Sensex Ends Higher; SBI & IndusInd Bank Top Gainers
Closing

Indian share markets ended higher ended higher as a surprise cut in the government's borrowing programme for the next fiscal year boosted sentiment, with lenders such as the State Bank of India among top gainers. At the closing bell, the BSE Sensex finished higher by 108 points. While, the NSE Nifty finished up by 54 points. Meanwhile, the S&P BSE Midcap Index ended up by 1.1% while S&P BSE Small Cap Index ended up by 1.4%.

Sectoral indices ended the day on a mixed note with information technology stocks and automobile stocks leading the gainers. While, energy stocks and metal stocks ended the day in red.

Overseas, Asian stock markets finished broadly higher today with shares in Japan leading the region. The Nikkei 225 is up 2.65% while China's Shanghai Composite is up 1.05% and Hong Kong's Hang Seng is up 0.79%. European markets are sharply higher today with shares in Germany leading the region. The DAX is up 1.96% while London's FTSE 100 is up 1.83% and France's CAC 40 is up 1.46%.

The rupee was trading at Rs 64.80 against the US$ in the afternoon session.

In the news from the pharma sector. As per an article in a leading financial daily, Glenmark Pharmaceuticals has received final nod from US health regulator for its Clobetasol Propionate spray. It used for treatment of moderate to severe plaque psoriasis in adults.

The product is generic version of Galderma Laboratories L P's Clobex spray in the same strength.

This product will be manufactured at the Glenmark's Baddi plant in Himachal Pradesh.

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As per IQVIA sales data for the 12-month period ending January 2018, the Clobex spray, 0.05% market that includes brand and all available therapeutic equivalents achieved annual sales of approximately US$ 30.5 million.

The company's portfolio consists of 131 products authorised for distribution in the US market and 63 ANDA's pending approval with the USFDA.

Glenmark Pharma share price ended the day down by 0.5%.

So, is this the right time to buy pharma stocks?

There is enormous uncertainty in the industry. Uncertainty regarding price erosion in the United States as well as hostile US FDA visits, have changed a once defensive sector into a risky sector.

BSE Healthcare Index Down 26% in Three Years

However, we believe this could be point of consolidation in the industry i.e. with stricter norms, lower margins, and pricing pressure, the industry may see many exits and acquisitions. This could lead to relatively fewer but higher quality players.

We believe, if you can pick a niche company with good financials and strong management, this is a good time to consider pharma stocks.

Moving on to the news from the economy. In order to ease the pressure on the local bond markets, the Central government will borrow Rs 2.88 trillion in the April-September period of 2018-19 (H1FY19), which is lesser than Rs 3.72 trillion it had borrowed during the same period of FY18.

The borrowing for the first half of 2018-19 works out to 47.6% of budgeted gross market borrowing which is much lower than the average of 60-65% in the last five years.

Department of Economic Affairs (DEA) Secretary Subhash Chandra Garg has said that the government will also come out with inflation indexed bonds linked to consumer price index (CPI) inflation. He also informed that the government will introduce a new bucket of bonds with duration of one to four years, indicating its willingness to borrow more through short-term securities.

Besides, he noted that the budgeted gross borrowing through G-Secs for fiscal 2018-19 was Rs 6.05 trillion which would be used to fund the fiscal deficit of 3.3% of GDP.

The government also plans to reduce the G-Sec buyback by Rs 250 billion in the next fiscal. In addition to this, he said that the government will withdraw up to Rs 1 trillion from the National Small Savings Fund (NSSF) -- Rs 250 billion more than in the current financial year -- to fund the fiscal deficit.

He added that this could reduce the overall market borrowing programme of the government for the entire fiscal.

And here's a note from Profit Hunter:

Indian Oil Corporation (IOC) is the top gainer in the Nifty 50 Index - up 5%. Let's have a look at its chart.

The stock bottomed out with the broader market index in February 2016. It traded in a strong uptrend to hit a life-time high of 231 in August 2017. It corrected and found support from 180 level but it finally broke this support level just a few days back to hit a new 52-week low of 164.

Today, the stock rallied 5% and it is now approaching the 180 level which is expected to act as a strong resistance for the stock (previous support now resistance).

So will the stock resist from the 180 level or will it break this resistance to resume its up move? Let's wait and watch.

