Get Ready for Record Highs
Podcast

Globally, Traders were left scrambling after the Federal Reserve forecast zero interest-rate hikes this year and just one in 2020. Rising uncertainty over Brexit and new signs of a prolonged US-China trade war added to the market confusion.

Back home, Indian stock markets struck fresh six-month highs on Tuesday as key benchmarks rose for the seventh straight day. Overall, sentiments remained positive during the week, pushing benchmark index Sensex closer to its record high.

The real heroes, though, were midcaps and smallcaps, which were badly beaten down since the beginning of 2018.

As per our research analyst Richa Agarwal, if markets keep rising like this, they may not remain there for long. She strongly suggests jumping on the bargain small cap opportunities before this train leaves the station. We talk about this in detail.

We also talk about India's trade deficit data, rupee movements and other macroeconomic indicators that will help you take informed decisions.

And there's lots more.

Listen in...


Sensex Ends 222 Points Lower; Energy and Telecom Stocks Witness Selling
Closing

Indian share markets witnessed most of the selling pressure during closing hours and ended their trading session lower. Sectoral indices ended on a mixed note with realty stocks, capital goods stocks, and power stocks witnessed buying interest while energy stocks and telecom stocks witnessed selling pressure.

At the closing bell, the BSE Sensex stood lower by 222 points (down 0.6%) and the NSE Nifty closed down by 64 points (down 0.6%). The BSE Mid Cap index ended the day down 0.6% and the BSE Small Cap index ended the day down by 0.4%.

The rupee was trading at 68.98 against the US$.

Asian stock markets finished on a positive note. As of the most recent closing prices, the Hang Seng was up 0.2% and the Nikkei 225 was up by 0.1%.

Market participants took cues from the US Federal Reserve's move to keep its policy interest rates unchanged. The consensus is that this move by Fed is likely to provide further leg-up to the rally seen in Dalal Street.

The US central bank's decision indicates it is not in a hurry to raise rates in the near-to-mid-term, which translates into a higher spread on earnings yield for foreign investors buying Indian equities.

After the Fed's announcement, the yield on the 10-year US government bond moved lower and settled at 2.51% against 2.54% a day before.

At current interest rates, the earnings yield for a portfolio that mirrors the broad-based BSE 500 index exceeds the US treasury yield by 48 basis points, which is the highest in a year.

In comparison, the spread was a paltry 6 basis points at the end of calendar year 2018, having earlier turned negative during the first quarter of CY18.

According to the reports, this widening of the spread largely explains the recent purchases of Indian equities in the secondary market by foreign portfolio investors (FPIs).

In contrast, FPIs were net sellers in the last calendar year, as an increase in US interest rates had made earnings yields in India unattractive for them.

Note that, FPIs have brought in a net investment of Rs 400 billion in the first three months of 2019 (so far) in Indian equity markets, against net sales of Rs 340 billion during the 12 months of calendar year 2018.

However, while the net inflows are a positive sign, whether the inflow will continue is contingent on several domestic and global macro factors.

Also, speaking of the general mood in Indian stock markets these days, a lot of market participants are playing the prediction game ahead of the elections.

A common theme is to sit on cash to escape the volatility ahead of the upcoming elections. In case there is an unexpected event, you can then get in post the correction.

But does timing the market work?

Not really, if you see the market performance in the year of the past three national elections (2004,2009 and 2014).

Downside of Timing The Stock Market

Looking at the returns in the above chart, staying out of the market to escape volatility would have been a costly affair every time.

The market gave above average returns in all three of those years.

This does not mean one can expect the same in the future.

But there's one thing for sure. Predicting short-term directions of the market is a futile and many a times a costly affair.

That's why we believe in picking safe stocks when they are actually 'safe' i.e. during such times of high pessimism and uncertainty.

In the news from the macroeconomic space, Fitch Ratings cut India's economic growth forecast for the next financial year starting April 1, to 6.8%. This is down from its previous estimate of 7%.

The cut is made on back of weaker than expected momentum in the economy.

