Sensex Finishes Flat; M&M Surges 3.4% on Strong Q4 Results
Closing

Indian share markets continued to trade flat during the afternoon session. At the closing bell, the BSE Sensex stood lower by 14 points, while the NSE Nifty finished down by 4 points. Meanwhile, the S&P BSE Mid Cap and the S&P BSE Small Cap finished up by 0.9% and 1.1% respectively. Gains were largely seen in consumer durables stocks, realty stocks and auto stocks. Metal stocks and IT stocks witnessed selling pressure.

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

Holding stocks for a number of years and being patient reap 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 pegs the point to point returns delivered by these companies over this period.

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 Shanghai Composite gained 0.23%, while the Nikkei 225 & the Hang Seng fell 0.14% and 0.10% respectively. European markets are mixed today. The FTSE 100 is up 0.32% while the DAX gains 0.08%. The CAC 40 is off 0.15%.

The rupee was trading at Rs 64.54 against the US$ in the afternoon session. Oil prices were trading at US$ 49.57 at the time of writing.

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The global credit rating agency, Moody's Investors Service in its latest report 'Global Macro Outlook' has said that Indian economy will grow by 7.5% in the current fiscal year, 7.7% in 2018-19 and will reach to around 8% in 3-4 years on the back of government's various reforms just ahead of the release of the fourth quarter GDP numbers.

The agency said that the economy will strengthen as the impact of last year's demonetization fades and with the government successfully pushing through several key reforms such as liberalisation of FDI rules in a number of key sectors, July rollout of the Goods & Service Tax (GST) and a national bankruptcy code, noting that these reforms will help reduce inefficiencies and improve trend growth over the long run.

However, the report has pointed that the private sector investment has remained weak despite progress on reforms. On the problem of mounting bad loans, Moody's noted that persistent banking sector weakness from a high proportion of delinquent loans on bank balance sheets will weigh on growth, if not resolved, by constraining credit for investment related activity.

Besides, it said that the inflation rate will rise to around 5% by the end of this year and expects the Reserve Bank of India to hold the policy repo rate steady, holding a neutral stance in this growth environment.

Moving on to news from automobile sector. Mahindra & Mahindra (M&M) share price surged 3.4% in today's trade after the company the company said its net profit in the March quarter increased 26.3% from a year before.

Profit after exceptional items in the three months rose to Rs 8.74 billion from Rs 6.91 billion a year ago. Revenue and other income-that earned from avenues other than its business operations-grew 5.2% to Rs 122.89 billion.

M&M would invest Rs 120 billion in the next three years to continue its growth momentum. Out of this, while Rs 75 billion would be invested in new product development and capacity expansion for Mahindra range of vehicles, Rs 45 billion would go towards investments in group companies as well for acquisitions.

In another development, as per an article in The Economic Times, Tata Motors has set an ambitious target to become third largest commercial vehicle manufacturer globally and have equal rank in passenger vehicle space in the domestic market by 2019.

Reportedly, it has pegged a total investment of Rs 40 billion which will include an investment of Rs 15 billion in the commercial vehicle business while another Rs 25 billion will be used for development of passenger vehicle business.

Tata motors share price finished the trading day down by 0.8% on the BSE.

Glenmark Pharma share price surged 2.1% in today's trade after the company received final approval by the United States Food & Drug Administration (USFDA) for Atomoxetine Capsules USP the generic version of Strattera Capsules of Eli Lilly and Company.

According to IMS Health sales data for the 12-month period ending April 2017, the Strattera Capsules market achieved annual sales of approximately US$1.1 billion.

In news from oil & gas sector, as per an article in The Economic Times, Indian Oil Corp (IOC) and its partners Oil India Ltd and BPCL are in talks to buy 49% stake in Russia's Vankor cluster oilfields to consolidate their presence in the energy-rich Arctic region.

Rosneft, Russia's national oil company that owns the fields, wants to retain a majority stake and is keen to sell only up to 49% stake. In case OVL is accommodated, the entire 49% stake would have to be split between the Indian companies.

OVL may possibly take 26% in proportion of the stake it bought in the main Vankor oilfield. OIL-IOC-BPRL may take 23.9% stake in line with its holding in the main Vankor field.

