Sensex Ends Day in Red; Energy Stocks Top Losers
Closing

After opening the day in red share markets in India witnessed choppy trading activity and ended the day well below the dotted line. Sectoral indices too ended the day mixed, with stocks in the realty sector and stocks in the FMCG sector leading the gains, while stocks in the oil and gas sector lost the most.

At the closing bell, the BSE Sensex stood lower by 156 points (down 0.4%) and the NSE Nifty closed down by 61 points (down 0.6%). The BSE Mid Cap index ended the day down 0.3%, while the BSE Small Cap index ended the day up by 0.1%.

Asian stock markets finished in red. As of the most recent closing prices, the Hang Seng was down by 0.1% and the Shanghai Composite was down by 0.7%. The Nikkei 225 was down by 0.4%. Meanwhile, European markets, were trading mixed. The FTSE 100 was up by 0.1%, The DAX, was up by 0.2% while the CAC 40 was down by 0.1%.

The rupee was trading at Rs 67.84 against the US$ in the afternoon session. Oil prices were trading at US$ 71.27 at the time of writing.

In news from the auto sector. According to a leading financial daily, the government is set to bring in a host of measures to promote the adaptation of electric vehicles in India.

The government has plans to set up charging stations for electric vehicles every three kilometers in cities with million-plus population and smart cities, and every 50 km on busy national highways.

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It is likely to offer fiscal incentives and facilitate land from municipal authorities for those interested in setting up the infrastructure, which is a key requirement for the proliferation of electric vehicles.

The government estimates that 30,000 slow charging and 15,000 fast-charging stations will be required to be put up in a phase-wise manner in the next 3-5 years.

Public sector undertakings in the energy sector such as NTPC, Power Grid Corp and Indian Oil Corp are likely to initiate the process to set up charging stations at several locations in identified cities. The government is considering providing subsidies to the PSUs for the roll out programme.

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.

Moving on to news from stocks in the pharma sector. Glenmark Pharma share price was in focus today after the company launched an asthma drug in Denmark.

The pharma major launched a generic version of Seretide Accuhaler, used to treat asthma, in Denmark.

The product was developed by Celon Pharma and Glenmark has marketing and distribution rights for the product across 15 European countries. This is Glenmark's first inhaled respiratory product launch in Europe. Glenmark is the first generic company to receive regulatory approval for substitution in Denmark.

Glenmark Pharma share price ended the day up by 2.3%.

Is this the right time to buy pharma stocks?

There was a time when almost every stock in the pharma sector was considered to be a safe stock. You could just pick the top 5-6 companies from this sector and expect to make decent returns over time.

In fact, it was termed as defensive sector. However, in last two years things have changed a lot. 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.

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.

And here's a note from Profit Hunter:

The Punjab National Bank (PNB) announced its quarterly result yesterday after the market hours and today, the stock opened gap down and plunged 12%.

The massive fraud at the PNB, in conjunction with the diamond merchant Nirav Modi, has put the spotlight on the bank. The quaterly result has put an additional pressure on the stock price.

Last time we saw the stock breaking an important support level of 135. This indicated weakness in the counter. As a result, the stock touched a 52-week low of 91 in March 2018. It traded sideways for about two months before breaking the 91 level last week.

Today, it's nearly 12% lower with strong volumes to touch a new 52-week low of 74.

The stock is now very close to the February 2016 low of 70, which had then acted as a strong support from where it started its uptrend.

So can the stock again find ground at the 70 level or will the negative sentiment drag it even lower? It will be interesting to see how the stock reacts at this level...Keep it on your radar.

PNB Near February 2016 Low
PNB Near February 2016 Low 

Indian Indices Trade Marginally Lower; Energy Stocks Witness Losses
12:30 pm

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

The BSE Sensex is trading down by 135 points (down 0.4%), while the NSE Nifty is trading down by 55 points (down 0.5%). The BSE Mid Cap index is trading down by 0.2%, while the BSE Small Cap index is trading down by 0.1%.

The rupee is trading at 67.86 to the US$.

In the news from the macroeconomic space, as the Congress and allies chipped away at the BJP seats in Karnataka elections yesterday, all eyes are now on Governor Vajubhai Vala.

The Governor will have to decide whether to call BJP to try to form the government or go with the JD(S)-Congress combine, which together have a clear majority in the 224-member Assembly.

