Sensex Ends 262 Points Up; ONGC & Tata Steel Top Gainers
Closing

Indian share markets ended the day on a strong note. At the closing bell, the BSE Sensex finished higher by 262 points. While, the NSE Nifty finished up by 91 points. Meanwhile, the S&P BSE Midcap Index ended down by 0.1% while S&P BSE Small Cap Index ended up by 0.1%.

Barring consumer durables stocks, all sectoral indices ended the day in green with energy stocks and metal stocks leading the gainers.

Overseas, Asian stock markets finished mixed as of the most recent closing prices. The Nikkei 225 gained 0.1%, while the Hang Seng led the Shanghai Composite lower. They fell 0.5% and 0.4% respectively. European markets are higher today with shares in Germany leading the region. The DAX is up 1% while France's CAC 40 is up 0.6% and London's FTSE 100 is up 0.2%.

The rupee was trading at Rs 68.26 against the US$ in the afternoon session.

In the news from the banking sector, IDBI Bank was in focus today as the state-run lender reported its results for quarter ended March 2018.

The bank reported a loss of Rs 56.6 billion during the quarter against a loss of Rs 32 bn posted in the corresponding quarter last year.

Net interest income during the quarter slipped 44% to Rs 9.2 bn against Rs 16 bn in the same quarter last year.

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The percentage of gross non-performing assets jumped to 27.9% in Q4FY18 over 21.3% in Q4FY17 and 24.7% sequentially.

The percentage of net non-performing assets jumped to 16.7% against 16% on quarter-on-quarter (QoQ) basis and the amount of gross non-performing assets jumped to Rs 555.8 bn against Rs 447.5 bn on year-on-year basis.

IDBI Bank share price closed the day down by 2.4% on the BSE today.

Note that most of the public-sector banks reported losses in their fourth quarter results on the back of higher provisions for non-performing assets (NPAs) and bad loans.

PSB's are in the spotlight for their growing bad loan problems and the painful issue of willful defaulters.

Banks, in principle, must be careful about not extending loans to borrowers with poor creditworthiness or payment track record. That too, irrespective of the size of the borrower.

However, the data from State Bank of India shows that when it comes to big corporate borrowers, our banks literally look the other way. The share of large corporates, in total advances of the banking sector, has almost remained unchanged over past three years (at an average of 55%).

However, their contribution to incremental slippages has been huge. At one point, the big corporate borrowers accounted for nearly 90% of total NPAs of the sector.

Therefore, according to us, banks with large corporate books deserve a lower valuation if they can't keep NPAs in check.

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.

In the news from global financial markets, as per a leading financial daily, the Indian government on Thursday raised import duties up to 100% on five products, including wheat, shelled almond, walnut, and protein concentrate, which are imported from the US and other developed nations.

As per the news, the government, the Finance Ministry invoked emergency powers to increase import duties under Section 8A of the Customs Act and increased basic customs duty on walnut in shell from 30% to 100%.

The government last week had told WTO that it would raise duties by up to 100% on 20 such products such as almonds, walnut, wheat, apple and specific motorcycles imported from the US, if Washington fails to roll back high tariffs on certain steel and aluminum items.

Note that US President Donald Trump followed through on his pledge to impose stiff tariffs on imported steel and aluminium, while excluding Canada and Mexico and leaving the door open to sparing other countries on the basis of national security. In March, he signed two proclamations that levied 25% tariff on steel and 10% tariff on aluminum imports from all countries except Canada and Mexico.

He also warned there would be more tariffs coming, saying he plans to proceed with what he has called reciprocal taxes on imports from countries that charge higher duties on US goods than the US now charges on their products.

As for domestic markets, the above actions by Trump brought concerns for Indian metal companies.

India's steel industry was just coming out of a rough patch. Demand was picking up. Steel prices were on the rise. Buyers were lining up to pick up stressed assets. With the expected pick up in the investment cycle, the sector was on the upswing. And steel exports were on a roll, as can be seen from the chart below:

Is the Steel Sector's Recovery Under Threat?

However, Donald Trump has now spoiled the party with his plans to impose the above tariffs. India produces a lot of both commodities but internationally, we are not a big player. The US imports only 2.4% of steel and 2% aluminium from India.

But it's not that simple.

With the new US tariffs, major exporters like South Korea will look to sell in other countries. This would lead to a glut and as a result, lower prices across the industry. As Ankit wrote in one of the editions of the Equitymaster Insider...