Besides, the OIL-IOC-BPRL consortium has taken another 29.9% stake in a separate Taas-Yuryakh oilfield in East Siberia for US$ 1.12 billion. The investments have taken the total outlay in Russia this year to US$ 5.46 billion.

Oil & Gas stocks finished the day on a firm note with GAIL share price and IOC share price leading the gains.

And here's a note from Profit Hunter:

Mahindra and Mahindra (M&M) is the top gainer in the Nifty 50 Index - up 4% for the day. Let's have a look at its chart.

After the stock bottomed out at Rs 118 in November 2008, it made a healthy rally to hit a high of Rs 1,433 in August 2014. The stock then traded in a broad range of 1,100-1,400. It broke out if this range on the upside in June 2016, indicating a resumption of the uptrend. But this was a false breakout as the stock again slipped back into the range.

In December, the stock formed a double-bottom pattern near the lower end of the range and rallied strongly.

Today, the stock has again broken out of the range on the upside. The breakout volumes were heavy, indicating buying interest.

So is the breakout real this time around, or will the stock again slip back into the 1,110-1,400 range. Let's wait and watch...

Another False Breakout for M&M?
Another False Breakout for M&M? 


Sensex Trades on a Volatile Note; Pharma Stocks Gain
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 15 points (up 0.1%) and the NSE Nifty is trading flat. Meanwhile, the BSE Mid Cap index is trading up by 0.9%, while the BSE Small Cap index is trading up by 1%. The rupee is trading at 64.51 to the US$.

In news from stocks in the pharma sector. Glenmark Pharma share price is in focus today and surged over 2.5% in intraday trade.

Glenmark Pharma announced that it had received final approval form the US Food and Drug Administration (USFDA) approval for its Atomoxetine capsules.

Atomoxetine capsules, a generic version of Strattera Capsules of Eli Lilly and Company, is used to treat attention-deficit hyperactivity disorder.

Citing IMS Health sales data for the 12 months to April 2017, the company said Strattera capsules achieved annual sales of approximately US$ 1.1 billion.The company's current portfolio consists of 117 products authorised for distribution in the US marketplace and 67 Abbreviated New Drug Applications (ANDA) pending approval with the USFDA.

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Glenmark Pharma share price had plunged by over 30% this month over tepid results and subdued growth.

The BSE Healthcare Index too, is down by over 9% in month.

The Indian pharmaceutical industry has come under a lot of regulatory pressure in the past few years.

The sector has faced great volatility over the years.

We had written about the current predicament of Indian pharma companies in one of the premium editions of the 5 Minute WrapUp:

  • Over the past few years, risk in the US markets has increased. The US Food and Drug Administration has become stricter on products entering US borders. Surprise inspections have increased and companies are being issued warning letters. This has impacted the business and earnings of Indian pharma players, causing major volatility for the sector.

In such a volatile environment, how can earn good returns from the stock markets?

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, our Research analysts Kunal and Rohan have could be of great help courtesy their project, The Superinvestors of India.

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

Moving on to news about the economy. Market participants have remained cautious over the release of the Q4 Gross Domestic Product (GDP) numbers expected today. In the third quarter, the GDP had grown marginally lower, at 7%, down from 7.4% in Q2.

GDP Growth in Recent Quarters

Meanwhile, credit rating agency Moody's has projected India's GDP to accelerate and grow at 7.5% in 2017-18 and 7.7% in 2018-19.

The ratings agency said the government has been able to limit the negative impact of demonetisation on the economy.

Moody's also said the government has been successful in pushing through several key reforms including liberalization of foreign direct investment rules in a number of key sectors, the direct benefit transfer (DBT) scheme, and the goods and service tax (GST), which is expected to come into effect in July.

However, it maintained that private sector investment has remained weak despite progress on reforms. It also noted the persistent weakness in the banking sector and that it could weigh on growth if not resolved soon.

India's statistics department will revise its initial estimate of 7.1% growth in 2016-17 later today. The government believes that GDP growth for FY17 to be at 7.1%. Mind you, this would still be below the 7.6% growth recorded in FY16. We believe, FY17 GDP growth could, in fact be significantly lower than 7.1%.

