in focus today as the company delivered electric hybrid buses.

Tata Motors handed over 25 hybrid electric buses to Mumbai's planning authority Mumbai Metropolitan Region Development Authority (MMRDA).

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The buses, under the Starbus brand are developed indigenously by the company and run on dual power, combining diesel and electric motor.

The bus is powered by a new-generation Bharat Stage IV i.e. BS-IV diesel engine, while the electric motor is powered by 'Prismatic Cell', which is said to be the most advanced Lithium Ion batteries in the automotive industry.

Apart from these, Tata Motors is also fulfilling an order for electric vehicles (EVs) to Energy Efficiency Services Ltd. (EESL) as part of a plan to equip the government with EVs to curb emissions.

Currently, electric vehicle sales are low in India, rising 37.5% to 22,000 units in the year ended 31 March 2016 from 16,000 in 2014-15. Only 2,000 of these were cars and other four-wheelers, according to automobile lobby group Society of Indian Automobile Manufacturers (Siam).

The government wants to see 6 million electric and hybrid vehicles on Indian roads by 2020 under the National Electric Mobility Mission Plan 2020.

Is India Prepared to Meet the Ambitious Battery Car Target?

The government is targeting to have all cars propelled by electric engine by 2030. The target is more daunting than in many advanced countries.

According to the industry, the 2030 target would require eight to ten times the global stock of such vehicles. India would need to sell more than 10 million electric cars in 2030, compared to 5,000 electric vehicles India had on the road in 2016.

As you can see from the chart above, India is barely visible compared to other developed countries when it comes to battery cars.

As an article in Business Standard suggests, such a big jump in scale for the auto industry in 13 years seems difficult. The basic infrastructure is missing. There are not enough charging stations. For this massive shift, the charging stations will need to be as ubiquitous as petrol pumps.

Another issue is the price of the lithium ion battery, which constitutes 30% to 40% of the cost of the car. For this plan to succeed, the price of the battery needs to come down.

The auto industry is already facing regulatory headwinds. The shift from BS-IV emission norms to BS-VI has been two years ahead of schedule without an intermediate stage. The government, if it is serious about such ambitious targets, should offer the necessary infrastructure support and do its bit for a smooth transition.

Tata Motors share price ended the day down by 1.3%.

Moving on to news from stocks in the PSU sector. BHEL share price was in focus today after it commissioned a hydroproject.

The state run company said it has commissioned first unit of 110 MW of the Kishanganga hydro-electric project of NHPC in Jammu and Kashmir.

In all, the project consists of two other units which are on advanced stages of commissioning. The total project will generate over 1,350 million units of clean electricity.

BHEL was entrusted with execution of the Electro-Mechanical (E&M) package for the project comprising design, manufacture, supply, installation and commissioning of Vertical Shaft Pelton Turbines and matching synchronous Generators, Controls & Monitoring (SCADA) System along with electrical and mechanical auxiliaries.

The equipment was supplied from BHEL's manufacturing units at Bhopal, Jhansi, Rudrapur and Bengaluru while the execution of works on site was carried out by the company's Power Sector Northern Region division and Transmission Business Group.

In J&K, BHEL has so far commissioned 31 Hydro sets with a cumulative capacity of 1,257 MW.

BHEL share price ended the day down by 2.9%.

And here's a note from Profit Hunter:

The Indian stock markets continue its losing streak. The benchmark indices are down 1% and most of the sectors traded in the red. Oil and gas sector lost nearly 2%. The oil marketing companies (OMCs) are leading the fall - BPCL (-3.70%), IOC (-3.65%), and HPCL (-3.30%).

The last time we reviewed BPCL, it was trading in a rising channel. But, it found strong resistance from a life high near the 550 level. This indicated weakness in the uptrend. As a result, the stock slipped lower and broke the channel's support line to touch a low of 423. It bounced back for a bit; but today, the stock is witnessing selling pressure again.

So does this mean a new 52-week low is around the corner for this stock? Let's keep a track of it...

BPCL Down 4% for the Day
BPCL Down 4% for the Day 

Sensex Falls 200 Points; Metal & Realty Stocks Plunge
01:30 pm

Indian share markets continued to witness selling pressure for the fourth straight session as India's current account deficit widened sharply driven by higher imports. The current account deficit widened to 2% of gross domestic product, or US$13.5 billion, up from 1.4%, or US$8.0 billion, in the corresponding period a year ago. Losses were largely seen in metal stocks, realty stocks and PSU stocks.

