Sensex Ends Day in Green; Sun Pharma Up 7%
Closing

After opening the day in green, share markets in India witnessed positive trading activity throughout the day and ended the day on a positive note. Sectoral indices traded on a mixed note, with stocks in the capital goods sector and stocks in the oil and gas sector, leading the gains.

At the closing bell, the BSE Sensex stood higher by 241 points (up 0.1%) and the NSE Nifty closed up by 84 points (up 0.8%). The BSE Mid Cap index ended the day up 1.4%, while the BSE Small Cap index ended the day up by 1.6%.

The rupee was trading at Rs 67.38 against the US$ in the afternoon session. Oil prices were trading at US$ 75.40 at the time of writing.

Asian stock markets finished mixed. As of the most recent closing prices, the Hang Seng was up by 1.6% and the Shanghai Composite was down by 0.2%. The Nikkei 225 was up by 0.2%. Meanwhile, European markets, were trading on a mixed note. The FTSE 100 was up by 0.2%, The DAX, was down by 0.2% while the CAC 40 was up by 0.3%

In news about the economy, the Indian Meteorological Department (IMD) announced that the south-west monsoon is set to hit Kerala within the next day, beginning its march on to the mainland.

In its first stage long range forecast the IMD said that rainfall will be 97% of the 50-year average with a 54% probability that rains will be normal to above normal.

Probability that rainfall will be deficient (less than 90% of 50 year average) is 14%, it added.

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The onset of the monsoon in June is the trigger for planting of rain-fed Kharif crops. India receives 70% of its annual rainfall in the four-month period, which in turn irrigates over half of its farm lands lacking assured irrigation.

A normal monsoon is crucial to push economic growth, which slowed last year under the lingering impact of demonetisation and disruptions due to implementation of the goods and services tax (GST), both of which impacted private consumption demand as well as exports.

However, note that not all monsoon predictions turn out to be right.

The Forecast Is Not the Reality

Equitymaster Insider, Ankit Shah (Research Analyst) took a look at the raw data in one of the recent editions of The 5 Minute Wrapup. Here's Ankit:

  • The moment I saw news about the Indian Meteorological Department's (IMD) rainfall forecast last week, my instant reflex was to find out how accurate the IMD had been in forecasting rainfall in the past.

    You see, as a value-focused equity analyst I am conditioned to look at historical data.

    Be it the weathermen, or a stock idea, I refuse to take forecasts and predictions for granted.

    As far as the IMD's track record is concerned, the results are in front of you.

    You can clearly see the gap between the forecasts and the reality. During some years, the gap is indeed quite wide.

    So, one thing is certain - you cannot take the forecasts too seriously.

    But don't get me wrong. I don't mean to discredit the IMD's efforts.

    I look at weather forecasts just the way I look at economic and stock market forecasts.

    You see, both the economy and the weather are very complex and dynamic systems. There are so many variables working together, that even a small variance in some of them can produce a completely unexpected outcome.

    So, what should you do when dealing with such complex systems like the economy and stock markets?

    I believe, the safest method is to always insist on a margin of safety.

    Then, even if the outcome is lower than forecasted, you will still be better off.

    That dear reader, is the path of investing safely in the stock market.

Moving on to news from stocks in the FMCG space. HUL share price was in focus today after the consumer goods major dragged Kwality Ltd to court for rights over Kwality Walls.

HUL dragged ice cream maker, Kwality ltd claiming sole usage rights over the Kwality Walls brand, which HUL has been using for the last two decades.

In a partial relief to the country's largest consumer product company, the Calcutta High Court directed Kwality Ltd to not use the original writing style of Kwality Walls for any of its dairy products, but continue to use its currently operational registered trademark KDIL'S Kwality.

However, the court also said Kwality Ltd should not get into ice cream, ice lollies and frozen desert categories with KDIL'S Kwality brand while HUL is restrained to enter the dairy category with Kwality brand.

Notably, HUL is the second largest player in the Rs 120 billion ice cream market, right behind Amul, with a share of over 8%.

HUL share price ended the day up 0.5%.


Indian Share Markets Extend Gains; Energy & PSU Stocks Rally
12:30 pm

Stock markets in India continue to trade higher taking cues from their key Asian counterparts. Sectoral indices are trading in green with stocks in the oil & gas sector and PSU sector witnessing maximum buying interest.