Here is what Dr Jim Walker, founder and chief economist of Asianomics Group, had to say about the government's estimates in his one of his Asianomics Macro updates.

The government's new growth forecasts are not only optimistic but downright bizarre. The market is concerned that even with the new (still optimistic) growth forecast of 7.1%, the government's budget deficit target of 3.5% of GDP will be overshot.

A while back, in an interview with Vivek Kaul and Rahul Goel, CEO of Equitymaster, Dr Jim Walker had shared his views on a variety of topics including the Indian and Chinese economies. It's worth revisiting.


Indian Indices Trade Flat; Metal Stocks Witness Selling
11:30 am

Indian share markets are presently trading marginally lower. Sectoral indices are trading on a mixed note with stocks in the metal sector, telecom sector and energy sector witnessing most of the selling pressure. Power stocks are trading in the green.

The BSE Sensex is trading flat, while the NSE Nifty is trading down by 10 points (down 0.1%). The BSE Mid Cap index is trading up by 0.6%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 64.55 to the US$.

Indian indices are trading on a volatile note today ahead of the release of fourth quarter gross domestic product (GDP) numbers due later in the day. Markets participants are also keeping a close tab on cues from global financial markets.

Despite the ongoing volatility, share markets in India have continued their momentum and are trading near record high levels. Most of this rally is fueled by the optimism surrounding a good rainfall this monsoon season and the quarterly result announcements by domestic listed companies.

The ongoing rise in Indian share markets brings us to the question of how can one make money in a rising market?

Just Released: Multibagger Stocks Guide
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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.

Moving on to the news from banking sector... S&P Global ratings has said that Indian banks' stressed assets are likely to increase to 15% of total loans by March 2018 even as their regulatory capital requirements will continue to rise till 2019.

The ratings agency, in its latest report stated that Indian banks' credit profiles are unlikely to improve over the next 12 months. As per the agency, banking sector's total stressed assets will increase to 13-15% of the total by the end of March 2018, with PSU banks accounting for most of that loans.

The report further said PSU banks operate with a thin capital cushion. In addition, they may be required to make large haircuts on loans to unviable stressed projects, the regulatory capital requirement will continue to rise till 2019, and profitability will remain subdued. Not very encouraging for PSU bank stocks.

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.


Share Markets in India Open Flat; M&M Tops the Gainers
09:30 am

Asian equity markets are mixed today. The Nikkei 225 is down 0.13% while the Hang Seng is down 0.04%. The Shanghai Composite is trading up by 0.19%. The US & European stocks inched lower on Tuesday on concerns about the political outlook in Europe and US economic growth. Fall in oil prices also weighed on sentiments.

Meanwhile, share markets in India have opened the day on a flat note. The BSE Sensex is trading higher by 13 points while the NSE Nifty is trading higher by 10 points. The BSE Mid Cap and BSE Small Cap index have opened the day up by 0.5% & 0.2% respectively.

Barring information technology stocks and FMCG stocks, all sectoral indices have opened the day in green with oil & gas stocks and realty stocks leading the gainers. The rupee is trading at 64.63 to the US$.

Mahindra & Mahindra share price rose over 3.4% after it reported a robust 26.3% growth in profit at Rs 8.74 billion for January-March quarter year-on-year, saying its FY18 outlook is much more robust.

Revenue during the quarter increased 4.3% to Rs 106.12 billion compared with Rs 101.75 billion in same quarter last fiscal, impacted by slow volume growth of 2.5%.

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Hindalco share price opened the day on an optimistic note after it posted a 25% increase in standalone net profit at Rs 5.03 billion for the fourth quarter ended March, on the back of higher revenue from operations.

While revenues from the aluminium business grew by 9.5% at Rs 55.48 billion, revenues from the company's copper business for the quarter stood at Rs 62.02 billion, increasing by almost 48% since the same quarter last year. Lower employee benefit expenses, power & fuel cost and finance cost also boosted bottomline.

Further, Hindalco expects domestic aluminium demand to rise 7% in the current fiscal year, led by the government's infrastructure push and the likelihood of higher power sector orders.