IOC Surged 5% for the Day
IOC Surged 5% for the Day 

Sensex Continues Momentum; Metal Stocks Gain
01:30 pm

After opening the day firm, share markets in India have continued the momentum and are trading above the dotted line. Sectoral indices are trading on a positive note with stocks in the metal sector and stocks in the PSU sector leading the gains.

The BSE Sensex is trading up by 111 points (up 0.3%), and the NSE Nifty is trading, up by 40 points (up 0.4%). Meanwhile, the BSE Mid Cap index is trading up by 1.1%, while the BSE Small Cap index is trading down by 1.4%. The rupee is trading at 64.82 to the US$.

Glenmark Pharma share price was in focus today, after it was reported that the company received a ANDA (abbreviated new drug application) approval from the United States Food & Drug Administration (USFDA) for Clobetasol Propionate Spray.

The drug is a generic version of Galderma Laboratories' Clobex Spray.

According to IQVIATM sales data, the Clobex Spray had sales of around US$ 30.5 million in the US for the twelve months ended January 2018.

Indian pharma companies catering to the US markets are breathing a sigh of relief. After being adversely affected by import bans and the suspension of new drug approvals from manufacturing facilities in the past three years, there has been a sharp pick-up in new drug approvals in FY17.

However, note that USFDA alerts on Indian pharma companies have increased over the past few years. Regulators used to visit the plants every two years. Now they come every eight months. Increasing inspections have led to a total of 41 import alerts in the past eight years - 33 of them (80%) in just the last four years (2013-16). This clearly signifies increased USFDA scrutiny on Indian pharma firms. If that wasn't enough, increasing pricing pressure in the generics segment has dented realisations.

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However, the recent development of USFDA expediting the drug approval process can bring some respite for Indian pharma companies. This comes as drug approvals for Indian companies have gone up 50% in the period from January to June 2017 compared to the same period last year.

While short-term pain is expected, companies with strong R&D capabilities and compliant plants will do well over the long term. The uncertainties make it important to be stock specific in the sector. It is important to look for companies that have the competence and staying power to overcome the challenges.

In news from the GST space. The Goods and Service Tax (GST) Council and the government has notified April 1 as the implementation date for the electronic way or e-way bill, which will be required for transporting goods valued over Rs 50,000 between states.

The 26th GST Council meeting had in its meeting on March 10 decided on e-way bill roll out and extension of 3B filing facility.

E-way bills will automate the paperwork for goods transportation, check instances of inflating or under-reporting the value of consignments aimed at tax evasion, create an electronic trail of goods movement and generate valuable data about goods consumption pattern across the country.

The scheme, earlier proposed to be enforced from 1 February was deferred on the same day due to technical glitches. Policymakers now do not want premature roll out of the scheme risking a trade disruption.

Wary of system collapsing like it happened when the e-way bill was first introduced on February 1, the Council decided to rollout the requirement of carrying the permit for intra-state movement in a staggered manner. While inter-state e-way bill being implemented from April 1, there would be a phased roll out for intra-state movement of goods beginning April 15.

Once implemented, e-way bill is needed for all movement of goods valued at more than Rs 50,000. within or outside a state.

The e-way bill, which would be required to be presented to a GST inspector if asked for, is being touted as an anti-evasion measure and would help boost tax collections by clamping down on trade that currently happens on cash basis.

A Large Increase in Registered Indirect and Direct Taxpayers

Since the launch of Goods and Services Tax (GST), there were 9.8 million unique GST registrants, an increase of 50% compared to the previous tax regime. There has also been a large increase in voluntary registrations, especially by small enterprises that buy from large enterprises wanting to avail themselves of input tax credits.

Similarly, after November 2016, 10.1 million tax filers were added compared to an average of 6.2 million in the preceding six years. Further analysis suggests that new filers reported an average income, in many cases, close to the income tax threshold of Rs. 2.5 lakh, limiting the early revenue impact. As income growth pushes many of the new tax filers in time over the threshold, the revenue dividends should increase robustly.

These changes can have profound effects on the Indian economy. With the increasing tax base, the government will have a significant amount of resources to spend on infrastructure, health and education, While the fiscal deficit will be stable.

As organized players gain market share, it will begin to reflect in corporate earnings and stock prices too.

Every coin has two sides. GST is no exception. It has had its fair share of chaos in the months immediately post its implementation from 1 July 2017. Many businesses reported depressed earnings due to the transition to GST.

