Sensex Finishes Flat; BPCL Tanks 2.2% on Weak Q4 Results
Closing

Indian share markets continued to trade flat with positive bias during the afternoon session taking a breather after record closes in the previous few sessions as investors booked profits in recent outperformers.

At the closing bell, the BSE Sensex stood higher by 50 points, while the NSE Nifty finished up by 20 points. Meanwhile, the S&P BSE Mid Cap and the S&P BSE Small Cap finished up by 0.8% and 0.5% respectively. Gains were largely seen in pharma stocks, realty stocks and bank stocks.

The Top Five Performers of the BSE 500 Over the Last Five Years

Holding stocks for a number of years and being patient reaps large rewards. We took a look at the top five performers in the S&P BSE 500 index over the last five years. The above chart of the day pegs the point to point returns delivered by these companies over this period.

On a compounded annual basis, these returns come to a staggering 161% for Indo Count Industries, 156% for Caplin Point Laboratories, 127% for Avanti Feeds, 115% for 8K Miles Software Services and 100% for Marksans Pharma.

To our pleasant surprise, two of these five stocks happen to have been recommended at different times in our service The India Letter. The India Letter is an effort aimed at guiding its subscribers to make money from what we call The Golden Decade Megatrend, which takes the view that India is going to grow rapidly in the decades to come.

Asian stock markets finished mixed as of the most recent closing prices. The Hang Seng gained 0.24% and the Shanghai Composite rose 0.07%. The Nikkei 225 lost 0.02%. European markets are mixed. The DAX is higher by 0.02%, while the CAC 40 is leading the FTSE 100 lower. They are down 0.56% and 0.28% respectively.

The rupee was trading at Rs 64.63 against the US$ in the afternoon session. Oil prices were trading at US$ 49.57 at the time of writing.

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World Bank in its 'India Development Report' has increased its hopes that India will grow at 7.2% in the current fiscal and further up to 7.7% by 2019-20 on strong fundamentals, reform momentum and improving investment scenario. The World Bank had in January scaled down India's growth forecast to 7% for 2016-17 and had estimated growth to rebound in 2017-18 to 7.6%.

In its latest report, it said that Economic activity ought to accelerate in 2017-18 and GDP is projected to grow at 7.2% from 6.8% in 2016- 17. Growth to increase gradually to 7.7% by 2019-20, underpinned by recovery in private investments

The report pointed that India remains the fastest growing economy in the world and it will get a boost from its approach to GST which will reduce the cost of doing business for firms, reduce logistics cost of moving goods across states, while ensuring no loss in equity. The World Bank report said that the overall impact of GST on equity and poverty is likely to be positive.

The Indian Development Update further said that Indian economy was slowing down in early 2016-17, until the favorable monsoon started lifting the economy, but the recovery was temporarily disrupted by the government's 'demonetization' initiative, but things seems to be bettering.

According to the report, reforms such as the insolvency code and measures to deal with bad loans of public sector banks, including promulgation of the new ordinance, will also be crucial to enhance growth. It expects inflation and external conditions to remain stable this fiscal, attributing it to coping mechanisms (which included greater usage of digital transactions), higher rural incomes, and robust public consumption.

In news from oil & gas sector, Bharat Petroleum Corporation of India (BPCL) share price plunged 2.4% in today's trade after the company reported a decline of 12.96% in its net profit for the March quarter.

its net profit during the quarter under review declined to Rs 18.41 billion from Rs 21.16 billion reported in the corresponding period of 2015-16. However, the Q4 standalone total income of the company edged higher by 24.17% to Rs 666.85 billion from Rs 537.04 billion earned in the corresponding period of previous fiscal.

The company's capital expenditure for last financial year 2016-2017 grew by 54% to Rs 168.1 billion.

Meanwhile, ONGC share price finished up by 1.9% as the company's onshore domestic crude oil production increased to 5.97 MMT during the fiscal year ended March compared to 5.82 MMT in FY16, registering a growth of 2.4%.

This rise in production is due to early monetization of discoveries at Ankleshwar, Cauvery (Madnam) and Rajahmundry (Keshnapalli West), among others. The company had as many as 23 new discoveries in 2016-17 as compared to 17 in 2015-16.