The BSE Sensex is trading up by 254 points (up 0.7%), and the NSE Nifty is trading up by 82 points (up 0.8%). Meanwhile, the BSE Mid Cap index and the BSE Small Cap index both are trading up by 1.4%. The rupee is trading at 68.26 to the US$.

In the news from the engineering sector. Larsen & Toubro's (L&T) construction arm - L&T Construction's Water & Effluent Treatment Business has bagged orders worth Rs 57 billion.

Reportedly, two major orders from Narmada Valley Development Authority (NVDA), government of Madhya Pradesh, are for execution of the Indira Sagar Project - Parwati Phases I & II and Kalisindh Phase I Micro Lift Irrigation Schemes.

The project will provide water for micro-irrigation to 2 lakh hectares of Culturable Command Area in Dewas, Sehore and Shajapur districts of Madhya Pradesh, by lifting 32.04 cumecs of water from the Indira Sagar Project reservoir.

The scope of work includes survey, design, procurement, construction and installation of pumping systems, rising mains, transmission and distribution pipeline networks, electrical power transmission line and automation system by SCADA.

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Recently, the company's construction arm - L&T Construction's Transportation Infrastructure business has won a major Design & Build order from the Dhaka Mass Transit Company (DMTC) worth Rs 31.9 billion for Electrical & Mechanical Systems Package of Dhaka Mass Rapid Transit Development Project (MRT - Line 6).

Notably, diversification continues to help L&T negotiate and get better terms and margins for projects. Apparently, this is because it is less desperate to win orders as compared to a company which are present in only a couple of sectors. Its reputation, extensive technical prowess, and large skilled workforce have enabled L&T to command a certain premium from customers and vendors alike.

Whether, further addition to these new projects provides a cushion to its profitability will be an interesting thing to watch out for going forward.

To know more about the company, you can access to L&T's latest result analysis and L&T stock analysis on our website.

L&T share price was trading up by 2.2% at the time of writing.

Moving on to the news from pharma sector. As per an article in a leading financial daily, Zydus Cadila has received the final approval from the US Food and Drug Administration (USFDA) to market Nystatin Ointment USP, 100,000 units per gram.

It is used as an adjunct to treat fungal skin infections and will be manufactured at the group's Topical manufacturing facility at Ahmedabad.

The group also received the final approval to market Omeprazole and Sodium Bicarbonate Capsules, 20 mg/1100 mg and 40 mg/1100 mg. It is used to treat certain stomach and esophagus problems (such as acid reflux, ulcers).

Reportedly, it will be manufactured at the group's formulations manufacturing facility at Moraiya, Ahmedabad.

The group now has more than 190 approvals and has so far filed over 320 ANDAs since the commencement of the filing process in FY 2003-04.

Speaking of pharma sector, did you know the BSE Healthcare Index is down 20% over the past three years? During the same period, the BSE Sensex is up 21%.

The BSE Healthcare Index has underperformed the Sensex

And this was a sector they called 'evergreen'.

Have Investors boarded a plane that's about to crash? Or is it just turbulence on the way to a smooth and safe landing?

It's important to understand the core issues. Regulatory problems for pharma companies have increased over the past few years. The frequency of visits as well as quality expectations have increased a lot.

While we expect the pain to continue in the short-term, the long-term picture still looks bright.

Stricter norms and pricing pressure will ensure only quality players remain. Companies with strong R&D facilities and quality compliant plants will have an edge over the others.

Cadila Healthcare share price was trading down by 3.7% at the time of writing.


Sensex Opens 145 Points Up; Sun Pharma Rallies on Strong Earnings
09:30 am

Asian share markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is flat while the Hang Seng is up 0.7%. The Shanghai Composite is trading up by 0.2%. Over the weekend, US stocks closed mostly lower.

Back home, India share markets opened the day on a firm note. The BSE Sensex is trading up by 145 points while the NSE Nifty is trading up by 58 points. The BSE Mid Cap index and BSE Small Cap index both opened the day up by 0.7%.

Barring IT stocks and consumer durables stocks, all sectoral indices have opened the day in green with energy stocks and PSU stocks witnessing maximum buying interest. The rupee is trading at 68.26 to the US$.

