Indian Indices End Flat; IT Sector Ends 4.8% Higher
Closing

After opening their day on a negative note, Indian share markets witnessed choppy trades and ended their session on a flat note. Barring the IT sector, most of the sectoral indices ended the day lower with realty sector and banking sector witnessing maximum selling pressure.

At the closing bell, the BSE Sensex stood lower by 12 points and the NSE Nifty closed flat. The BSE Mid Cap index ended the day down by 0.4%, while the BSE Small Cap index stood flat.

Asian financial markets slipped on Friday as a warning on smartphone demand from the world's largest contract chipmaker slugged the tech sector, while high oil prices stirred inflation fears and undermined sovereign bonds. Asian stock markets finished on a negative note as of the most recent closing prices. The Hang Seng was down 0.9% and the Nikkei was trading up by 0.1%. The Shanghai Composite stood down by 1.5%.

The rupee was trading at 66.04 to the US$ at the time of writing.

In the news from global financial markets during the week, UK inflation slowed to the weakest in a year in March.

Consumer prices rose 2.5% from a year earlier, down from 2.7% in February. Core inflation cooled to 2.3%, the lowest rate seen in a year.

The above data raised questions about how quickly the Bank of England (BoE) will increase its interest rates.

From the US, researchers at the Federal Reserve Bank of New York said that the new tariffs laid by President Donald Trump are likely to lead to a net loss in US employment, at least in the short to medium run. They noted that although it is difficult to say exactly how many jobs will be affected, given the history of protecting industries with import tariffs, the 25% steel tariff is likely to cost more jobs than it saves.

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Market participants also closely followed the outcome of a Joint Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC ministerial monitoring committee (JMMC) meeting.

As per the news, the meeting is likely to boost compliance with the production pact and even discuss how they would like crude near US$ 100.

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

Note that crude oil prices have been witnessing a rising trend of late. However, this is not good news from India's perspective.

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

  • Fiscal revenues are at risk. Particularly if the government is forced to consider a cut in fuel excise duties due to a rally in oil prices. In recent times, a sharp jump in excise collections has helped indirect tax collections. Any risk to revenues and subsequent threat to the fiscal deficit target at 3.2% of GDP would require tighter spending cuts.

    Secondly, the impact on inflation needs to be monitored. This narrowing the central bank's scope for further rate cuts.

    Lastly, low crude prices were a positive growth impetus through higher discretionary incomes for households and lower input costs for manufacturers and farmers. Part of this benefit is likely to be eroded as retail fuel costs rise. As for corporations, expansion in gross margins caused by falling commodity prices is also likely to wane, pressurising profitability.

You can read the entire article here.

Back home, state-run oil companies have raised petrol and diesel prices only marginally this week despite higher international rates anticipating that political considerations may bring back price controls in fuel prices. This has triggered a fall in shares of the big refiners.

TCS share price witnessed buying interest today as the company reported a 4.5% year-on-year (yoy) rise in consolidated net profit at Rs 69 billion for the March quarter. The IT services, consulting and business solutions firm had reported Rs 66.1 billion profit in the same quarter last year. It had reported negative profit growth in the previous three quarters of the financial year.

Eveready Industries share price witnessed selling pressure today after the Competition Commission of India (CCI) imposed a fine of Rs 2.15 billion on Eveready, Indo National, industry grouping AIDCM and their officials for cartelisation in the pricing of zinc-carbon dry cell batteries.

In the news from hotel sector, stock market participants are betting on hotel companies ahead of the summer holiday season as growing demand and supply constraints have pushed occupancy to its highest in at least eight years.

Note that there is a very interesting trend happening in the hotel industry right now. It has caused the recent rally in hotel stocks. Most of these stocks are making life-time highs.

To dig a little deeper, we pulled out data on hotel occupancy across the country.

Why Are Hotel Stocks Rallying?

According to an HVS report, the hotel industry's occupancy rate was at 65% in the year ended March 2017. That was the highest since 2008 and was seen on the back of a decline in supply of rooms.

The occupancy rate (number of rooms utilised/ the total rooms available), peaked in 2007-08 and started declining.

The declining occupancy led to the poor health of hotel industry. Lower occupancy lead to lower profitability.

However, over the last few years there hasn't been much addition capacity and the occupancy rate now is inching towards its previous peak of 2007-08.

The current rally in the stocks is on the hope that the occupancy levels will inch up further and the hotel industry will start making good profits.

And here's a note from Profit Hunter:

IT stocks are on fire today. The Nifty IT index is up 5%. The top five gainers in the Nifty 50 index are from the IT sector - TCS (+7%), Tech M (+4.65%), INFY (+4.15%), HCL Tech (+3.80%), and Wipro (+2%).

TCS reported its Q4FY18 results yesterday after the market hours. And today, the stock is up 6.5%. It seems like traders are quite happy with the results.

