Sensex Ends Lower; IT Stocks Drag

Indian share markets ended lower after the US Federal Reserve raised interest rates and took a more hawkish tone in forecasting a slightly faster pace of tightening for the rest of the year. At the closing bell, the BSE Sensex finished lower by 139 points. While, the NSE Nifty finished down by 49 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 healthcare stocks & automobile stocks, all sectoral indices ended the day in red. The Nifty IT index ended 1.5% lower led by a fall in shares of MindTree, Tech Mahindra and Tata Consultancy Services.

Globally, Asian stock markets finished lower today with shares in Japan leading the region. The Nikkei 225 is down 1% while Hong Kong's Hang Seng is off 0.9% and China's Shanghai Composite is lower by 0.2%. European markets are lower today with shares in London off the most. The FTSE 100 is down 0.6% while Germany's DAX is off 0.3% and France's CAC 40 is lower by 0.2%.

The rupee was trading at Rs 67.69 against the US$ in the afternoon session.

In the news from the economy. Credit rating agency, ICRA in its latest research update on Housing Finance Companies has said that the housing credit growth is likely to rise 17-19% in the financial year 2019.

It stated that primary home purchases, especially in the affordable housing segment may rise due to growing affordability for the first-time home buyer supported by government's incentives such as the Pradhan Mantri Awas Yojana (PMAY).

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It noted that with steady housing credit growth of 16% in FY18, the mortgage penetration (housing credit as a percentage of GDP) touched the double-digit mark of 10% for the first time in FY18, up from 9.5% in FY17.

The rating agency expects mortgage penetration levels to go up by another 300-500 bps over the next five years. Besides, it said that overall asset quality indicators for all housing finance firms (HFCs) remained stable with Gross NPAs of 1.1% for FY18, better than the 1.2% in December 2017 but worse than the 0.8% NPAs in FY17.

Further, it expects overall gross NPAs for HFCs to remain range-bound between 1.2 to 1.5% this year. It added that the retail home loan asset quality of HFCs is likely to be benefited by the recent Cabinet decision to treat home buyers as financial creditors.

However, the report said that gross NPAs in the sub-segment deteriorated from 3.3% in FY17 to 4.1% in FY18, driven by greater portfolio seasoning, entity-specific factors in some cases and external events such as note-ban and GST rollout, which have impacted cash flows of borrowers.

On the funding side, it said that HFCs would need to tie-up for Rs 4 trillion of incremental funds to meet the growth plans as well as replacing the maturing liabilities in FY19.

Meanwhile, as per the report, a majority of the slippages have taken place in the affordable home loan slab of upto Rs 0.2 million. The bad loan ratio in this segment shot up by 0.6% in FY17 to 10.4%. Further, HFCs bore the major brunt with the bad loan ratio jumping by 2.5% to 8.6% by the end of FY17. Surprisingly, state-run banks witnessed an improvement in asset quality with the bad loan ratio falling below 12%.

Asset Quality Pitfalls in Affordable Housing

According to India Rating and Research, affordable housing finance is estimated to be a Rs 6 trillion business opportunity by 2022 and will be the principal growth driver for home loans. Though banks with a share of more than 60% are the biggest players in the home loan market, it's the HFCs that have established their presence in niche markets, such as small ticket-size loans, and the non-salaried or self-employed segment in small towns and cities.

Therefore, HFCs are likely to be the major beneficiary of the affordable housing boom. In the long run, the ones that can balance growth with asset quality through stringent risk management will be wealth creators.

Meanwhile, in a bigger shock, Inflation based on wholesale prices shot up to a 14-month high of 4.43% in May on increasing prices of petrol and diesel as well as vegetables.

The Wholesale Price Index (WPI) based inflation stood at 3.18% in April and 2.26% in May last year.

According to government data released today, inflation in food articles was at 1.6% in May 2018, as against 0.87% in the preceding month.

Inflation in vegetables climbed to 2.51% in May, while in the previous month it was -0.89%.