Sun Pharma share price surged 4.4% after its consolidated net profit rose 6.9% year-on-year (YoY) to Rs 13.1 billion in the fourth quarter ended March.

Bank stocks opened the day on a mixed note with Corporation Bank & Oriental Bank leading the gainers. State lenders IDBI Bank and Bank of Baroda have reported huge losses at the end of the Q4 due to higher provisioning for mounting bad loans following stricter central bank rules on containing ill-effects of NPAs.

Bank of Baroda whose provisions for bad loans jumped to Rs 70.5 billion in the March quarter, from Rs 24.3 billion in the same period of 2016-17, reported a net loss of Rs 31 billion for this quarter in 2017-18.

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The total income of the third-biggest among state-run lenders also witnessed a sharp drop as it nose-dived to Rs 127.4 billion in the last quarter of 2017-18 from Rs 128.5 billion on a Year-on-Year (YoY) basis.

In brief, asset quality of the bank dipped - as gross non-performing assets (NPAs) surged to 12.3% of gross advances as on 31 March 2018, as against 10.5% as on 31 March 2017.

In absolute value, gross NPAs stood at Rs 564.8 billion, up from Rs 427.2 billion a year ago.

Net NPAs were at 5.5% (Rs 234.8 billion) as of March 2018, against 4.7% (Rs 180.8 billion) in the year-ago period. Worth noting is, the third-biggest among State-run lenders by assets, had registered a net profit of Rs 1.6 billion in the corresponding quarter of 2016-17.

Meanwhile, in the wake of increased provisioning for bad loans, IDBI Bank, which has the worst bad-loan ratio among all Indian lenders, reported a net loss of Rs 56.6 billion in the three months ended 31 March, against Rs 32 billion during the same quarter in the previous year.

IDBI Bank's gross NPAs as a percentage of total loans stood at 27.95% at end-March, compared with 24.7% in the previous quarter.

Bank of Baroda share price opened up by 0.3% while IDBI Bank share price opened down by 0.7%.

Public Sector Banks (PSBs) have had a difficult year, to put it mildly.

PSBs Struggle Despite Government Help

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.

This 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.

Have we reached the bottom? Or there are more Nirav Modi stories waiting to come out?

We at Equitymaster believe, rather than bottom fishing, one should look at banks run by strong management and a differentiated lending strategy available at reasonable valuations.

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...

Moving on to the news from the pharma sector. As per an article in a leading financial daily, Dr Reddy's Laboratories' subsidiary Promius Pharma LLC, has filed a patent infringement lawsuit in a US court against Perrigo UK Finco Limited Partnership, Perrigo Israel Pharmaceuticals Ltd. and Taro Pharmaceuticals, Inc over its topical spray Sernivo.

Reportedly, the case was filed in the United States District Court for Eastern District of Texas against the three companies in response to two paragraph-IV notice letters received for its twice daily topical spray Sernivo (betamethasone dipropionate, 0.05%) product.

A notice under Paragrap IV will be issued to a patent holder when a generic company wants to make a similar drug. Promius anticipates this lawsuit will trigger a 30 month stay of Food and Drug Administration approval of Perrigo's and Taro's Abbreviated New Drug Application (ANDA).

Sernivo spray is protected by six Orange Book patents that expire in 2030. The publication Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as Orange Book) identifies drug products approved on the basis of safety and effectiveness by FDA under the Federal Food, Drug, and Cosmetic Act (the Act) and related patent and exclusivity information.

One must note that, innovators in the pharmaceutical industry make use of patents largely. They make heavy use of patents whenever they create a new drug. In one of the articles, we have spoken everything that you need to know about patented drugs, its advantages and its implications. Here's a snippet:

  • "That's how the innovators in the pharmaceutical industry work. They make heavy use of patents whenever they create a new drug. The patent allows them to recoup the high capital expenditure that goes into the research and development (R&D) of new drugs. Companies that have a patent on a particular product are immune from competition for the duration of the patent."

Notably, a number of patent infringement cases have been filed against leading Indian pharma companies and their counterparts in other countries over the last few years.

Dr. Reddy's Lab share price opened the day up by 0.4%.