With a steady rise in domestic fossil fuel consumption making the country's target of cutting import dependence on oil more challenging, ONGC has decided to aggressively expand its acreage under exploration and production from July once the government starts accepting bids for 26 unexplored sedimentary basins.

The country's largest oil and gas producer intends to increase its exploration and production acreage at least by 30% over the next few years from 90,000 square kilometers at present.

Moving on to news from power sector. Power Grid Corporation of India Ltd.'s profit rose in the three months ended March, but missed analyst expectations. The company's standalone net profit jumped 22% year-on-year to Rs 19.16 billion in the quarter ended on March 31, 2017. The company had reported a standalone net profit of Rs 15.68 billion in the quarter ended on March 31, 2016.

Its total income rose to Rs 70.54 billion in the fourth quarter of 2016-17 from Rs 59.84 billion in the year ago period.

Meanwhile, the board of the company approved non-sovereign loan assistance from Asian Development Bank of US$500 million for Green Energy Corridor and Grid Strengthening Projects.

The board also approved investment of Rs 4.45 billion for transmission system for Tumkur Ultra Mega Solar Park. It also gave approval for purchase of security equipment for Rs 1.99 billion.

Power Grid share price finished the day down by 2.2% on the BSE.

And here's a note from Profit Hunter:

Aurobindo Pharma is the top gainer from the Nifty 50 Index - up 13% for the day. Let's have a look at its chart.

After the stock bottomed out at Rs 40 in November 2011, it had a spectacular bull run to hit a life high of Rs 891 in December 2015. It then faced a serious correction and fell to 590 level. The stock resumed its up move to re-test its life high. But it found resistance there and fell to break below 590 level. Thus the stock formed a double top pattern.

Yesterday, the stock made a low of Rs 503, and today it's up 13% supported by heavy volumes. The RSI indicator also formed a bullish divergence indicating strength.

But now the stock is trading near 590 level, which is the neckline of the double top pattern.

So it will interesting to see if today's rally is only a pullback move of the double top pattern or if the stock has bottomed out to resume its larger uptrend.

Aurobindo Pharma Rallied 13% for the Day
Aurobindo Pharma Rallied 13% for the Day 


Sensex Trades on a Volatile Note; Pharma Sector Leads Gains
01:30 pm

After opening the day negative, Indian share markets witnessed volatile activity and are currently trading flat with a positive bias. Sectoral indices are trading on a mixed note, with stocks in the pharma sector and the IT sector witnessing maximum buying interest. Stocks in the FMCG sector and stocks in the capital goods sector are leading the losses.

The BSE Sensex is trading up by 46 points (up 0.2%) and the NSE Nifty is trading up by 9 points (up 0.1%). Meanwhile, the BSE Mid Cap index is trading up by 0.7%, while the BSE Small Cap index is trading flat. The rupee is trading at 64.64s to the US$.

In news from stocks in the PSU sector. BHEL share price fell over 10% after the PSU company announced poor Q4 results.

State-run power equipment maker Bharat Heavy Electricals Ltd (BHEL) reported a 57% fall in fourth-quarter net profit. Net profit stood at Rs 2,160 million in the quarter ended March 31, compared with Rs 5,060 million a year earlier.

Total income of the company also dipped 5% to Rs 103 billion during the March quarter as compared to Rs 108.7 billion in the corresponding quarter of 2015-16. While the income from the power segment of business grew 3%, industry segment's earnings declined 20% during the fourth quarter of 2016-17.

In addition to the interim dividend of Rs 0.8 already paid, the board has recommended a final dividend Rs 0.78 per share (face value of Rs 2 each) for 2016-17.

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At the time of writing, BHEL share price was trading down by 10.1%.

The earnings season for the final quarter and financial year FY17 is well underway. And while the markets are touching new highs, there is nothing to cheer about India Inc performance.

Further, the actual performance for the last quarter of FY17 has been far below brokerage estimates.

This trend can be seen clearly in the chart below:

Earnings in Contrast With Market Trends

So how can one make money in a rising market, with little support from earning trends and with brokerages getting it all wrong?

We believe a few super investors could provide the clue. These are the guys who've beaten the markets black and blue and have an eye for multi bagger stocks irrespective of the macro environment.