There are high stakes involved as the final outcome will have a bearing on the stock markets too.

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As Ankit writes in one his editions of Equitymaster Insider (requires subscription)...

  • Dalal Street logic says BJP win will give a boost to the Indian stock markets. BJP's loss would spell bearishness.

    And now that the next general elections are just a year away, politics will remain a focal point of discussion in the context of the stock markets.

    Remember that the stock markets like Mr Modi. And currently, they're pricing in a Modi victory in 2019. If this premise starts developing cracks, it may weigh negatively on your stock portfolio.

How the above decision pans out remain to be seen. Meanwhile, we'll keep a close watch on the developments in this space and keep you updated. Stay tuned.

In the news from the banking sector, Punjab National Bank (PNB) share price is witnessing selling pressure today as the state-run lender reported loss of Rs 134 billion for the quarter ended March 2018. This was the biggest loss ever reported by any domestic lender.

The surge in net loss was seen on the back of surging bad loans. With regards to provision made for the loss incurred on account of Nirav Modi fraud case, the bank said it provided for Rs 71.8 billion in the fourth quarter. This is 50% of the total amount of Rs 143 billion and the remaining amount will be covered in the three quarters of the current fiscal year.

Note that the massive fraud at Punjab National Bank in conjunction with the diamond merchant Nirav Modi, has put the spotlight on the growing bad loan problems in Indian banks.

It has brought to the fore the painful issue of willful defaulters especially after the Vijay Mallya fiasco. The chart below shows the banks that have the highest number of willful defaulters.

Unsurprisingly, Punjab National Bank tops the list. But the others aren't too far behind.

Banks with the Highest Number of Willful Defaulters

While the bad loans struggle at PSBs has been going on since a decade, bureaucracy and a lack of autonomy have ensured the sub-optimal profitability and asset quality of these state-run banks.

That's the reason we've been wary of PSU banks since 2014. This was well before the market had caught a whiff of the NPA problem. We've recommended just two large PSU banks in StockSelect since then...and already successfully closed both of them.


Sensex Opens on a Negative Note; Banking Stocks Witness Selling
09:30 am

Asian shares are trading on a negative note today. The Nikkei 225 is down 0.2% while the Hang Seng is down 0.1%. The Shanghai Composite is trading down by 0.2%.

Back home, India share markets opened the day on a negative note. The BSE Sensex is trading down by 225 points while the NSE Nifty is trading down by 66 points. The BSE Mid Cap index is trading down by 0.4%, while the BSE Small Cap index has opened the day down by 0.3%.

Sectoral indices have opened the day on a negative note with energy stocks and banking stocks witnessing maximum selling pressure.

The rupee is trading at 67.88 to the US$.

ITC share price, TVS Motors share price, Tata Steel share price, and DB Corp share price will be in focus today as these companies are scheduled to report their results for the quarter ended March 2018.

In the news from the macroeconomic space, India's trade deficit witnessed a widening trend during the month of April.

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According to the commerce ministry data, India's exports rose by 5.17% YoY (year on year) to US$ 25.9 billion in April on back of good performance by sectors like engineering, pharmaceutical and chemicals.

Imports during the month were valued at US$ 39.6 billion, up 4.6% over April 2017.

The gap between imports and exports or trade deficit was marginally higher at US$ 13.7 billion during April 2018 compared to US$ 13.24 billion in April 2017.

Note that India's trade deficit has been witnessing a widening trend. Here's how it looked during 2017:

Trade Deficit Widens

This does not bode well for the Indian economy. A wider current account deficit in the midst of a sharp rise in oil prices, fiscal slippage risks, and above-target inflation points to a weaker macro backdrop for the economy.

In the news from currency markets, the dollar is witnessing buying interest and is trading near a five-month high against a basket of major currencies.

The rise was seen on the back of surge in the benchmark 10-year Treasury yield.

The rise in dollar has also weighed on the already depreciating Indian rupee.

What does the fall in rupee mean for the Indian economy?

A depreciation in rupee means importers buying goods and services at a higher rate that earlier. This doesn't bode well for a developing economy that relies heavily on imports.

Also, India imports most of its oil requirements. So a fall in rupee leads to a consequent rise in the import bill.