Weakening Rupee; Key Earnings Report; IDBI Bank, ONGC among Top Stocks in Action Today
Pre-Open

Indian share markets rose on Friday after rupee recovered from its a 16-month low against the dollar.

The S&P BSE Sensex ended at 34,925, up 262 points, while the broader Nifty 50 index settled at 10,605, up 91 points.

Among sectoral indices, the Nifty Metal index gained over 2% led by a rise in Hindalco, SAIL, JSPL and Tata Steel. The Nifty Auto index also rose over 1% led by Exide Industries and Tata Motors.

Meanwhile, Multi Commodity Exchange of India (MCX) rallied 8% on the BSE after reports suggested that the company has entered into merger talks with the National Stock Exchange (NSE) ahead of the implementation of the universal exchange framework in October.

Top Stocks in Focus

L&T share price will be in focus as its construction arm - L&T Construction's Transportation Infrastructure business won a major Design & Build order from the Dhaka Mass Transit Company (DMTC) worth Rs 31.9 billion for Electrical & Mechanical Systems Package of Dhaka Mass Rapid Transit Development Project.

Another stock that will be in news today is NHPC. The company has declared commercial operation of Unit No. 2 and Unit No. 3 of Kishanganga HE Project (3 x 110 MW), Jammu & Kashmir.

<Maruti Suzuki share price> will hog limelight today as its parent company -- Suzuki Motor Corporation and Toyota Motor Corporation (Toyota) have agreed to start discussing new joint projects in the fields of technological development, vehicle production, and market development.

GAIL India has reported around 4-fold jump in its net profit at Rs 10.2 billion for the quarter ended 31 March 2018 as compared to Rs 2.6 billion for the same quarter in the previous year.

Meanwhile, Pidilite Industries reported over 3-fold jump in its net profit at Rs 2.4 billion for the quarter ended 31 March 2018 as compared to Rs 710.1 million for the same quarter in the previous year.

IDBI Bank's March quarter net loss widened to Rs 56.6 billion from loss of Rs 32 billion in same period last year due to sharp rise in bad loans provisions. The stock will be in focus.

To get more updates on share market, click here.

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How one could potentially profit from the coming Small Cap Firesale…

We believe we could soon see a Small Cap Firesale, in which several high-quality small companies could be available for dirt-cheap to regular investors.

Why is this firesale happening? And how could one get the maximum out of it?

Click here for full details on this time-sensitive opportunity…
------------------------------

Results Corner

Aurobindo Pharma, Cox & kings, Finolex Cables, NHPC, Oil India, NTPC are among few companies that will report its fourth quarter results today.

Global Stock Market Drivers

Global stocks gained after North Korea offered a measured response to President Donald Trump's decision to cancel a summit with that country's leader.

While North Korea's statement that it remained willing to talk with the US appeared to soothe markets, other risks remain. Spain's biggest opposition party is ready to push for a no-confidence motion against Prime Minister Mariano Rajoy, while tensions around global trade linger.

The dollar was steady along with US Treasuries, while crude oil extended a decline.

MSCI's broadest index of Asia-Pacific shares outside Japan managed to eke out 0.1% gains, while South Korea's Kospi pared much of its earlier loss of 0.9% to last trade down 0.2%. Japan's Nikkei was up 0.1%.

IPO Buzz

E-commerce firm SaleBhai Internet has filed a draft prospectus (DP) with the BSE's SME platform to launch initial public offer for raising around Rs 240 million.

For its IPO, SaleBhai is issuing 22,59,600 equity shares, offering 26.6% of the company's equity in the market, and will be listed on the Bombay Stock Exchange's (BSE) SME Platform.

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.

To know more, download this FREE report now and discover How to Get Rich with IPOs. This guide will show you how to safely profit from the IPO rush.

From the Commodities Space

Oil prices eased as Russia hinted it may gradually increase output after withholding supplies since 2017 together with producer cartel OPEC.

Brent crude futures were at US$77.97 per barrel, down 1.04% from their last close, but more than 3% below the US$80.5 November 2014 high they reached on May 17. Brent broke through US$80 for the first time in a few years earlier in May.

US West Texas Intermediate (WTI) crude futures were at US$70.24 a barrel, down 0.7% from their last settlement.