With respect to which super investors to follow, my colleague Kunal and Rohan have could be of great help courtesy their project, The Super Investors of India.

What more, they are also tracking promoter activity and bulk and block deals to get insights on where the more knowledgeable investors are putting their money.

To know more about these super investors and their stock picking approach, download a free copy of - The Super Investors Of India.

Moving on to news from stocks in the oil and gas sector. According to a leading financial daily, state run ONGC has seen a revival in domestic crude oil production in the last fiscal.

ONGC's domestic crude oil production stood at 5.97 MMT during the fiscal ended March 2017, compared to 5.82 MMT during the same period last year. The 2.4% growth came as the PSU was able to monetize discoveries at Ankleshwar, Cauvery (Madnam) and Rajahmundry (Keshnapalli West), among others.

About 60% of the discoveries made by ONGC were monetized in the same year. This gave a significant push to production.

The production is expected to jump further to 6.05 MMT during the current year backed by similar monetisation of Ahmedabad (Gamij) and Mehsana besides existing ones in Cauvery (Madnam) and Rajahmundry (Keshnapalli West).

Of the 23 new discoveries made in last fiscal, 13 discoveries were in the onshore wells and 10 in the offshore wells.

The company drilled its highest-ever number of wells -- 501 -- during FY17, against 392 in FY16 and 401 in FY15.

ONGC's net profit for the quarter ended March 2017 fell by 6% to Rs 43.4 billion on account of higher expenses and the absence of a one-time gain seen in the corresponding quarter last year.

Segment-wise, the company's offshore operations reported a profit of Rs 64.1 billion. Losses for its onshore segment widened to Rs 14.95 billion from Rs.1.2 billion reported in the same period a year back.

At its board meeting, the company also recommended a final dividend at Rs 0.8 per equity share of Rs 5 each, for the Financial Year 2016-17, subject to necessary approval of members at its annual general meeting.

At the time of writing, ONGC share price was trading up by 1.6%.


Indian Indices Trade Flat; Realty Sector Down 1.2%
11:30 am

Indian share markets are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the capital goods sector and realty sector witnessing most of the selling pressure. Healthcare stocks are trading in the green.

The BSE Sensex is trading up 32 points (up 0.1%), while the NSE Nifty is trading up by 7 points (up 0.1%). The BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading flat. The rupee is trading at 64.63 to the US$.

Indian indices are trading on a volatile note today due to global as well as domestic factors.

On the global front, reports that Greece may forego its next bailout payment if creditors cannot strike a debt relief deal have spooked the Asian markets.

For domestic share markets, as many as 1,362 listed companies are scheduled to announce their results today.

The list includes companies such as Berger Paints, IRB Infra, Apollo Hospitals, BEML, Gitanjali Gems, Max Financial Services and Natco Pharma, etc.

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But despite the hoopla surrounding the ongoing earnings season, we don't see much to cheer about.

Earnings growth has slid in FY17 despite the lower tax outgo and other income boost. Companies focused on the domestic market too have slowed due to notebandi.

Further, the actual performance for the last quarter of FY17 has been far below brokerage estimates.

This begs the question: How can we make money in a volatile market with little support from earnings trends and brokerages who can't seem to get it right?

We believe a few super investors could provide the clue. These guys have an eye for multibaggers irrespective of the macro environment.

To learn more about these super investors and their stock-picking approach, download a free copy of The Super Investors Of India.

Apart from the above, market participants are tracking the possible arrival of monsoon rains which is expected to hit the southern Kerala.

One shall note that the Indian Metrological Department's (IMD) has forecasted a normal rainfall this calendar year.

Also, as per the Australian Bureau of Meteorology, the rain disrupting El Nino still has a 50% chance of developing later this year albeit weakly. Also, the prospects of Indian Ocean Dipole (IOD) - a phenomenon that strengthens monsoon in the country-forming over the Indian Ocean are looking good.

As per the Bureau five of eight international climate models suggest the tropical Pacific Ocean is likely to warm above El Nino thresholds during the second half of 2017.

The Australian Bureau of Meteorology has predicted the arrival of southwest monsoons in India in the first week of June, deviating slightly from IMD's predicted date of 30th May.