The BSE Sensex is trading lower by 204 points and the NSE Nifty is trading down by 78 points. Meanwhile, the BSE Mid Cap index is trading down by 1.6% & the BSE Small Cap index is down by 1.9%. The rupee is trading at 64.87 to the US$.

Domestic credit rating agency, ICRA in its latest report has said that the US president's recent move to impose a 25% tariff on all steel imports is unlikely to have any significant impact on the domestic steel industry in the medium term.

It noted that the tariffs will take effect on March 23, 2018 and would be effective on all countries except Canada and Mexico which together comprises about a quarter of the total US imports.

According to the report, the impact of import tariffs may not be significant in the medium-term due to reasons like global steel demand (ex-USA) is expected to increase by 25 MT in calendar year (CY) 2018.

It noted that India's steel exports to the USA market remained a meagre 0.7 MT in CY2017, accounting for less than 1% of India's domestic demand. Therefore, it pointed out that Indian steel mills should be able to find an alternate market for its nominal US export volumes without much difficulty.

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The rating agency further stated that Chinese steel exports has been steadily declining in the last two years, reaching 75 MT in CY2017 from the peak level of 112 MT in CY2015, and in the current year too, exports have continued to shrink, declining by 27.1% in the first two months of CY2018. It also noted that this trend is expected to continue throughout CY2018 on the back of a resilient Chinese domestic demand and proposed steel capacity cuts.

Steel stocks are trading in red with Tata Steel share price and SAIL share price leading the losses.

In news from IPO segment, the Initial public offering of Bandhan Bank Ltd was subscribed 1.17 times on the last day of the shares sale on Monday. On the second day on Friday, the IPO had witnessed an overall subscription of 88%.

Bandhan Bank has set a price band of Rs 370-375 per share for its IPO. The issue closes on 19 March.

The IPO comprises a fresh issue of 97.66 million shares, which at the upper end of the price band will fetch the company Rs 36.6 billion. The proceeds from the fresh issue will be used to augment the bank's tier-I capital base to meet future capital requirements of the bank.

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.

Moving on to news from pharma sector. Lupin share price was trading on an encouraging note (up 0.8%) after the company received final approval for its Desoximetasone Topical Spray, 0.25%, 30 ml, 50 ml, and 100 ml from the United States Food and Drug Administration (USFDA) to market a generic version of Taro Pharmaceuticals USA Inc.'s Topicort Topical Spray, 0.25%.

Lupin's Desoximetasone Topical Spray, 0.25%, 30 ml, 50 ml, and 100 ml is the generic equivalent of Taro Pharmaceuticals USA Inc.'s Topicort Topical Spray 0.25%. It is a corticosteroid indicated for the treatment of plaque psoriasis in patients 18 years of age or older.

Desoximetasone Topical Spray, 0.25%, 30 ml, 50 ml, and 100 ml had annual sales of approximately US$19.5 million in the US.

Even as pharma companies reel under the regulatory crackdown in the largest export market in the US, there has been no succour from the domestic markets. The growth in the Indian pharmaceutical market almost halved to 5.5% in 2017. Only 3,932 brands were launched in 2017. This is the lowest since 2013.

Domestic Pharma Market in a slow lane

The leading therapy segments in terms of brand launches were dermatology, anti-infectives, cardiology, and gastroenterology. Anti-diabetics have also been growing in double-digits for the past five years. However, with the government bringing a number of essential drugs under price control, prescription drugs are witnessing sluggish growth. Therefore, pharma companies are now focusing on the over-the-counter (OTC) medicines.


Indian Indices Trade Marginally Lower; Metal Sector Down 2.5%
11:30 am

Share markets in India are presently trading marginally lower. Sectoral indices are trading on a negative note with stocks in the energy sector and metal sector witnessing maximum selling pressure.

The BSE Sensex is trading down 106 points (down 0.3%) and the NSE Nifty is trading down by 35 points (down 0.3%). The BSE Mid Cap index is trading down by 1.4%, while the BSE Small Cap index is trading down by 1.3%. The rupee is trading at 65.06 to the US$.

