Indian Indices End the Week on a Negative Note; Telecom Stocks Witness Losses
Closing

After opening the day marginally lower, Indian share markets witnessed further selling pressure and ended their session on a negative note. Losses were largely seen in the telecom sector, auto sector and healthcare sector, while consumer durable stocks ended the day higher.

At the closing bell, the BSE Sensex stood lower by 188 points (down 0.5%) and the NSE Nifty closed lower by 61 points (down 0.6%). The BSE Mid Cap index ended the day down by 0.4%, while the BSE Small Cap index ended the day down by 0.3%.

Asian stock markets finished on a negative note as of the most recent closing prices. The Hang Seng was down 1.3% and the Nikkei stood lower by 0.2%.

The rupee was trading at 66.88 to the US$ at the time of writing.

In the news from banking space, as per an article in the Economic Times, bank deposit growth fell to a five-decade low in FY18.

As per the data released by the Reserve Bank of India (RBI), aggregate deposits in the banking system grew a mere 6.7% in 2017-18. This was the lowest since fiscal 1963.

The above fall in growth was seen on the back of reversal from the huge deposits collected during the demonetisation exercise together with the steady movement of savings away from bank deposits.

From the telecom space, Bharti Airtel share price was in focus today. The stock of the company witnessed buying interest on a report that the firm may raise as much as US$ 1.5 billion through stake dilution when it lists the holding company for Africa operations in early 2019.

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As per the news, the money will help bolster the telecom company's efforts to stay competitive in the Indian market where Bharti just announced its first quarterly loss.

From the energy sector, ONGC share price was also in focus today, after the state-run oil major drilled record number of oil wells in the financial year gone by.

ONGC announced that it drilled 503 wells in 2017-18, which is the highest number of wells drilled in last 27 years. Among the 503 wells, 119 exploratory and 384 development wells were drilled.

In the news from global financial markets during the week, the US Federal Reserve left interest rates unchanged at 1.50-1.75% in its recently held monetary policy meet. The central bank also signaled that the gradual path of rate hikes will stay.

Note that Fed officials have indicated that they expect a total of 3 to 4 hikes in 2018. This view was reaffirmed as the central bank said that economic conditions will warrant further gradual increases in the federal funds rate.

Note that with the US economy chugging along for many months, the Fed is now gradually easing off the stimulus it provides to the economy by raising interest rates to more normal levels.

Federal Reserve Rate Hike in the Past 3 Years

How does a US interest rate hike affect Indian investors?

The instant effect is foreign money moving out of India's vaults. This means a slight correction in the share market in India, albeit temporarily.

While this might provide a good buying opportunity in long-term stocks, the main thing to look forward would be capex and earnings trends.

In the end, Indian investors are better off staying informed about the corporate earnings revival than Fed rate hikes.

It is also worthwhile to note that the Indian stock market has done relatively well during the last period of rate hikes by the US Fed.

Take 2003-2006 for example...

Between 2003 and 2006, the US Fed rate moved from 1% to 5.25%.

Despite this, the Sensex rose from 3,500 levels to more than 10,000 during the same period. This increase was supported by strong earnings growth.

So, in the long term, rate hikes (triggered by economic growth) have proved good for the Indian markets. In fact, earnings growth is at the heart of Tanushree's prediction of Sensex 100,000.

Market participants also closely tracked crude oil prices during the week. Prices for the commodity edged up during the end of the week as looming geopolitical risks from possible new US sanctions against Iran supported the markets.

Note that crude oil prices have been witnessing a rising trend of late. Prices have been escalating due to a pick-up in global demand coupled with supply cuts by the Organisation of the Petroleum Exporting Countries (OPEC) and Russia. Even geopolitical tensions between US, Russia, North Korea and Iran have kept prices on the boil.

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 a recent edition 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.

And here's a note from Profit Hunter:

The Nifty 50 Index ended the week on a negative note. It opened the session gap up on Monday and continued the momentum until the next session's open, where it found heavy selling pressure and slipped lower sharply.

The bears continued to dominate for the rest of the week. The index posted three red candles to finally end the weekly session 0.73% down.

Last week, we mentioned that the gap area placed at the 10,750 level will act as an immediate resistance level for the index. This is what happened.

Although it traded above the gap area, it couldn't sustain it even for an hour. It immediately slipped lower and traded with a negative bias.

Now the index is approaching the 10,400 - 10,500 zone. This zone which acted as a resistance on the way up will now act as a support for the index.

It will be interesting to see how the index reacts at this support zone. Stay tuned, we'll keep you posted.

Nifty 50 Index Trades on a Negative Note
Nifty 50 Index Trades on a Negative Note 

Sensex Trades in Red; Services PMI Continues Uptrend
12:30 pm

After opening the day in red, share markets in India witnessed choppy trades and have continued the downtrend. Sectoral indices are trading on a mixed note with stocks in the realty sector and stocks in the oil and gas sector leading the gains. Stocks in the pharma sector are trading in red.