Fitch, in its Global Economic Outlook, reported that while we have cut our growth forecasts for the next fiscal year (FY20, ending in March 2020) on weaker-than-expected momentum, we still see Indian GDP growth to hold up reasonably well, at 6.8%, followed by 7.1% in FY21.

Moving on to the news from the pharma space, Alembic Pharmaceuticals share price was in focus today as the company said it has received approval from the US health regulator for Azelastine Hydrochloride Ophthalmic Solution used for treatment of allergic conjunctivitis.

The company in a BSE filing said it company has received approval from the US Food and Drug Administration (USFDA) for its abbreviated new drug application (ANDA) Azelastine Hydrochloride Ophthalmic Solution, 0.05%.

The approved product is therapeutically equivalent to the reference listed drug Optivar Ophthalmic Solution of Mylan Specialty L P.

Last month, the company had received approval from the US health regulator for Acetazolamide extended-release capsules.

The capsules are used for treatment of various kinds of glaucoma.

The approved product is therapeutically equivalent to the reference listed drug Diamox Sequels, 500 mg, of Teva Branded Pharmaceutical Products R&D Inc.

Speaking of pharma sector, note that the BSE Healthcare Index has been on a roller coaster ride in the past few years. The period from 2012 to 2015 saw the index go up more than three times.

And since then it has been a painful ride downwards.

As we wrote in one of our editions of The 5 Minute WrapUp...

  • Pre-2015, pharma companies enjoyed a fairytale ride in the US market. Low labor costs, good chemistry skills, along with efficiency, ensured Indian companies could copy innovator drugs to make generic drugs at a fast pace.

    The generic business had lucrative margins for all major pharma players. But the party did not last long. In the quest to supply drugs quickly, they compromised on quality at their manufacturing facilities.

    No wonder, the US regulatory authority (USFDA) took strict action. Sun Pharma received a warning letter for its Halol manufacturing facility in 2015. It was like a bolt out of the blue. Since then, the downward spiral began and has continued till date.

We believe that pharma companies that invest in creating a pipeline of complex generics or building competencies in alternative dosage forms are better equipped to tackle the changing dynamics in the US generics market as well as in the overall industry.

To know more on what moved the Indian stock markets today, you can check out the most recent share market updates here.


Sensex Trades Marginally Lower; HCL Technologies & Reliance Industries Top Losers
12:30 pm

Share markets in India are presently trading on a negative note. Sectoral indices are trading mixed with stocks in the energy sector, IT sector and telecom sector witnessing maximum selling pressure while realty stocks and power stocks are witnessing buying interest.

The BSE Sensex is trading down by 128 points (down 0.3%), while the NSE Nifty is trading down by 35 points (down 0.3%). The BSE Mid Cap index is trading down by 0.2% and the BSE Small Cap index is trading down by 0.1%.

The rupee is trading at Rs 68.66 against the US$.

Shares of aviation companies are trading higher today amid reports on market share gain in the month of February. SpiceJet share price surged 14% in early trade today while Interglobe Aviation share price (Indigo) surged 2%.

Indigo's domestic market share in the month of February increased to 43.4%, from 42.5% in January while budget carrier SpiceJet's market share rose to 13.7% from 13.3% in the previous month.

Jet Airways share price also gained around 3% despite its market share declining to 10%from 11.9%.

Domestic air passenger traffic rose 5.6% in February, with the country's airlines carrying 11.4 million passengers in February.

Passenger load factor for SpiceJet rose to 94% in February from 90.9% in January, while Interglobe Aviation owned Indigo's load factor rose 88.4% against 86.4% in January. Load factor for cash-strapped Jet Airways Ltd rose to 89.4% from 86.1%.

Reports state that the passenger load factor in the month of February 2019 has shown increasing trend primarily due to airlines offering promotional fares resulting in increased demand.

In other news, Indigo is hiring more than 100 Boeing 737 commander level pilots, primarily those exiting Jet Airways, as the country's biggest airline looks to overcome a flying-crew shortage.

As per an article, it would take six months to train the Boeing pilots so that they could fly A320s, an aircraft type Indigo operates. In addition, the carrier has already hired about 130 expatriate pilots from all over the world.