Inflation in 'fuel and power' basket rose sharply to 11.22% in May from 7.85% in April as prices of domestic fuel increased in line with rising global crude oil rates.

Potato inflation was at a peak of 81.9%, against 67.9% in April. Price rise in fruits was in double digits at 15.4%, while pulses saw a deflation of 21.1%.

The WPI inflation for March was revised upwards to 2.7% from the provisional estimate of 2.5%.

May inflation at 4.43% was a 14-month peak. The previous high was in March 2017, when the WPI inflation stood at 5.11%.

In its second monetary policy review for the fiscal, the Reserve Bank earlier this month hiked interest rate by 0.25% -- the first hike in more than four years -- due to growing concerns about inflation stoked by rising global crude oil prices as well as domestic price increases.

The price of Indian basket of crude surged from US$66 a barrel in April to around US$74 currently.

Data released earlier this week showed retail inflation jumped to a 4-month high of 4.87% in May on costlier food items such as fruits, vegetables and fuel. RBI mainly takes into account retail inflation data while formulating monetary policy.

And to get more updates on share market, click here.

Sensex Trades Weak; SBI & Adani Ports Top Losers
12:30 pm

Stock markets in India are trading lower after US Federal Reserve raised interest rates and took a more hawkish tone in forecasting a slightly faster pace of tightening for the rest of the year. While concerns about US-China trade frictions have also kept market participants on edge. Losses are largely seen in information technology stocks and PSU stocks.

The BSE Sensex is trading down by 228 points and the NSE Nifty is trading down by 74 points. Meanwhile, the BSE Mid Cap index is trading down by 0.6% while, the BSE Small Cap index is trading down by 0.3%. The rupee is trading at 67.33 to the US$.

Indian investors are not unfamiliar with sharp market corrections. But a long bull market tends to erase the memories of the previous turmoil.

Of course, it is typically the small and midcap stocks that bear the maximum toll of a sharp market correction. They are the first ones to nosedive. But when markets are in a state of panic, fear feeds upon itself.

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You must remember that during such times, even the stocks of some of the strongest business tend to succumb to weak sentiments. The crash of 2008 saw some of them correct by over 50%!

And there is no reason why this may not repeat in the coming market correction.

Can Bellwethers Correct by 50%?

But should you lose confidence during such periods of underperformance?

Tanushree Banerjee, Editor of The 5 Minute WrapUp, goes by the wise words of Howard Marks...

  • "Every investor who's unwilling to throw in the towel on outperformance, and who chooses to deviate from the index in its pursuit, will have periods of significant underperformance. In fact, since many of the best investors stick most strongly to their approach-and since no approach will work all the time-the best investors can have some of the greatest periods of underperformance."

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.

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In the news from the engineering sector. In the latest development, Larsen & Toubro (L&T) has won orders worth Rs 13.9 billion across various business segments.

L&T Hydrocarbon Engineering (LTHE), a wholly owned subsidiary of engineering and construction major Larsen & Toubro, has won new orders in excess of Rs 7.5 billion in its Construction Services business vertical.

The business has secured an order, with a value of approximately Rs 4.5 billion, for pipelines & associated works in the southeastern region of India and received an award for additional works, worth approximately Rs 3 billion, from an existing contract.

Besides, Water & Effluent Treatment Business has secured orders worth Rs 4.3 billion. Further, Smart World & Communication Business has secured an order worth Rs 2.1 billion.

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 down by 0.6% at the time of writing.

Moving on to the news from the power sector. As per an article in a leading financial daily, Tata Power's wholly-owned subsidiary --Tata Power Renewable Energy (TPREL) has entered into a Power Purchase Agreement (PPA) with GE to provide solar rooftop solutions for six manufacturing and services sites in India.

Tata Power will install solar rooftop projects at manufacturing sites located at Durgapur in West Bengal, Pallavaram and Hosur in Tamil Nadu, multi-modal manufacturing site at Pune and upcoming factory at Marhowra in Bihar and maintenance facility at Roza in Uttar Pradesh.