The BSE Sensex is trading down by 160 points (down 0.5%), and the NSE Nifty is trading down by 46 points (down 0.5%). Meanwhile, the BSE Mid Cap index is trading down by 0.3%, while the BSE Small Cap index is trading down by 0.1%. The rupee is trading at 66.79 to the US$.

In news about the economy. India's services sector activity continued its slow but sustained growth. The country's predominant sector witnessed expansion for the second consecutive month, according to the Nikkei Services Purchasing Managers' Index (PMI) survey by Markit.

The Services PMI is the reading of the country's services sector output and is updated monthly. A reading above 50 indicates expansion, while any score below the mark denotes contraction.

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A second consecutive growth in new business resulted in another monthly climb in activity. The services PMI for April finished at 51.4 signaling a steady recovery from the 47.8 in February.

Services PMI Growth Back on Track

Indian services sector activity returned to its growth track in March, driven by greater inflows of new work, following which firms increased their staffing levels at the fastest pace in 7 years. Reflecting improved demand conditions and pressure on current resources, service providers expanded capacity by raising their staffing levels at the quickest pace since June 2011.

On the price front, India's service sector firms continued to face higher cost burdens during March. Meanwhile, pressure is seen to be mounting on the Reserve Bank of India to cut interest rates in the wake of declining retail inflation and the need to fuel growth momentum.

The Monetary Policy Committee (MPC), headed by RBI Governor Urjit Patel, will announce the resolution of the MPC on its first bi-monthly monetary policy for financial year 2018-19 later today.

Moving on to news from stocks in the oil and gas sector. ONGC share price is in focus today, after the state-run oil major drilled record number of oil wells in the financial year gone by.

ONGC announced that it drilled 503 wells in 2017-18, which is the highest number of wells drilled in last 27 years.

Among the 503 wells, 119 exploratory and 384 development wells were drilled.

In order to assess the prospectivity of existing acreages in a time-bound manner and add to the company's reserve base, more focus was laid on exploratory drilling.

During FY'18, ONGC's planned capex outlay on drilling activities was Rs 160 billion with a target to drill 496 wells including 110 exploratory and 386 development wells.

However, the company has drilled 503 wells at a cost of approx Rs 142 billion which is 11.5% lower than the budget outlay.

The initiatives taken by the company to optimise cost and enhance operational efficiencies has yielded additional savings in the fiscal year ended March 31, 2018.

This is the second consecutive year that ONGC has drilled over 500 wells.

Last year, the oil major drilled 501 oil wells at a cost of Rs 154.4 billion.

This year, ONGC has set a capex outlay of Rs 176 billion on drilling activities and plans to drill well over 500 oil wells this year as well.

There is a significant upside in the number of deepwater development wells planned by the company.

The company has set an ambitious target to drill 535 wells, of which 24 are deep-water development wells as part of Cluster-2 development, off the East-Coast of India.

At the time of writing, ONGC share price was trading up by 1%.


Sensex Opens in Red; IT & Metal Stocks Drag
09:30 am

Asian shares were steady while the Japanese yen held onto overnight gains in the early trade today as financial markets turned their attention to the looming US payrolls data for fresh catalysts. Shares in Hong Kong are lower today as the Hang Seng falls 0.4%. While Shanghai Composite is trading down by 0.2%. Overnight US stocks closed slightly lower.

Back home, India share markets opened the day on a negative note. The BSE Sensex is trading down by 62 points while the NSE Nifty is trading down by 17 points. The BSE Mid Cap index and BSE Small Cap index both opened the day on a flat note.

Sectoral indices have opened the day on a mixed note with realty stocks and consumer durables stocks witnessing maximum buying interest. While, information technology stocks and metal stocks have opened the day in red. The rupee is trading at 66.61 to the US$.

In the news from the pharma sector. As per an article in a leading financial daily, Glenmark Pharmaceuticals Ltd is under regulatory scrutiny for alleged misconduct in carrying out clinical trials recently in Jaipur.

The Central Drugs Standard Control Organisation (CDSCO) has allegedly found that fake identities were used in clinical trials, as well as evidence of substantial departures from good clinical practice (GCP).

This could be the latest blow to India's drug-testing industry, which has run into a series of problems with international regulators in recent years.

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The alleged misconduct on the part of the company has triggered a tough response from India's apex drug regulatory authority, which has sent a show cause notice to the company for failing to ensure that clinical trial was conducted in accordance with the Drug and Cosmetics Act, 1940 and Rules 1945, GCP guidelines.

The regulatory body has sought an explanation about the alleged irregularities within 10 days. Glenmark has, however, denied any wrongdoing.

The company came under the scanner following reports that several people were deceived into participating in an ongoing trial for pain medication to treat osteoarthritis at Malpani Multispeciality Hospital in Jaipur. A total of 38 kits were supplied by the company, of which only three were issued to the enrolled patients on 6 April. Glenmark has suspended the trials at the site.

In such an environment, it makes sense for investors to be selective while buying stocks. Focus on value and the underlying fundamentals of the business. Then, they need not worry about the market.