On the corporate side, companies who have taken foreign loans from abroad will be impacted. The repayment obligations in terms of principal and interest will rise, leading to a dent in the cash flows and financials.

Further, companies who import a majority of their raw material requirements will get impacted provided they have not hedged their foreign currency exposure.

Looking at the brighter side, rupee depreciation brings a cheer on the exports front.

A depreciating rupee will provide a much-needed cushion to falling exports. However, a falling rupee will not be the only factor to boost exports. There are certain structural issues too which the government needs to address.


Quick Service Restaurants Bounce Back, Relief for Indian Banks and Top Stocks in Action
Pre-Open

On Tuesday, share markets in India witnessed positive trading activity during the morning trades, tracking the Karnataka state elections. The markets were decidedly positive in the morning session as the polls showed a decisive BJP victory. However, they soon gave away a 400-point gain as the Congress and allies chipped away at the BJP seats. Volatile election activity meant the stock markets closed the day flat. Sectoral indices were mixed, with stocks in the IT sector and stocks in the metal sector leading the gains, while stocks in the realty sector lost the most.

At the closing bell yesterday, the BSE Sensex stood lower by 13 points (down 0.1%) and the NSE Nifty closed lower by 5 points (down 0.1%). The BSE Mid Cap index ended down 0.8%, while the BSE Small Cap index ended down by 0.7%.

Top Stocks in Action Today

Tata Steel share price will be in focus today. The stock of the company was among the top gainers on the bourses yesterday after the National Company Law Tribunal (NCLT) approved the company's bid for the debt-ridden Bhushan Steel.

From the pharma sector, Lupin share price will be in focus today as the company reported a consolidated net loss of Rs 7.7 billion in its March 2018 quarterly result.

Hindustan Unilever Ltd share price will also be in focus today. The stock of the company touched its 52-week high level yesterday after the company posted strong earnings for the quarter ended March.

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Believe it or not, unusual and lesser-known small companies are capable of generating BIG profits.

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To know how you could do that, just click here…
------------------------------

Quick Service Restaurants on a Roll

The quick service restaurant (QSR) industry is finally getting back on the growth track. A part of the growth can be attributed to the low base caused by notebandi induced slowdown. However, the redeeming factor is that the players have been making a conscious effort to boost sales.

Firstly, QSRs are aggressively coming out with offerings that are more affordable and easier on the pocket of consumers. For instance, food offerings such as pizzas and burgers are being launched at attractive price levels. There is a push on new schemes and innovative offerings for an extended period. QSRs have also revamped their menu to offer healthier and local food options to consumers.

Secondly, food service operators have been raising the convenience and accessibility factor by pushing online sales through websites and apps. They also tying up with food aggregators such as Swiggy to increase their online presence.

These efforts have finally begun to yield results. For the March 2018 quarter, Jubilant FoodWorks, present through Domino's and Dunkin Donuts brands in India, reported the highest sales growth of 26.5% during the quarter. Even Yum, that owns Pizza Hut and KFC restaurant brands, registered strong sales growth of 21% and 19%, respectively in the quarter.

With rapidly increasing competition, QSRs need to stay ahead of the curve to grow their business.

Respite for Indian Banks

The country's banks have been battling to resolve the bad loan burden that hit their balance sheets hard. Armed with the Insolvency and Bankruptcy Code, forty of the largest bad loan accounts are being dealt with in the bankruptcy courts.

On a positive note, the rigorous balance sheet clean-up has improved the prospects of the Indian banks emerging stronger thereby strengthening confidence in the country's long-term sovereign growth story. Therefore, Moody's raised the country's sovereign rating in November for the first time in 14 years and upgraded the rating for three lenders, including State Bank of India and Indian Railway Finance Corporation.

As a rub-off effect, Indian banks are now able to secure syndicated loans from international lenders at low interest rates. Banks such as Axis Bank, IndusInd Bank, State Bank of India and Yes Bank have been the beneficiary of cheap funds from the foreign shores. As per Business Standard, there has been a 77% increase in foreign currency loans raised by the Indian banks this year as compared to last year. This comes at a time when there has been a slump in foreign loans extended to banks in the Asia Pacific region.

The bad loan resolution scheme may appear to be stringent and debilitating in the short run, but it promises to improve balance sheet strength and credit worthiness of Indian banks in the long run.