The project would be executed on build-own-operate basis.

Reportedly, the installation of the solar rooftop projects will help to generate over 1 million kWh of electricity per year and will lead to an average tariff reduction of around 30%.

GE will also be able to curb the emission of over 13,000 kg of carbon dioxide per day, the reports noted.

Tata Power share price was trading down by 0.5% at the time of writing.

To get more updates on share market, click here.

Sensex Opens Lower; IT Stocks Lose
09:30 am

Asian share markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.1% while the Hang Seng is down 0.6%. The Nikkei 225 is trading down by 0.4%. US stocks ended a choppy session lower on Wednesday after the US Federal Reserve raised interest rates and projected a slightly faster pace of rate hikes this year.

Back home, India share markets opened the day on a negative note. The BSE Sensex is trading down by 113 points while the NSE Nifty is trading down by 34 points. The BSE Mid Cap index and BSE Small Cap index opened down by 0.2% & 0.1% respectively.

Barring healthcare stocks & consumer durables' stocks, all sectoral indices have opened the day in red with information technology stocks and energy stocks witnessing maximum selling pressure. The rupee is trading at 67.63 to the US$.

Meanwhile, the 10-year bond yield stood at 7.93% from its Tuesday's close of 7.97%. Bond yields and prices move in opposite directions.

The earnings yield of the market vis-a-vis risk-free 10-year government bond yield is a very important indicator for equity markets.

The earnings yield is calculated as the net profit for the last 12-month period, divided by market capitalisation. In other words, it is the inverse of the PE Ratio.

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This ratio can be used as a tool to identify how cheap or expensive the stock market is relative to the debt market, other any other possible investments.

The chart below illustrates the same.

The Gap Widens Between Bonds and Stocks

Lately, the divergence between bond yields and earnings yield has increased. This means stocks have become expensive compared to bonds.

Historically, there is a negative correlation between stock prices and the spread of bond yields over earnings yields.

The bond yields are now higher by 364 basis points (bps), compared to the average earnings yield of the BSE Sensex.

With this, the equity market might see more selling in the coming weeks, as there is still a large gap between the yield on the 10-year government bond and corporate earnings yield.

Bank stocks opened the day on a mixed note with ITI Ltd & AGC Network leading the gainers. As per an article in a leading financial daily, ICICI Bank will sell up to 2% stake in its life insurance subsidiary ICICI Prudential Life Insurance Ltd.

Reportedly, the sale, likely in one or more tranches, will help the bank raise Rs 11.8 billion.

The board of directors of the bank approved the sale of up to 28,711,100 shares, representing up to 2% of the issued and the paid-up equity share capital of ICICI Prudential Life Insurance Co. Ltd.

The bank said the stake sale can happen through any manner, including offer for sale through the stock exchange mechanism.

ICICI Prudential Life Insurance is a joint venture of ICICI Bank and US-based Prudential Corp. Holdings Ltd.

While ICICI Bank holds 54.9% stake in the insurance company, Prudential holds 25.8%. ICICI Prudential became a publicly listed firm in September 2016, when it was valued at Rs 479.6 billion.

As per the reports, the share sale will enable ICICI Bank to boost its provision coverage ratio (PCR), which is the lowest among large banks. PCR is the proportion of funds that a bank sets aside against bad loans.

ICICI Bank's PCR excluding technical write-offs stands at 48.4%, compared to Axis Bank's 52.5% and SBI's 50.4%. Among the large banks, Bank of Baroda has the highest PCR excluding write-offs at 59%.

ICICI Bank share price opened the day down by 0.5%.

Moving on to the news from the pharma sector. As per an article in a leading financial daily, Lupin has announced that it has launched Tobramycin Inhalation Solution USP, in the US market.

Reportedly, Lupin had already received USFDA approval for Tobramycin Inhalation from the USFDA.