So, what is key to identifying potential multibagger stocks? How does one pick them at the right time and ride them to their full potential? How many multibaggers do you really need to achieve the big riches that you desire?

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Glenmark Pharma share price opened the day up by 0.3%.

Moving on to the news from telecom sector. As per an article in The Economic Times, Bharti Airtel is planning to raise as much as US$1.5 billion by diluting about a fourth of its stake when it lists the holding company for Africa operations, Bharti Airtel International (Netherlands) BV (BAIN BV), in early 2019.

Reportedly, the money will help bolster the telco's efforts to stay competitive in the Indian market, where Bharti has just declared its first quarterly loss in contrast with profits in Africa.

Work on the listing has picked up pace and is slated for early next year on the London Stock Exchange, leveraging financial improvements in the past few quarters.

Africa operations have started to make profits about seven years after the Indian telco entered the continent in 2010.

The Netherlands-based wholly-owned unit of Bharti Airtel is the holding company of telecom operations in 14 African markets - Nigeria, Chad, Congo-Brazzaville, Democratic Republic of Congo, Gabon, Madagascar, Niger, Kenya, Malawi, Seychelles, Tanzania, Uganda, Zambia and Rwanda.

One shall note that, the situation has reversed, with the India operations reporting its first loss in 15 years - RS 6.5 billion in the January-March quarter - dragged down by the continuing price war triggered by the entry of Reliance Jio Infocomm.

Africa is likely to ensure Airtel remains profitable at the consolidated level going forward as well amid fears that the tariff war in India is set to continue.

Further, global listing for the holding company will help Airtel get better value for its Africa operations in contrast with India, where free voice and cheap data tariffs have eroded profits and driven down average revenue per user for most carriers. The fundraising will provide Airtel with "significant ammunition" to fight price wars in India, one of them said.

The listing could also help Bharti Airtel deleverage its balance sheet, the reports noted. Overall debt was Rs 950 billion at the end of March.

Notably, one of the biggest and most resilient telecom companies in India, Bharti Airtel, has been the victim of loss of pricing power in the sector.

Bharti Airtel's Sliding Valuations

Sliding operating margins had a direct impact on the company's return on equity over the past decade. And the poor operating numbers apart from debt heavy balance sheet weighed on the valuations.

Bharti Airtel share price opened the day up by 3.1%.


Of Analysis of Corporate Earnings, Crash in Indigo Stock and Top Stocks in Action Today
Pre-Open

Share markets in India closed on a flat note yesterday. Majority of sectoral indices ended in red, with stocks in the pharmaceutical sector leading the losses.

At the closing bell yesterday, the BSE Sensex stood lower by 73 points (down 0.2%) and the NSE Nifty closed down by 38 points (down 0.4%). The BSE Mid Cap index was down 1.1%, while the BSE Small Cap index was down by 0.8%.

Operating Profits Zooms in December Quarter

Peter Lynch in his famous book 'One Up on Wall Street' quotes:

  • "If you can follow only one bit of data, follow the earnings-assuming the company in question has earnings. As you'll see in this text, I subscribe to the crusty notion that sooner or later earnings make or break an investment in equities. What the stock price does today, tomorrow, or next week is only a distraction."

We to believe that in the long-run, share prices tend to move in the direction of the earnings growth. And the recent data on corporate earnings is nothing but a positive signal.

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As reported in Economic Times, the revenue growth for 193 companies was 14.5%. The operating profits too grew at a similar pace at 15%. However, there was only a marginal improvement in the growth of net profits. The subdued growth of 0.4% in net profits was mainly because of higher finance cost. Finance cost increased by around 20% as compared to a year ago.

Performance of Different Sectors in March Quarter
Sectors Performing WellSectors Showing Stress
AutomobilesCapital Goods
LubricantsPharmaceutical
FMCGCement
MetalPower

These are still early days as only a handful of companies have reported their quarterly numbers. After two years of depressed earnings, hopes of a trend reversal are high. One more quarter of depressed earnings could lead to a deep correction in the indices.

Indigo Stock Nosedives

The stock of Interglobe Aviation crashed almost 11% in yesterday's trade. The stock crashed after reporting a subdued set of numbers for the quarter ended March 2018. A rise in the prices of crude oil coupled with intense competition from peers led to the fall in the numbers. To add to this, the strengthening dollar too added to the woes as the company makes its rental payments in US dollars.

All these factors have led to the net profits reducing by 73% during the quarter as compared to a year ago. Further, investors has perceived the exit of its chief executive officer (CEO)-Mr Aditya Ghosh as a negative sign and punished the stock. The stock is down by 20% from its highs of 1,520 it touched before two weeks.

Top Stocks in Action Today

The stock of IndoCount Industries, Godrej Properties, NOCIL, PVR, GE Shipping, Deepak Nitrite, Philips Carbon, Astron Paper & Board Mill Ltd are expected to be in action today as they declare their results for the quarter ended March 2018.