In the news from the IPO space, the initial public offer of Sandhar Technologies Ltd has opened for subscription today.

The fresh issue of 9.1 million shares along with the offer for sale (OFS) of 6.4 mn shares by the company is aimed at raising Rs 5 billion from the primary market. The IPO will mean promoter's stake in the company reduced to 70% (currently at 83%).

Sandhar Technologies is engaged in the business of designing and manufacturing a diverse range of automotive components, parts and systems which are focused on safety and security systems of vehicles.

The company manufactures its products from 31 manufacturing facilities across eight states in India, two manufacturing facilities in Spain, and one manufacturing facility in Mexico. This apart, it also has an overseas assembly and packaging centre located in Poland and a R&D centre located in Gurugram, Haryana.

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The company's customer profile consists of 79 Indian and global original equipment manufacturers (OEMs) across various segments and global automotive component suppliers such as Autoliv, Bosch, and CTS.

To know our view on this IPO, you can read our IPO note on Sandhar Technologies Ltd (requires subscription).

Speaking of IPOs, the demand for IPO's has reached sky-high levels. Avenue Supermarts was seen as the first company last year to cross the 100-time subscription mark swiftly followed by CDSL and Dixon technologies, among others.

IPO Subscription Times (2017)

This 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.

A merit-based selection primarily including valuation, business, and management quality is the logical way to go about investing in IPOs. 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.

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 ongoing IPO rush.

In the news from the pharma sector, Shilpa Medicare share price is witnessing buying interest today. Gains are seen as the US Food and Drug Administration (USFDA) issued an Establishment Inspection Report (EIR) for the company's formulations manufacturing facility (SEZ unit) located at Jadcherla, Telangana.

The company said that the facility was inspected between November 11 and November 30, 2017 and USFDA determined that the inspection classification of this facility is VAI and accordingly issued EIR.

At the time of writing Shilpa Medicare share price was trading up by around 13% on the BSE.


Sensex Opens on a Flat Note; Metal & Energy Stocks in Red
09:30 am

Asian stock markets are trading on a mixed note after it was reported that the Federal Reserve is likely to deliver a hike in US interest rates and perhaps signal that as many as three more lie in store for the rest of the year. The Nikkei 225 is down 0.89% while the Hang Seng is up 0.34%. The Shanghai Composite is trading up 0.16%. Over the weekend, US stocks closed mostly in green.

Meanwhile, Indian share markets have opened the day on a flat note. BSE-Sensex is trading higher by 53 points and NSE-Nifty is trading higher by 20 points. S&P BSE Mid Cap is trading higher by 0.3% and S&P BSE Small Cap is trading up by 0.4%.

Gains are largely seen in capital goods stocks, consumer durables stocks and pharma stocks. The rupee is trading at Rs 64.87 against the US$.

The Market cap to GDP ratio for Indian companies 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.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

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 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.

In news from energy sector, as per a leading financial daily, State-owned Indian Oil Corp (IOC) and Bharat Petroleum Corp Ltd (BPCL) may buy 26% stake each in gas utility GAIL India Ltd, paying the government over Rs 200 billion each to become integrated energy firms.

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Following Finance Minister Arun Jaitley's 2017 Budget announcement of creating integrated oil majors, IOC and BPCL had submitted separate proposals to buy the government's 54.89% stake in GAIL.

As per the reports, the government was not looking at actual merger of oil companies but only transfer of its ownership to a cash rich PSU, the best option would be to split the 54.89% holding in GAIL equally between IOC and BPCL.

The move comes after Oil and Natural Gas Corp (ONGC) bought out government's 51.11% stake in refiner Hindustan Petroleum Corp Ltd (HPCL) for Rs 369.15 billion.

Finance Minister in 2017-18 budget had unveiled government's plan to create integrated public-sector oil majors "through consolidation, mergers and acquisitions".

IOC share price and BPCL share price opened the trading day down by 1.2% and 1.6% respectively by while GAIL share price opened up by 0.7%.

In another development, as per an article in The Livemint, Reliance Industries Ltd (RIL), Essar Oil Ltd, ONGC and Torrent Power Ltd are among companies planning to bid for the ninth round of city gas distribution (CGD).