Hindalco raised US$500 million through a qualified institutional placement (QIP) in March and prepaid about Rs 55.36 billion of debt from the proceeds. It also refinanced US$4.3 billion of long-term debt at its subsidiary Novelis Inc.

Notably, there are many ways to gauge investor sentiments. Valuations, the number & value of deals, and IPO activity are just some of the many ways to do so. Qualified Institutional Placement (QIP) activity is another way to gauge the same.

QIPs Are Making a Comeback

A QIP is an equity raising mechanism for companies. QIPs tend to be a faster way to raise capital as the dealing happens with a few investors - only institutions in this case.

The last three years have seen quite a surge in qualified institutional placements (QIPs). While 2016 started off on a poor note, the month of September alone has seen Rs 32 billion raised through 6 issues.

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, our Research analysts Kunal and Rohan could be of great help courtesy their project, The Superinvestors of India.

Click here to get a free copy.

Now, because of insights from these interactions, Rohan and Kunal have their eyes glued on insider activity and bulk and block deals...

But what is the end game of this 'superinvestor project'?

As per Kunal...

The guys will reveal these secrets soon. Stay tuned.

Moving on to the news from stocks in engineering sector. As per an article in a leading financial daily, Larsen & Tourbo's construction arm has won orders worth Rs 51.46 billion various business segments.

L&T's power transmission and distribution business bagged orders worth Rs 27.80 billion in the domestic and international market. Its smart world and communication business has secured an order worth Rs 2.21 billion from Rajasthan Rajya Vidyut Prasaran Nigam.

While its water and effluent treatment business has bagged a Rs 12.92 billion order. Further, L&T said its building and factories business has won Rs 5.34 billion, and metallurgical and material handling segment has won Rs 3.19 billion order.

Diversification continues to help L&T (Subscription Required) 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. Subscribers can access L&T's latest result analysis and L&T stock analysis on our website.


Can RBI Uproot the NPA Rot?
Pre-Open

The government is taking a close look at stressed assets worth Rs 5 trillion of various corporates, as it steps up its efforts to resolve a heightening crisis in the country's banking sector.

As per an article in The Economic Times, the government, the Reserve Bank of India (RBI) and even probe agencies are scanning about 50 stressed assets, which have been put on a watch list.

The list represents stressed accounts, which includes loans that have turned bad or been restructured as of December 2016. The total value of such top 50 loans is estimated to be around Rs 4-5 trillion, which is almost 80-85% of the total bad loans for state-run lenders.

Bad loans at public sector banks have grown more than Rs 1 trillion since April 2016 to Rs 6 trillion crore as of 31 December 2016. Recent NPA issues of Yes Bank and IDBI Bank also signal a worrying trend.

However, NPAs are just a part of the problem. According to former RBI deputy governor KC Chakrabarty, the total stressed assets in the sector soon could reach Rs 20 trillion.

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As more and more skeletons come out of the closet, it's important to identify the root cause of the problem. That of corporate debt. Apart from the banking sector, corporate debt also has serious implications for the overall Indian economy.

Banks with a sizable amount of bad loans on their books are reluctant to lend to even healthy companies. This will adversely impact the growth of the economy going forward.

The Indian government has recently stepped up its efforts to address the problem. As part of this, the government has amended the The Banking Regulation Act through an ordinance, giving more teeth to the RBI to deal with NPAs.

The ordinance essentially gives power to the RBI to give directions to banks for the resolution of bad loans from time to time. It also allows the Indian central bank to appoint committees or authorities to advise banks on the resolution of stressed assets.

Though this has been touted as a big boost to the government's efforts to tackle the problem, there is also a view that the RBI - the banking regulator will be sitting at every negotiation table for resolving bad loans.

The ordinance does nothing to remove the constraints that banks face while taking commercial decisions about their loan accounts. As the Economic Survey said, "the road to resolution remains littered with obstacles, even for the most ordinary of bad debt cases." The difference is that now it is the RBI who will be responsible for surmounting those obstacles, rather than the banks themselves.

Also, what precedence does this set for banks? In the business of lending, one cannot wish away bad loans. There will be slippages even when the Indian economy is doing well. Banks will be lending to the same companies that are now bad assets in their books. It is unsettling that the only entity determined to clean up the bad loan mess is RBI.