Jet Airways has grounded more than 60% of its planes. It has delayed pilot salaries, and defaulted on loan payments, lease rentals and vendor payments. Its strategic partner Etihad Airways has refused to be part of a revival plan and aims to exit by selling its 24% stake in the carrier and 50.1% in the loyalty programme.

Etihad has formally asked State Bank of India (SBI) to purchase its stake in the airline. The Abu Dhabi-based company conveyed to SBI its decision to exit Jet in a meeting on Monday.

Reports also state that Etihad wants SBI to buy out its stake and take over its liabilities in the form of a guarantee for Jet's loan from HSBC Dubai.

The National Aviator's Guild - the body representing Jet's domestic pilots on Tuesday threatened to stop flying from April 1 if the resolution plan is delayed and salary dues are not cleared by the end of March. The body represents around 1,000 pilots of the airline.

According to an Economic Times report, the government is looking to explore all options for the debt-laden airline before initiating insolvency proceedings under the Insolvency and Bankruptcy Code (IBC).

The National Investment and Infrastructure Fund (NIIF) has agreed to pump in up to Rs 19 billion.

Here's an excerpt from the article:

  • Let banks explore all possible options. Under the inter-creditor agreement (ICA) they have more room for seeking resolutions as compared with the restricted format under IBC.

    Besides (air) routes and slots, there are not many tangible assets that may lead to a substantial price discovery if a resolution is sought under the bankruptcy code.

The Insolvency and Bankruptcy Code (IBC) has been a success story and the government has maintained arm's length distance from the process being forward.

How this deal pans out going forward remains to be seen.

Moving on, in the latest developments from the IPO space, Embassy Office Parks REIT's IPO, which plans to raise around 47.5 billion in India's first such listing, was oversubscribed on its last day.

Reportedly, the issue was subscribed 2.57 times. The quota for institutional investors was subscribed 2.15 times and non-institutional 3.10 times.

In another news, state-owned MSTC's initial share sale, which was extended till March 20, was subscribed 1.46 times on Wednesday, the final day of bidding.

The IPO received bids for 2,58,29,100 shares against the total issue size of 1,76,70,400 shares.

The government has proposed to offload 25%, of total paid-up equity in the largest B2B e-commerce company in India. The issue by the Kolkata-headquartered firm will close today.

To know more about the company, you can read our IPO analysis of MSTC (requires subscription).

Speaking of PSU companies, it's election time and PSU stocks are back in vogue.

The last election saw a short-term outperformance of the PSU Index compared to the Sensex.

Will history repeat itself? Have a look at the chart below to see how PSUs have performed the overall markets in the long run:

PSU Stocks - Perpetual Value Traps?

Here's what Tanushree Banerjee, Co-head of research at Equitymaster, wrote about it in one of the recent edition of The 5 Minute WrapUp...

  • What we have seen from history, is that PSUs have underperformed the overall markets in the long run.

    Non-performing assets (NPA) in the banking space and rising crude oil prices impacting oil marketing companies have all taken a toll in recent years.

    On top of that, when the government is in desperate need of money, they turn to PSUs. This usually leaves minority shareholders shortchanged.

    Not all companies in the sector can be ignored. But most of them turn out to be value traps.

She believes, a better alternative is to look at quality companies which are not restricted by regulatory hurdles.

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


Sensex Opens Higher; Capital Goods and Power Stocks Lead
09:30 am

Asian stock markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 1.2% while the Hang Seng is down 0.4%. The Nikkei 225 is trading down by 0.2%. An Apple-led tech rally pushed Wall Street higher on Thursday as jitters over the Federal Reserve's forecast of an economic slowdown were calmed by upbeat economic data.

Back home, India share markets opened on a positive note. The BSE Sensex is trading up by 109 points while the NSE Nifty is trading up by 40 points. Both, the BSE Mid Cap index and BSE Small Cap index opened up by 0.2%.

Barring IT stocks, all the sectoral indices have opened the day in green with capital goods and power stocks leading the pack of gainers.

The rupee is currently trading at 68.80 against the US$.