Lupins Tobramycin Inhalation Solution USP is a generic equivalent of Novartis Pharmaceuticals Corporation's Tobi, which is indicated for the management of cystic fibrosis patients with Pseudomonas aeruginosa.

As per the IQVIA data, Tobramycin Inhalation Solution USP, 300 mg/5 ml had annual sales of approximately US$99mn in the US for the year ended April 2018.

Apart from the innovator Novartis and latest entrant Lupin, there are seven players in this drug. This could become approx. US$3mn drug for Lupin assuming 10% market share and 30% price erosion, the reports noted.

To know more about the company, you can access to Lupin's latest result analysis and Lupin stock analysis on our website.

Lupin share price opened the day up by 1.3%.

To get more updates on share market, click here.

Indian Indices Continue Momentum, IPOs Back in Focus, and Top Stocks in Action

On Monday, share markets in India opened on a positive note and ended the day in green after a volatile day of trading.

The BSE Sensex closed higher by 47 points to end the day at 34,739. While the broader NSE Nifty ended the day higher by 14 points to end at 10,856.

Among BSE sectoral indices, IT stocks rose the most by 1.3%, followed by pharma stocks at 0.6%. Dr Reddy's Labs and TCS were among the top gainers.

Top Stocks in Action Today

TCS share price is likely to be in focus after the country's largest software services firm said that its board will consider a proposal for a buyback at the end of the week.

The company, however did not disclose the details of the buyback.

Sun Pharma share price is among the stocks to watch today the company received the establishment inspection report (EIR) for its for its critical Halol facility in Gujarat indicating a closure of inspection.

As per USFDA, after the completion of an inspection of a facility, an EIR is issued to a company detailing inspection findings.

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IPO Buzz

Government-owned engineering consultancy RITES Ltd said that it will launch its Rs 4.6 billion initial public offering (IPO). The company has set a price band of Rs 180-185 per share. The IPO is a pure offer for sale by the government, which is selling a 12% stake in the company.

The market is gearing up for a burst of activity, with at least 12 companies planning to raise more than Rs 170 billion over the next two months, after a quiet start to the June quarter.

Rhe last IPO to hit the primary market was IndoStar Capital Finance Ltd, which raised Rs 18.4 billion through its share sale in May.

Reportedly, the introduction of the new Indian accounting standards (IndAS) as one of the reasons why IPO-bound companies have not approached the market so far, this quarter.

All companies, including unlisted ones, having net worth of between Rs 2.5 billion and Rs 5 billion have to prepare their financial accounts for the year ended 31 March 2018 as per the IndAS accounting standards. Companies with net worth of Rs 5 billion or more had to implement the new standard a year earlier.

As per the reports, the pipeline in the June quarter will be very healthy. The market/IPO outlook continues to be strong and robust for the next two quarters if not the entire year.

Several major IPOs, including those of HDFC Asset Management Co. Ltd, auto parts maker Varroc Engineering Ltd, non-banking financial company IndoStar Capital Finance Ltd, microfinancier CreditAccess Grameen Ltd and women's apparel maker TCNS Clothing Co. Ltd, are set to hit the market this quarter.

Other companies that may launch their IPOs in the quarter include seafood exporters Devi Seafoods Ltd and Nekkanti Sea Foods Ltd. Both said they would decide on the timing of the launch after they get regulatory approval for their respective share sales.

In the first quarter of 2018, 14 companies raised a total of Rs 185.9 billion through the IPO route, a more than fourfold increase from the Rs 41.9 billion raised by five companies in the same period a year earlier.

In 2017, 64 companies tapped the IPO market to raise Rs 671.5 billion.

IPO activity last year was dominated by large issuances such as HDFC Standard Life Insurance Co. Ltd, SBI Life Insurance Co. Ltd, ICICI Lombard General Insurance Co. Ltd, New India Assurance Co. Ltd and General Insurance Corp. of India Ltd, which collectively raised Rs 437.6 billion.