  • If metal producers are deterred from selling their goods in the US, they will come looking for other markets to sell their produce. This is likely to create an 'excess-supply' situation in those markets.

    What happens when there's too much supply? Basic economics says that when supply increases more than the growth in demand, prices decline. So, Indian metal producers are likely to be faced with the possibility of lower metal prices. This will impact their revenues and profitability.

You can read the entire article here (requires subscription).

The above development would mean lower revenue and profitability for Indian metal companies as well and threaten the nascent recovery in the industry.

How exactly this trade war will unfold is something to watch out for. We'll keep you updated on all the developments from this space.


Indian Indices Continue Momentum; Energy and IT Stocks Witness Buying
12:30 pm

Stock markets in India are presently trading on a positive note. Sectoral indices are trading on a positive note with stocks in the energy sector and IT sector witnessing maximum buying interest.

The BSE Sensex is trading up 160 points (up 0.5%) and the NSE Nifty is trading up 52 points (up 0.5%). The BSE Mid Cap index is trading up by 1.1%, while the BSE Small Cap index is trading up by 0.7%.

The rupee is trading at 68.24 to the US$.

In the news from commodity space, fuel prices in Mumbai crossed the Rs 85 per litre mark.

Note that petrol and diesel prices across the country have hit their all-time high levels. Fuel prices across the four metropolitan cities were raised around 30 paise on Tuesday. As per the news, the government is likely to come out with some steps this week to deal with the above situation of record high petrol and diesel rates.

Presently, the government levies heavy taxes which account for about half the cost of petrol and 40% of the diesel price. So, one of the possible ways for the government to reduce the rates is change the way in which pump prices are calculated.

The above rise in fuel prices is seen on the back of rising crude oil prices, which shot above US$ 80 per barrel. This is the highest level seen since November 2014. In the past one year alone, oil prices have surged more than 50%.

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Also note that rising crude oil prices not only affect fuel prices, but also has many other repercussions for the Indian economy.

They can be a big worry for the Modi government as well.

That's because the Modi government has been a big beneficiary of lower crude oil prices.

As Ankit Shah wrote in a recent edition of The 5 Minute WrapUp...

  • During the UPA II regime, India's average annual oil import bill was US$ 133 billion. In fact, in the last three years of Manmohan Singh's leadership, the oil import bill exceeded US$ 150 billion. Compare that with an average annual oil bill of US$ 95 billion during the four years of Modi's leadership.

    The actual savings would have been even higher, because I believe the consumption of crude oil and petroleum products would have been quite higher in the Modi era than the Manmohan era.

    Last Thursday, Brent crude oil prices shot above US$ 80 a barrel.

    This is the highest level since 2014. In the past one year alone, oil prices have surged more than 50%.

    Now, what if oil prices go back to the levels during the Manmohan Singh regime? What would happen to India's current account and fiscal deficit? What would happen to inflation and RBI's stance on interest rates?

    With the next general elections just a year away, rising crude oil prices are going to be a big worry for the Modi government.

How the government handles this situation of rising crude oil and fuel prices remains to be seen. Meanwhile, we will keep you posted on all the developments from this space. Stay tuned.

Banking stocks are trading on a positive note today. At the time of writing, the BSE Bankex was trading up by around 0.5%. Bank of Baroda (BoB) share price, IndusInd Bank share price, Yes Bank share price, and Federal Bank share price were among the top gainers in the index.

Speaking of banking sector, note that public sector banks (PSB) are in the spotlight for their growing bad loan problems and the painful issue of willful defaulters.

Most of the public-sector banks reported losses in their fourth quarter results on the back of higher provisions for non-performing assets (NPAs) and bad loans.

After the euphoria of recapitalisation, bad loans have come to haunt them. Post the Gitanjali Gems fiasco, PSBs are yet to fully recover from its impact.

PSBs Struggle Despite Government Help

The above underperformance was despite the huge boost they got from the government last year. On 24 October 2017, the government announced a Rs 2.11 trillion public sector bank (PSB) capitalisation plan. This move was aimed at reviving the PSBs from the bad loan mess.

The next day was a field day for investors in PSBs. PSB stocks went up between 30% and 47%. Despite this, the return in the year was way below average. PSBs like Punjab National Bank (PNB) have crashed more than 45% over the last one year.