The last time we reviewed TCS, it had corrected more than 12% from its life-time high, as we had expected it to.

But we observed the stock approaching its crucial support level of 2,780. This level which had acted as a strong resistance on the way up was expected to act as a strong support.

As a result, the stock touched a low of 2,781 and reversed up. It is now up nearly 22% from the 2,780 support level and it had touched a fresh life-time high of 3,407 in today's session. The volumes for the day were also strong.

But the rally from 2,780 to 3,407 was almost vertical. So can the stock maintain the bullish momentum or is it due for a correction? Let's keep a track of it...

TCS Soars 7% for the Day
TCS Soars 7% for the Day 

Sensex Trades in Red; IT Stocks Top Gainers
12:30 pm

After opening the day in red, share markets in India witnessed choppy trading activity throughout the day and are presently below the dotted line. Sectoral indices are trading mixed with stocks in the PSU sector and stocks in the realty sector trading in red. While stocks in the consumer durables sector are trading in green.

The BSE Sensex is down by 55 points (down 0.2%) and the NSE Nifty is trading down by 20 points (down 0.2%). Meanwhile, the BSE Mid Cap index is trading down by 0.5%, while the BSE Small Cap index is trading down by 0.1%. The rupee is trading at 66.02 to the US$.

Among the most active stocks in the BSE Sensex today are TCS (up 6.3%), Infosys (up 3.9%) and Wipro (up 2%). Among the BSE 500 stocks, the most active stocks include Chambal Fertilisers (up 6.7%), TCS (up 6.3%) and Sterlite Tech (up 6%).

While this should do for the wrap on active stocks, we notice that many of you are tracking low priced shares as well. Low priced shares are not necessarily cheap or attractive. But then, there's a lot of interest in them.

Go ahead, have a look at the most active ones here:

NSE Rs 10 to 20 most active stocks

BSE Rs 10 to 20 most active stocks

NSE above Rs 20 most active stocks

BSE above Rs 20 most active stocks

In news from stocks in the telecom sector. According to a leading financial daily, The Aditya Birla Group plans to sell a minority stake of anywhere between 15% and 20% in its Idea Payments Bank.

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The group plans to raise over Rs 2 billion, valuing the two month old payments bank at Rs 10 billion.

The payments bank, in which group companies Idea Cellular and Aditya Birla Nuvo own 51% and 49%, respectively, will use the money to expand its operations. India's second-largest mobile phone-owned payments bank has been facing headwinds in setting up and launching operations, as it is facing tough competition from small finance banks.

Idea's payments bank, which is the latest entrant in this space, started its operations in February 2018, after the RBI issued licenses to 12 firms in 2015.

With the objective of deepening financial inclusion, RBI, in 2015 kicked off an era of differentiated banking by allowing SFBs (small finance banks) and PBs (payments banks) to start services. A total of 21 entities were given in-principle nod last year, including 12 for payments banks.

Payments banks can accept deposits from individuals and small businesses up to a maximum of Rs 100,000 per account.

Payments banks aren't allowed to lend, but can take deposits, facilitate remittances and dispense payments to recipients. The RBI had devised payments banks and small finance banks as tools to take formal banking to the unbanked.

For telecom companies like Idea and Bharti Airtel, this offered a new business opportunity as they already have extensive networks across the country and a huge potential customer base for the banking services in their existing users.

Telecom Sector: A decade of Underperformance

However, the whole telecom business has been an underwhelming story so far. While the telecom subscriber base has increased from 300 million in 2008 to 1.2 billion in 2017, investors have little to cheer. The BSE Sensex has gone up 3.25 times in nine years, but the BSE Telecom Index has not moved an inch from its levels of 2008.

Telecom companies are straddled with high debt, intense competition, and lack of pricing power. High spectrum costs and regulatory issues have hampered the sector. While consumers have benefited from low costs and new players fighting for their share, investors have suffered.

With the entry of Reliance Jio, the competition has intensified further. Reliance Jio's low cost offerings and strategy of capturing market share will further dent the sector. The sector has been a classic 'valuet trap'. While it always looks cheap compared to other sectors, it has failed to provide any reasonable returns. We also believe the situation is unlikely to change in the near future. For an investor, it's important to differentiate between 'value' and 'value traps'.

Moving on to news about the economy. Minutes from the Reserve Bank of India's (RBIs) monetary policy committee meeting show that the central banker is leaning towards a rate hike.

At the April 4-5 policy meeting, RBI Deputy Governor Viral Acharya said there was a revival in investment activity and an improvement in capacity utilization, which boded well for the economy. As a result, he was switching from a neutral stance to shift decisively to vote for a beginning of withdrawal of accommodation in the next monetary policy meeting in June.