A normal monsoon is critical since most of our farmers are still dependent on monsoon rains for their subsistence.

There's a possibility that the actual rains across the country this year would possibly match or even beat the IMD's forecast.

We will know for sure over the upcoming months.

Having said that, this is certainly not something to speculate on while buying stocks.

On other news, around 50 stressed accounts have been identified as being on the watch list of the government, the Reserve Bank of India and, in some cases, vigilance agencies.

The above list represents stressed accounts, which includes the loans that have turned bad or been restructured as of December 2016.

The list includes Videocon Industries Ltd; Jindal Group firms such as Jindal Steel and Power Ltd; Punj Lloyd; Jaypee Group; Lanco, which includes Lanco Infratech; Monnet Ispat; Essar Ltd; and Bhushan Steel.Please note that bad loans at state-run banks have grown more than Rs 1 lakh crore since April 2016 to Rs 6 lakh crore as of December 31, 2016. And Indian industries form a huge share of these bad accounts, as can be seen from the chart below:

India Inc in the Centre of the Bad Loan Storm

To tackle the above problem, the Reserve Bank of India is pondering over initiating tough measures against willful defaulters.

While RBI's proactive measure to tighten NPAs is proactive, banks need to take their share of blame. In one of our recent editions of The 5 Minute WrapUp, we had highlighted how the banks' return ratios had deteriorated due to their profits written off on account of NPA provisions.

The RBI has done well to focus its attention on the willful defaulters. However, this seems to be a curative measure than a preventive one. For the bad loans problem to be solved, the root cause i.e. the initial lending process of banks needs to be put in order.


Sensex Opens Marginally Lower; BHEL Falls Over 7%
09:30 am

Asian equity markets are mostly trading in red today. Japanese index Nikkei 225 plunged 106 points, while stocks in Australia retreated and South Korean markets fluctuated. The European markets ended Monday's session with mixed results.

Meanwhile, share markets in India have opened the day on a flat note with a negative bias. The BSE Sensex is trading lower by 28 points while the NSE Nifty is trading lower by 19 points. The BSE Mid Cap and BSE Small Cap index have opened the day up by 0.6% & 0.7% respectively.

Barring healthcare stocks and automobile stocks, all sectoral indices have opened the day in red with PSU stocks and realty stocks leading the losses. The rupee is trading at 64.56 to the US$.

Aurobindo pharma reported a 4% dip in consolidated net profit at Rs 5.32 billion for the fourth quarter ended March 2017. For the full year, the company saw net profit rising 13.7% at Rs 23.01 billion, while total income was up 7.3% to Rs 152.06 billion over the previous fiscal.

Aurobindo pharma share price opened up by 5%.

Engineering stocks opened the day on a negative note with BHEL and EMCO Ltd leading the losses. L&T share price opened the day marginally down after it reported a 29.50% year-on-year (YoY) jump in consolidated profit after tax (PAT) at Rs 30.25 billion for March quarter compared with Rs 23.35 billion for the corresponding quarter of the previous year.

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The consolidated gross revenue stood at Rs 368.28 billion, an increase of 12% over last year. Further, the order intake for the quarter at Rs 472.89 billion grew 9.6% over last year, with international orders accounting for 19% of the amount at Rs 90.44 billion.

Additionally, L&T brought cheer to shareholders by declaring a 1:2 bonus issue. The company also raised the dividend to Rs 21 per share from Rs 18.25 declared last year.

However, the company missed the guidance despite lowering it during the course of the year as new orders from the government, particularly from the defence sector, continued to get deferred and execution of existing orders was slowed due to a severe cash crunch.

Going ahead, the company expects government backed infrastructure projects, defence and hydrocarbon orders to drive growth.

Notably, the defence sector in India is a sunrise sector. India was among the top ten spenders on military expenditure in 2015, ahead of countries such as France, Japan and Germany. The total expenditure of US$ 51.3 billion during the year constituted 3% of the global military expenditure.

India Among Top Defence Spenders in the World in 2015

However, a significant share of the country's defence requirement is still imported. To encourage domestic production of defence equipment, as part of the initiative to boost manufacturing, the government has implemented a number of measures.