Steel stocks opened the day on a mixed note with Adhunik Metaliks and Tayo Rolls leading the gainers. As per an article from a leading financial daily, German steel giant ThyssenKrupp on Wednesday said that it has applied for an eight-day extension to complete ongoing negotiations with the European Commission over its planned merger with Tata Steel.

The Commission had opened an "in-depth" investigation into the proposed merger in October last year and noted its concerns that the deal between the two steel majors may reduce competition in the supply of various high-end steels.

As part of the transaction announced in June last year, Tata Steel and ThyssenKrupp plan to combine their European carbon steel and electrical steel businesses in a joint venture.

The Commission said it is concerned that, following the transaction, customers would face a reduced choice in suppliers, as well as higher prices.

These customers include various European companies, ranging from major corporations to numerous small and medium-size enterprises (SMEs). Many compete with imported products in the EEA or export their products outside Europe and compete globally.

The Tata-ThyssenKrupp transaction was notified to the European Commission in September 2018 and had 90 working days to take a decision, a period which ended this Tuesday.

Now how this deal pans out going forward remains to be seen.

Tata Steel share price opened the day up by 0.3%.

In the news from the economy. As per an article in a leading financial daily, the latest move by the US Federal Reserve to keep its policy interest rates unchanged is likely to provide further leg-up to the rally at Dalal Street.

The US central bank's decision indicates it is not in a hurry to raise rates in the near-to-mid-term, which translates into a higher spread on earnings yield for foreign investors buying Indian equities.

After the Fed's announcement, the yield on the 10-year US government bond moved lower and settled at 2.51% against 2.54% a day before.

At current interest rates, the earnings yield for a portfolio that mirrors the broad-based BSE 500 index exceeds the US treasury yield by 48 basis points, which is the highest in a year.

In comparison, the spread was a paltry 6 basis points at the end of calendar year 2018, having earlier turned negative during the first quarter of CY18.

According to the reports, this widening of the spread largely explains the recent purchases of Indian equities in the secondary market by foreign portfolio investors (FPIs).

In contrast, FPIs were net sellers in the last calendar year, as an increase in US interest rates had made earnings yields in India unattractive for them.

Note that, FPIs have brought in a net investment of Rs 400 billion in the first three months of 2019 (so far) in Indian equity markets, against net sales of Rs 340 billion during the 12 months of calendar year 2018.

Look at the chart below...

The blue line plots the annual net equity investment by foreign investors, while the red line represents the net equity investments by mutual funds.

Between FY01 and FY15, the blue line (foreign investors) is consistently above the red line (mutual funds), except in the financial year 2008-09 (FY09). That was the only year in the 15-year period when mutual funds were net buyers in the face of an exodus by foreign investors in the aftermath of the global financial crisis.

Foreign Investors No More in the Driver's Seat

So, while the net inflows so far are a positive sign, whether the inflow will continue is contingent on several domestic and global macro factors.

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


Indian Indices End Marginally Higher, Oil Prices, and Top Cues in Focus Today
Pre-Open

Indian share markets witnessed volatility during closing hours yesterday and ended their day marginally higher. Gains were largely seen in the realty sector and IT sector, while oil & gas stocks and power stocks witnessed selling pressure.

At the closing bell yesterday, the BSE Sensex stood higher by 23 points (up 0.1%) and the NSE Nifty closed down by 11 points (down 0.1%). The BSE Mid Cap index closed down by 0.4%, while the BSE Small Cap index ended the day down by 0.3%.

Top Stocks in Focus Today

From the realty sector, DLF share price will be in focus today after the company announced its second joint venture with global realty investment, development and management firm Hines.

To know more about the company, you can read DLF's latest result analysis and DLF's annual report analysis on our website.

From the aviation space, market participants will be tracking Jet Airways share price today. The stock of the company witnessed selling pressure yesterday after its partner Etihad expressed its desire to exit the company.

Etihad has formally asked State Bank of India (SBI) to purchase its stake in the airline. The Abu Dhabi-based company conveyed to SBI its decision to exit Jet in a meeting on Monday.

Reports also state that Etihad wants SBI to buy out its stake and take over its liabilities in the form of a guarantee for Jet's loan from HSBC Dubai.