Minutes of the policy meeting this month showed most members of India's monetary policy committee are optimistic that Asia's third-largest economy will rebound this year with the output gap closing, a factor that is likely to boost inflation in coming months.

The RBI is forecasting inflation for April to September at 4.7-5%, slower than 5.1-5.6% made just two months back. It expects the second half inflation to ease to 4.4%, having earlier estimated it at 4.5-4.6%.

The central bank's goal is to keep headline inflation close to 4% over the medium term.

Rate hike or not, we do not attempt to predict how and when macroeconomic developments will unfold. Instead, we focus on the fundamentals and the underlying business strength of companies. The ValuePro team is always on the lookout for all-weather stocks whose fortunes are not tied to economic cycles.


Sensex Opens Marginally Down; TCS Rallies on Strong Q4 Results
09:30 am

Asian share markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.1% while the Hang Seng is down 0.4%. The Shanghai Composite is trading down by 1%. Wall Street's three major indices closed lower on Thursday, with tobacco stocks leading a tumble in consumer staples while concerns about smartphone demand hurt the technology sector and rising bond yields and earnings helped financials rebound.

Back home, India share markets opened the day marginally lower. The BSE Sensex is trading down by 41 points while the NSE Nifty is trading down by 12 points. The BSE Mid Cap index and BSE Small Cap index both opened the day down by 0.3% & 0.1% respectively.

Sectoral indices have opened the day on a mixed note with IT stocks and energy stocks witnessing buying interest. While, metal stocks & bank stocks have opened the day in red. The rupee is trading at 65.78 to the US$.

In the news from the FMCG sector. As per an article in a leading financial daily, Procter & Gamble Co. (P&G) has agreed to purchase the consumer health business of the German drug maker, Merck.

Reportedly, the US$4.2 billion deal will add about US$1 billion in annual revenue, roughly 3,000 employees and more than 900 new products to P&G's health care portfolio.

P&G's health care brands, including Vick's, Metamucil, Crest and Oral-B, already generate US$7.5 billion in annual sales, about 12% of P&G's total revenue. The acquisition, expected to close in the next 14 months, will bring to P&G vitamin brands and over-the-counter remedies for muscle, joint and back pain that are now sold in 44 countries.

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The acquisition is the biggest in years for P&G, which spent much of the last decade selling off under-performing brands and struggling to restore growth with those it retained.

One shall note that, it was announced hours before P&G disappointed investors with a third-quarter earnings report that declining revenue in two of its biggest categories: Shaving and baby care.

P&G share price opened the day up by 0.2%.

Moving on to the news from IT sector. TCS share price surged 3.4% in the opening trade after it reported a 4.5% year-on-year (yoy) rise in consolidated net profit at Rs 69 billion for the March quarter.

The IT services, consulting and business solutions firm had reported Rs 66.1 billion profit in the same quarter last year. It had reported negative profit growth in the previous three quarters of the financial year.

On a sequential basis, the IT major reported 5.7% growth in profit.

Consolidated net sales for the quarter rose 8.2% to Rs 320.8 billion compared with Rs 296.4 billion in the year-ago quarter. The company had reported a sales growth of 3.9% in October-December and 4.3% in July-September.

The board has approved a bonus issue of equity shares in 1:1 ratio. The outsourcing firm has also announced a final dividend of Rs 29 per share.

The Tata Group company said all industry verticals -- with the exception of BFSI -- grew above the company average, with three verticals growing in double digits. Growth was led by the energy and utilities vertical (up 33.7%), travel and hospitality (25.4%) and life sciences and healthcare (12.6%).

The software major's total headcount stood at 3,94,998 at the end of the March quarter on a consolidated basis. The IT Services attrition rate (last 12 months) edged 0.1% lower to 11% while the total attrition rate (including BPS) fell to 11.8%.

Volume growth for the quarter stood at 2%.

The company said its operating cash flow at 121.7% of profit for the fourth quarter was its highest ever. It noted that 23.8% of its revenue came from the digital vertical, which grew 42.8% on an annual basis. Greater adoption of digital technologies by customers resulted in several large, multipractice integrated deal wins.

For the year, the company added three clients in US$100 million plus category, 13 in US$50 million slab, 17 in US$20 million and 40 in US$10 million slots.

Speaking of IT sector, during the financial year 2017-18, the BSE IT index gained over 19% during the same period. While, the BSE Sensex delivered a return of about 11%.

Now, that's a significant outperformance. If you were holding some solid IT stocks last year, you have most likely fared better than the Sensex. But last year, the markets were not as optimistic on the sector as they are now.

Look at the chart...

How It Paid Off to Bet on the Uncertainties in the IT Sector

During the first half of 2017-18, the IT sector was among the underperformers, and it was lagging way behind the Sensex. In fact, until October 2017, the index was still hovering near levels seen in April 2017.