Further, L&T expects country's economy to see steady improvement in the current year backed by structural reforms and overcoming of short term demonetisation effects in India. It also believed that supportive monetary policy aided by normal monsoon and contained inflation will provide the requisite stimulus.

BHEL share price fell over 6% after reporting a 57% fall in fourth-quarter net profit on Monday, missing analysts' estimates.

Net profit was 2.16 billion rupees (US$33.47 million) in the quarter ended March 31, compared with 5.06 billion rupees a year earlier.

In the meanwhile, Coal India share price fell 1.7% in early trades after it posted a lower-than-expected fourth-quarter consolidated profit, hurt by higher costs.

Coal India's consolidated profit fell 38% to Rs 27.16 billion (US$421.18 million) in the quarter ended March 31, from Rs 43.98 billion a year earlier. The sharp decline is partly attributed to rise in employee cost due to provisioning for the forthcoming wage settlement for workers and officers which will be effective from last fiscal.

Coal production of the Kolkata-based company, which accounts for more than 80% of the country's output, rose to 176.37 million tonnes in the fourth quarter from 165.24 million tonnes a year earlier.

Further, the world's largest coal miner recently cut its production target by about a 10th to 600 million tonne for the 2017-18.

To know more about the company's financial performance, subscribers can access Coal India's latest result analysis and Coal India stock analysis on our website.


Here's Another Reason Why Airline is a lousy business
Pre-Open

The noises about Air India's impending privatization have grown louder. Finance minister Arun Jaitley, in an interview, favored disinvestment of the state run airline, and that it would pave the way for growth in the aviation sector.

Chief Economic Advisor Arvind Subramanian, had also recommended that government should privatise Air India in the Economic Survey released this year.

Recently, union civil aviation minister Ashok Gajapathi Raju, indicated that the government is looking at all options for the ailing national carrier, including disinvestment.

He said that despite the Rs 300 billion bailout package approved for Air India in 2012, the national carrier remained a debt trap and the government cannot commit the taxpayers' money for an eternity to revive the ailing company.

Mired in debt for years, the state-owned airline has been staying afloat on taxpayers money and it seems the government is finally ready to offload the national carrier and has decided that it is not worth spending more funds on its revival.

At the end of FY16, the airline's debt stood at around Rs 460 billion, with about Rs 280 billion in working capital debt, and Rs 40 billion in interest burden alone. The acquired debt is the root of all problems as the airline is unable to modernize or improve its operations because of the high debt.

This has led to the national carrier consistently losing market share to private players.

Air India's market share in domestic market has fallen to 14% in 10 years from 35% a decade ago, placing it third in the national ranking, behind Indigo, which commands about 40% of Indian skies, and Jet Airways, which has about 16% of the share. Air India also flies overseas, and commands 17% of the international traffic from and into India.

A privatized Air India could not possibly be worse, and likely will be much better. And, most importantly, it will cease to be a drain on the exchequer.

With privatization on the anvil, can Air India throw up opportunities for individual investors?

We don't think so.

Firstly, the airline is overburdened with a massive debt which will weigh down on the operations and profitability, regardless of ownership. A large restructuring exercise would need to take place to reduce and normalize the debt.

Secondly, aviation sector isn't exactly known for its wealth generation ability for shareholders. And India's aviation sector is no different.

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As Rahul Shah writes in a recent edition of the 5 Minute Wrapup:

While Buffett has taken a fancy to US airline stocks, their Indian counterparts aren't exactly setting the bourses on fire. All the listed airline companies in India have underperformed the benchmark index over the last one year. In fact, only one stock, Interglobe Aviation, has been able to give a positive return.

It can of course be argued that the very fact that these stocks have underperformed could now turn them into potential future winners. After all, things revert to the mean, don't they?

Of course they do. But the principle is applicable to companies that are efficiently run, have strong balance sheets and are only victims of an economic downturn or the downturn in the industry. But when companies have negative networth like Air India, and private players Jet and SpiceJet do and also have balance sheets loaded with debt, it is usually a good idea to stay away from such companies rather than invest in the hope that things will indeed turn around one day.

Thus, while privatization may be positive for Air India, one must not get carried away if the national carrier is listed on the bourses.

The question to be asked is whether the company has what it takes to consistently become profitable and improve the return on capital for its shareholders and curtail its massive debt going forward.