Our colleague Vivek Kaul has studied the finer aspects of the GST and predicted what could go right and wrong.

Download his special report - The Good, the Sad and the Terrible (GST).


Indian Indices Trade Marginally Higher; Healthcare Stocks Witness Buying Interest
11:30 am

Stock markets in India are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the healthcare sector and metal sector witnessing maximum buying interest. Telecom stocks are trading in the red.

The BSE Sensex is trading up 65 points (up 0.2%) and the NSE Nifty is trading up 25 points (up 0.2%). The BSE Mid Cap index is trading up by 0.8%, while the BSE Small Cap index is trading up by 1.1%. The rupee is trading at 64.80 to the US dollar.

In the news from the IPO space, Kolkata-based private lender Bandhan Bank made a stellar debut on bourses today. The scrip of the company, which recently concluded its IPO subscription offer, got listed at Rs 499, a 33% premium to its issue price of Rs 375.

To give you a bit of the bank's history, its parent company, Bandhan Financial Services (BFSL) was a NGO providing microfinance to economically disadvantaged women in rural West Bengal. It started the microfinance business in 2006. On August 23, 2015, when BFSL, transferred its entire microfinance business to Bandhan Bank, it was India's largest microfinance company by number of customers and size of loan portfolio.

Bandhan Bank and IDFC Bank were the only two entities to get the RBI's banking licenses in 2014.

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To know more about the company, you can read our IPO analysis of Bandhan Bank (subscription required).

At the time of writing, Bandhan Bank share price was trading at Rs 477 on the NSE.

Speaking of IPOs, the demand for IPO's has reached sky-high levels. This euphoria is something similar to what was seen in 2007-08.

At times like this, it pays to follow a merit-based selection - primarily including valuation, business, and management quality - 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.

Also note that with big ticket IPOs in the limelight, SMEs have also joined in to get a share of the pie. The recent SME IPO data for 2017 certainly seems to suggest so.

The amount raised by SME IPOs in 2017 stood at 17.85 billion, more than three times the amount raised in 2016. The number of SME IPOs launched also doubled from 66 to 132. This is evident from the chart below:

SME IPO Boom in 2017

While it doesn't make sense to completely ignore this space, a certain sense of caution is definitely merited.

In the news from the engineering sector, Punj Lloyd share price is witnessing buying interest today. Most of the gains are seen as the company announced that it has won a Rs 5 billion highway contract in Odisha from National Highways Authority of India (NHAI).

Dilip Buildcon share price is also witnessing buying interest today as the company announced that it has secured projects totalling Rs 41 billion from NHAI which are to be built in 'hybrid annuity mode'.


Sensex Opens 200 Points Higher; Metal & Realty Stocks Lead the Gains
09:30 am

Asian stock markets are higher today bouncing back from strong losses in the previous session as trade tensions between the US and China appeared to ease. The Nikkei 225 is up 1.91% while the Hang Seng is up 0.90%. The Shanghai Composite is trading up 0.97%. Overnight, US markets closed in green.

Meanwhile, Indian share markets too have opened the day in green. BSE-Sensex is trading higher by 200 points and NSE-Nifty is trading higher by 51 points. S&P BSE Mid Cap is trading higher by 1.3% and S&P BSE Small Cap is trading up by 1.5%.

Gains are largely seen in metal stocks, capital goods stocks and realty stocks. The rupee is trading at Rs 65.06 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 steel sector, as per an article in The Livemint, JSW Steel Ltd would invest up to US$500 million to expand its Texas operations through its US unit, as part of a Memorandum of Cooperation signed with the Texas Governor's office.

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The governor has also approved a grant worth US$3.4 million from the Texas Enterprise Fund to JSW Steel (USA) Inc.

The capex plan, which will be completed by March 2020, includes setting up a melt manufacture contiguous plate and pipe facility in Texas. The investment comes at a time of rising concerns about an escalating trade war between US and other countries over tariffs.

Trade minister Suresh Prabhu said last week the country will bilaterally discuss import curbs on steel with US after President Donald Trump had pressed ahead with import tariffs on steel and aluminium products.

JSW Steel share opened the trading day up by 2.1% on the BSE.

Moving on to news from IPO segment, as per a leading financial daily, the Rs 40.17 billion initial public offering (IPO) of ICICI Securities could only manage 78% subscription on the last day of the issue on Monday.