The National Aviator's Guild - the body representing Jet's domestic pilots on Tuesday threatened to stop flying from April 1 if the resolution plan is delayed and salary dues are not cleared by the end of March. The body represents around 1,000 pilots of the airline.

According to an Economic Times report, the government is looking to explore all options for the debt-laden airline before initiating insolvency proceedings under the Insolvency and Bankruptcy Code (IBC).

Government of India has asked state run banks to rescue Jet Airways without pushing it into bankruptcy, as Prime Minister Narendra Modi seeks to avert thousands of job losses weeks before a general election.

With more than 1 billion dollars of debt, Jet is struggling to stay aloft. It has delayed payments to banks, suppliers, employees and aircraft lessors, some of which have begun terminating lease deals.

If the government's plan for Jet succeeds, then state-run banks including SBI and Punjab National Bank (PNB) as well as NIIF would together own at least a third of the airline until they find a new buyer.

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

From the Commodity Space...

Venezuela has suspended its oil exports to India. Further, it is looking Russia and China as its main export destinations, the Azeri energy ministry said on Tuesday, citing Venezuela's oil minister.

The Indian market has been crucial for Venezuela's economy because it has historically been the second-largest cash-paying customer for the Organization of the Petroleum Exporting Countries' (OPEC) crude oil, behind the United States.

Earlier this year, the US imposed heavy sanctions on Venezuela's oil industry and has pressed India to stop buying Venezuelan oil.

What impact the above development has on Indian crude oil market remains to be seen. We'll keep you updated on all the news from this space.

Also, speaking of crude oil, oil prices were near 2019 highs on Tuesday, supported by supply cuts led by producer club OPEC. Reportedly, US sanctions against oil producers Iran and Venezuela are boosting prices.

The OPEC on Monday scrapped its planned meeting in April, effectively extending supply cuts that have been in place since January until at least June, when the next meeting is scheduled.

The OPEC and non-affiliated allies like Russia - known as the OPEC+ alliance - have been withholding around 1.2 million barrels per day (bpd) in crude supply from the start of the year to tighten markets and prop up prices.

US crude oil output has soared by more than 2 million barrels per day (bpd) since early 2018, to around 12 million bpd, making America the world's biggest producer ahead of Russia and Saudi Arabia.

On the demand-side, there is concern that an economic slowdown as well as improving energy efficiency and the emergence of alternative transport fuels will erode oil consumption.

Fed's Policy Meet Decision

Market participants will be taking cues from the Federal Open Market Committee's (FOMC), the policy-making arm of the Federal Reserve, interest-rate decision and economic forecast today.

The Fed has given the market indications that it is taking a wait-and-see approach for the time being, with FOMC Chair Jerome Powell saying that the committee would be patient with any future rate hikes.

Another major piece of the puzzle is the FOMC's carefully worded statement. In January, the last time the committee met, the statement had a distinctly dovish tone. In fact, the addition of the word "patient" and certain other language in the statement caused a market rally.

Along with its statement, market participants will also be closely tracking the FOMC's forecasts for certain economic data, such as GDP growth, unemployment, and inflation. These are significant because they are the data points the FOMC uses when making policy decisions.

Finally, pay attention to any clarification the Fed gives about its balance sheet reduction plans. Investors have been worried that the agency could unwind its multitrillion-dollar balance sheet too quickly. A separate statement issued in January indicated that the FOMC plans to be patient with its balance-sheet reduction.

Now speaking of Fed rate policy impact on India, how has the Fed rate hike impacted Indian stock markets in the past?

The past decade has seen Fed rates at historical lows, but it wasn't always the case.

The period from 2003-2006 saw Fed rates increase from 1% to 5.25%.

How did the Indian stock market fare during this time?

Well, if you are a long-term investor, you have nothing to worry about.

The Sensex went up by almost 3 times from 3,500 to more than 10,000 during the same period.

The rise was supported by strong earnings growth during the same period.

It further emphasizes the importance of fundamentals in the long run.

Look out for quality stocks with a history of strong earnings growth and sound fundamentals.

The noise surrounding the decisions of the US Fed might just present the right opportunity for you to buy safe stocks.