The Petroleum and Natural Gas Regulatory Board (PNGRB) will offer compressed natural gas retailing licences in 100 cities. Companies which win CGD licence for a city would have eight years of marketing exclusivity in that city.

Moving on to news from automobile sector. As per an article in The Economic Times, Tata Motors plans to bring in new products in order to have presence in around 95% of Indian passenger vehicles market by 2020.

The company currently sells a range of vehicles from hatchback to SUVs playing in about 70% of the market in India. With the addition of new products and enhanced play in the segment, the company would be able to ramp up its market share, which currently stands at around 7%.

Besides, the company is also working on offering "electric solution" on most of its portfolio going forward.

Currently, Tata Motors offers only Tigor with electric powertrain in passenger vehicles segment. It is also planning to come out with an electric version of its compact hatchback Tiago.

Tata Motors share price opened the day up by 0.5% on the BSE.

In another news, as per The Economic Times, Mahindra & Mahindra (M&M) and Ford India are likely to formalise a memorandum of understanding that they signed six months ago and establish a partnership in the coming week to 10 days.

The companies are likely to share vehicle architecture, electric powertrains, common sourcing and leverage each other's distribution network in the first phase.

Mahindra & Mahindra entered into the accord with Ford Motor Co to explore cooperation in the sphere of products, technologies and distribution, including mobility programs, connected vehicle projects and electrification of cars.

Apart from giving access to each other's vehicle architectures, powertrains and sourcing, Ford India is also likely to tap into the wide distribution network of Mahindra & Mahindra in the hinterland to access new markets.

M&M share price opened the trading day up 1%.


Of Our Views on the Recent Correction in Smallcaps and Index Facing the Brunt of Local Politics
Pre-Open

From its peak in January 2018, the index has corrected 12.3%.

Does that bother you? If it does, I believe taking a look at history would help.

Let's look back at the significant market corrections which have happened this decade.

One that I can think of was in January and February of 2016 on concerns over China heading for recession. Stock markets in India reacted negatively to such an extent that the smallcap index corrected by 20% in a period of two months.

Stock Market Correction between January and February 2016
DateSmallcap IndexSensex Index
1-Jan-1611,94126,161
28-Feb-169,54823,002
Loss-20.0%-12.1%
Source: ACE Equity

Let's see how the index has fared since 28th February 2016.

The smallcap index has surged by 84% in absolute terms and has delivered a compounded annual growth rate (CAGR) of around 35% (vs 20% CAGR for Sensex).

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Let's rewind a bit more.

At the beginning of the decade, the stock markets corrected significantly on concerns of Euro debt crisis. smallcap index corrected 17% in a period of two months from August to September 2011.

Stock Market Correction between August and September 2011
DateSmallcap IndexSensex Index
1-Aug-20118,28418,314
30-Sep-20116,88116,454
Loss-16.9%-10.2%
Source: ACE Equity

Since 30th September 2011 till date, the smallcap index has surged 155% in absolute terms and has delivered a compounded annual growth rate (CAGR) of around 16% (vs 12% CAGR for Sensex).

There are three points we are trying to make here:

  • Despite the hefty short-term corrections, the smallcap index has delivered good returns in the long term
  • Both the correction and the recovery have been sharper for smallcap Index than the benchmark index
  • In both instances, the fall in the indices was on account of external factors and had nothing to do with the Indian economy.

Given the high valuations, the recent correction was long overdue and desired, given that the price to earnings ratio of smallcap index had reached 111 times. The recent correction, led the Hidden Treasure team to initiate a fresh coverage on a smallcap gem.

This chemical company is the market leader in the segment it operates in. The company's margins are the best in the industry...courtesy some unique competitive advantages it enjoys. With a conservative and experienced management at the helm of its affairs, the company seems set on a stable growth path. The icing on the cake is undemanding valuations. The Hidden Treasure team (subscription required) has released the report. Happy reading!

Markets Facing the Brunt of Local Politics

Market on Friday corrected by 1.5% on the back of a weak global sentiments and political issues. With Telegu Desam Party (TDP) exiting the National Democratic Alliance (NDA) and with Bhartiya Janta Party (BJP) losing the bypoll election in UP and Bihar, the sentiments may turn negative ahead of the general election in 2019 and state election in the current year. This in-turn may have a negative impact on the stock markets in the near term.