However, including anchor allotment, the issue received a total of 87.9% subscription.

In a statement, the the company has successfully closed its proposed offer for sale (OFS) and has raised around Rs 35 billion. Out of this, around Rs 17.17 billion was raised from anchor investors.

The company's announcement meant it lowered the issue size to sail through. This is third subsidiary firm from the ICICI group to hit the market in past two years. The QIB portion was fully subscribed, but the quota for retail investors (88%) and non-institutional investors (33%) remained undersubscribed.

Overall, this was the fourth issue of the ICICI Group after ICICI Bank, ICICI Prudential Life and ICICI Lombard General Insurance.

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.

In news from cryptocurrency market, Bitcoin began the week on a down note, declining as much as 8.7%, pushing the biggest cryptocurrency's decline for March to about 25%.

Bitcoin's price is back below US$8,000, a move that comes amid a broader decline in the global cryptocurrency market.

After reaching a record high of almost US$20,000 in December, Bitcoin has slumped about 60% as investors reconsider the prospects of the digital currency and regulators around the world increase scrutiny.

Twitter confirmed Monday it's banning the advertisements on its platform due to concern the content is often related to deception and fraud, according to a company spokesperson. The decision comes after Facebook Inc. banned cryptocurrency ads in January and Alphabet Inc.'s Google said it would do the same starting in June.


Of Cheap Valuation of PSU Banks and Our View on IPO of Lemon Tree Hotels Ltd
Pre-Open

NSE PSU Bank Index Surges 5% in Yesterday's Trade

NSE PSU Bank Index surged by almost 5% in yesterday's trade. Having said that, the 5% surge looks miniscule when compared to the correction the PSU Banks have underwent since 25th October 2017. This was the date when bank recapitalization of Rs 2.1 trillion was announced.

Loss in Market Capitalization of PSU Banks from 26th October 2017 to 26th March 2018
BankPrice as on 26th October 2017Price as on 26th March 2018Loss in Market Cap (in %)Current Price/ Book Value10 Yr Average Price/ Book Value
Punjab National Bank21396-55%0.61.2
Union Bank of India18691-51%0.40.7
Allahabad Bank8448-43%0.30.7
Andhra Bank7041-41%0.30.9
Syndicate Bank8256-31%0.40.8
Bank of India193102-47%0.41.1
Bank of Baroda185141-24%0.81.1
SBI Bank321246-23%1.11.4
Source: ACE Equity

The healthy correction has led to these banks trading at attractive valuations. All the banks as mentioned in this table are trading below their ten-year median price/book value.

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Given the cheap valuations, are you planning to invest in these banks?

Now, there is a term in investing called Value Traps. Value traps are stocks that are trading at very cheap valuations. These stocks can trade cheap forever and never really recover in terms of stock price performance. There is a reason for this. Structural problems in the company.

The structural problem with public sector banks is the credit appraisal policy. In the greed of balance sheet growth and pressure from government, these banks have lent to stressed sectors such as power and iron & steel. The result- Gross Non-Performing Assets (GNPA's) of public sector bank have shot up to 11.03% in FY17 as compared to 4.97% in FY15.

Unless such structural problems are resolved it is highly likely that some of these banks act as a value trap and continue to deliver miserable stock returns in the long run.

Should One Subscribe to Lemon Tree Hotels Initial Public Offer?

The initial public offer of Lemon Tree Hotels Ltd is up for grabs. The issue was subscribed by 24% at the time of writing.

The proceeds from this IPO of around Rs 10.9 billion will go to the selling shareholders. Promoters are not participating in the offer for sale and thus their holdings post the IPO will remain the same at 29.16%.

Lemon Tree Hotels Ltd. is the India's largest hotel chain in the mid-priced hotel sector, and the third largest overall, on the basis of controlling interest in owned and leased rooms, as of June 30, 2017 (as per the Horwath Report). It is also the ninth largest hotel chain in India in terms of owned, leased and managed rooms, as of June 30, 2017. The company operates in the mid-priced hotel sector, consisting of the upper-midscale, midscale and economy hotel segments.

A significant part of the company's revenues (57% in FY17) comes from the corporate customers. The company opened its first hotel in 2004 and the count as of 31 July 2017 stood at 40.

To know our view on this IPO, you can read our IPO note on Lemon Tree Hotels Ltd (requires subscription).