With this sharp correction, the question now is: Have we reached the bottom? Or there are more Nirav Modi stories waiting to come out?

And here's what we wrote about in a recent issue of The 5 Minute WrapUp..."We believe, rather than bottom fishing, one should look at banks run by strong management and a differentiated lending strategy available at reasonable valuations."


Sensex Opens Firm; IT & Power Stocks Lead
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 0.3%. US stocks closed lower Thursday after President Donald Trump announced that the highly-anticipated summit next month with North Korea was cancelled.

Back home, India share markets opened the day on a positive note. The BSE Sensex is trading up by 125 points while the NSE Nifty is trading up by 35 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 0.3% & 0.2% respectively.

Barring FMCG stocks, healthcare stocks and consumer durables stocks, all sectoral indices have opened the day in green with information technology stocks and power stocks witnessing maximum buying interest. The rupee is trading at 68.39 to the US$.

GAIL share price surged 4% in the morning trade as investors cheered a four-fold jump in its profits for the March quarter. The state gas utility major reported a net profit of Rs 10.2, up 293% from Rs 2.6 billion in the same period of last fiscal.

Telecom stocks opened the day on a mixed note with Bharti Airtel & Idea Cellular leading the gainers. As per an article in a leading financial daily, the telecom department (DoT) cleared Idea Cellular's sale of nearly 9,000 standalone towers to a local arm of American Tower Corp (ATC) for Rs 40 billion.

This marks the conclusion of the US tower company's two-stage buyout of Vodafone India and Idea's near 20,000-odd combined standalone towers for Rs 78.5 billion. Last month, the government had cleared Vodafone India's sale of its 10,926 captive towers to ATC for Rs 38.5 billion.

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------------------------------

India's third-largest telco, Idea, and the second-ranked Vodafone India, which are combining to form the country's biggest phone company by revenue and subscribers, are expected to close their merger next month.

Meanwhile, acquisition of Vodafone and Idea's captive towers will boost ATC's towers portfolio in India to nearly 80,000, taking it closer to market leader Indus Towers and Bharti Infratel who own over 1,23,000 and 91,000 towers, respectively.

Last November, Vodafone India and Idea had announced plans to sell their respective standalone towers to a local ATC arm for Rs 78.5 billion (US$1.2 billion) in cash, in a move aimed at paring debt in the run of their mega merger.

Vodafone India and Idea have also said that on conclusion of their merger, some 6,300 tenancies of both carriers co-located on the towers being sold to ATC would get converted into single tenancies over two years without the payment of exit penalties.

Idea Cellular share price opened the day up by 1%.

Speaking of difficult businesses, 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 Sector: A decade of Underperformance

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.

Going forward, whether the situation will change in the future will be the key thing to watch out for.

Moving on to the news from the economy. As per a report by CARE Ratings, India's GDP growth will accelerate to 7.5% this financial year, from 6.6% in the last fiscal, on better performance from the industrial and agricultural sectors.

Headline inflation, lending rates, fiscal prudence, current account deficit (CAD) and exchange rates, however, are the areas of concern.

The estimates in the report have been made assuming that crude oil does not spiral over the present US$80 per barrel and settles down at up to US$75. The exchange rate will slip further to the 67-68 levels against the US dollar by the end of FY19, the report stated, adding that the reserves will grow marginally to US$435 billion, from US$425 billion at present.

For the current account deficit (CAD), it said the wider trade deficit, an estimated slowdown in the portfolio flows and increased oil prices will result in the gap widening to up to 2.5% of GDP for FY19, from the 1.7% for the first nine months of FY18.

The agency expects farm sector growth to inch up to 4%, from the 3% in the year-ago period, and industrial output growth to go up to 6%, from 4.3% in the previous year.

The consumer price inflation will go up to 5.5% for the fiscal, from the 3.6% in FY18, which may result in rate hikes of up to 0.5% by the inflation-focused Reserve Bank of India during the year.

The report, however, said that the NPA-saddled banking sector will have an "upward bias" with credit growth estimated to go up to 12% and deposits to swell by 10%, adding NPAs will be a "major challenge" for lenders.

The agency feels meeting the wider 3.3% target on the fiscal deficit will be difficult and adherence will depend on achievement of the Rs 800-billion divestment target, GST collections and tax receipts.

We, at Equitymaster, we do not attempt to predict how and when macroeconomic developments will unfold. Instead, we focus all our energy on understanding the underlying business strength of companies.