But once the mood of the market changed, the IT index not only recovered, but went on to outperform the Sensex.


Indian Indices Continue Positive Trajectory, Metal Sector Spurts, and Top Stocks in Action
Pre-Open

On Thursday, share markets in India opened on a positive note and ended the day in green.

The BSE Sensex closed higher by 96 points to end the day at 34,427 mark. While the broader NSE Nifty ended the day higher by 39 points to end at 10,565.

Among BSE sectoral indices, metal stocks rose the most by 4.5%, followed by capital goods stocks at 1.1%. Tata Steel and Yes Bank were among the top gainers.

Top Stocks in Action Today

Tata Steel share price is likely to be in focus today after a leading financial daily reported that the Tata Group company is likely to acquire a 75% stake in debt ridden Bhushan Steel.

As per the news, the company will be paying Rs 1.8 billion to acquire 75% of the paid-up share capital by issuing 1.2 billion new shares as part of its plan to salvage the debt-laden steel company.

HPCL share price and BPCL share price are among the stocks to watch today as oil prices continue to rise unabated.

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Aviation Sector Continues to Fly High

Data released by the Directorate General of Civil Aviation showed India's aviation sector witnessed its highest passenger growth in 32 months in March as more than 11.6 million Indians took air transport for their travels.

As per the data, airline passenger traffic grew 28%, compared with the same month last year. This was seen on account of strong capacity addition.

The growth in passenger traffic in the world's fastest-growing aviation market was led by Air India, GoAir, Air Asia, and Vistara. All the four airlines reported strong growth in passenger traffic by growing above the industry average of 28%.

However, the number of fliers for InterGlobe Aviation Ltd, the parent of IndiGo, fell 27% as the airline cancelled 935 flights due to instances of technical glitches in their Pratt & Whitney engines. While this was marginally below the industry rate, it stood higher compared to the previous month for the company.

Passenger load factor, a measure of capacity utilisation, increased for all the major airline companies last month. SpiceJet Ltd reported the highest passenger load factor of 95% and now has reported a PLF of more than 90% for the thirty-fifth consecutive month.

Note that India's aviation industry is on a high-growth trajectory. India's domestic air traffic has seen a prolific growth of 20-25% during 2015 and 2016. And in 2017, it tapered to 17.4%. However, for the first time, domestic air traffic crossed an important landmark of 100 million passengers in a calendar year. Air travel has recorded double-digit growth for 40 consecutive months, thanks to low fares, the addition of new flights/destinations, and overall growth in the economy.

What's foreseeable for India's aviation traffic in 2018 is some pressure on the back of the consistent rise in crude oil prices. Earlier this year, Brent crude oil briefly breached US$70 per barrel and touched its highest level since December 2014. Crude prices have been driven up by production curbs in OPEC nations and Russia, as well as by robust demand on the back of healthy global economic growth.

Oil prices are closely monitored by the Indian air carriers, as aviation turbine fuel is their single largest input cost. A sharp rise in the cost of fuel puts pressure on margins, and consequently an increase in air fares.

Although air travel is becoming the new normal, investors need to understand the industry dynamics before buying up aviation stocks.

Oil Prices Show No Signs of Slowing Down

Crude oil prices are witnessing buying interest today, and have remained close to highs touched the previous day that were last seen in late 2014. Gains are seen as US crude inventories declined and as top exporter Saudi Arabia is expected to keep withholding supply to prop up the market.

Last week too, crude oil was headed for its biggest weekly advance in more than eight months on speculation that tensions in the Middle East may lead to supply disruptions, reinforcing a buy call on commodities by Goldman Sachs Group Inc.

The risk of conflict in Syria, as well as ongoing tensions between Saudi Arabia and Iranian-backed rebels in Yemen, has raised concerns over supply security in the energy-rich region.

While OPEC said its output last month fell to the lowest in a year, with worldwide inventories set to decline significantly later this year, the International Energy Agency (IEA) sees a second wave of shale revolution in the US.

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

Note that crude oil prices have been witnessing a rising trend of late. However, this is not good news from India's perspective.

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

  • Fiscal revenues are at risk. Particularly if the government is forced to consider a cut in fuel excise duties due to a rally in oil prices. In recent times, a sharp jump in excise collections has helped indirect tax collections. Any risk to revenues and subsequent threat to the fiscal deficit target at 3.2% of GDP would require tighter spending cuts.

    Secondly, the impact on inflation needs to be monitored. This narrowing the central bank's scope for further rate cuts.

    Lastly, low crude prices were a positive growth impetus through higher discretionary incomes for households and lower input costs for manufacturers and farmers. Part of this benefit is likely to be eroded as retail fuel costs rise. As for corporations, expansion in gross margins caused by falling commodity prices is also likely to wane, pressurising profitability.

You can read the entire article here.