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?

Most importantly, are there any stocks right now that could turn out to be multibaggers? Click here to know everything that you need to know right now about mutlibagger stocks...


Lingering US-China Trade Worries; Key Earnings Report and Top Stocks in Action Today
Pre-Open

Indian share markets rose on Thursday, driven by IT stocks such as Infosys and Tata Consultancy Services on the back of a weak rupee.

The S&P BSE Sensex ended at 34,663, up 318 points while the broader Nifty50 index settled at 10,514, up 84 points.

The rupee has weakened by more than 7% so far this year, hitting its lowest since December 2016 at 68.46 per dollar on Wednesday, as surging crude oil prices weigh on India, raising fears that soaring costs could drive up inflation and widen the trade deficit.

Top Stocks in Focus

ONGC share price will hog limelight today on the news that the government may levy a windfall tax on oil producers.

Meanwhile, Indian Oil Corporation (IOC) has received an approval for formation of Joint Venture Company (JVC) between Indian Oil, GAIL (India), Oil & Natural Gas Corporation, Numaligarh Refinery and Oil India with 20% equity holding by each company for development of the Natural Gas Pipeline Grid in the North East connecting Guwahati to other major cities in the North East. The stock will be in focus.

V-Mart Retail share price will be in focus as company reported 148% jump in its Q4FY18 net profit at Rs 159 million versus Rs 64 million in same quarter last year.

Meanwhile, GAIL has registered nearly 300% jump in its Q4 net profit at Rs 10.21 billion against Rs 2.6 billion in the same quarter last fiscal.

Peninsula Land reported a net loss of Rs 2 billion for the quarter ended 31 March 2018 as compared to a net loss of Rs 1.2 billion for the same quarter in the previous year.

To get more updates on share market, click here.

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Results Corner

Bank of Baroda, Cadila Healthcare, Jindal Saw, IDBI Bank, PC Jeweller, Tech Mahindra, Sun Pharma are among few companies that will report its fourth quarter results today.

Global Stock Market Drivers

European stocks climbed and US futures were steady as a dose of calm returned to markets on Thursday, though concerns surrounding global trade were not far away. The yield on 10-year Treasuries edged back above 3%, while the euro and pound gained.

It's been a torrid week across markets so far, with market participants forced to navigate escalating geopolitical and trade risks, from Trump's decision to back away from an agreement with China to North Korea warning of a "nuclear-to-nuclear showdown".

Here's a look at some potential focal points for the day:

  • Today, European Union finance ministers will discuss the latest on Brexit talks, in Brussels.
  • Bank of England Markets Forum will be held today at Bloomberg London. Speakers include BOE Governor Mark Carney and New York Fed President William Dudley.

Bulk & Block Deals

Avenue Supermarts share price moved higher by 6% to Rs 1,437 on the BSE in noon deal trade on Thursday, after nearly 1% or 5 million equity shares of the company changed hands through multiple block deals.

The company informed the stock exchanges that promoter Radhakishan Shivkishan Damani would pare his stake to comply with the shareholding norms.

Our team of Equitymaster analysts have been working on a project to track the smartest minds in value investing. They have compiled a special report on them, called The Superinvestors of India.

Now, because of insights from these interactions, the team has glued their eyes on insider activity and bulk and block deals...

As per them...

IPO Buzz

Women's apparel maker TCNS Clothing Company has received market regulator's go-ahead to float an initial public offering. TCNS sells its products under W, Aurelia and Wishful brands.

Meanwhile, Shakun Polymers has filed draft papers with capital markets regulator. Shakun is a leading player in the field of compounds for the wire and cable market. It has two manufacturing facilities at Halol district in Gujarat and one at Daman, having a total installed capacity of over 25,000 metric tonnes per annum.

With this, the total number of companies receiving approval has reached 16 so far this year.

Speaking of IPOs, the demand for IPO's had reached sky-high levels last year.

One shall note that, 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.

A merit-based selection primarily including valuation, business, and management quality is the logical way 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.

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From the Commodities Space

In commodities markets, US crude was down 0.3% at US$71.63 a barrel.

Oil prices fell on Wednesday after an unexpected rise in US crude and gasoline inventories. Brent futures were 0.4% lower at US$79.50 a barrel, continuing to move lower after rising above US$80 last week for the first time since November 2014 last week.