Stock Markets Remain Cautious amid Weak Macro Cues
Podcast

The stock markets remained flat throughout the week as domestic and global macro factors took over. Now with the budget approaching next week, how will the market react will be the thing to watch out for.

In today's episode, we talk about the G-20 meeting, global trade war scenario and gold prices.

We also talk about the concerns over oil prices.

Apart from this, featuring in the podcast is NBFC crisis and DHFL's default. And we have lots more.

Tune in...


Sensex Ends 191 Points Lower; Metal and Energy Stocks Witness Selling
Closing

India share markets continued to witness selling pressure during closing hours and ended their day in the red.

At the closing bell, the BSE Sensex stood lower by 191 points (down 0.5%) and the NSE Nifty closed down by 52 points (down 0.5%).

The BSE Mid Cap index ended the day down 0.3%, while the BSE Small Cap index ended the day down 0.1%.

Sectoral indices ended on a negative note with stocks in the metal sector, energy sector and telecom sector witnessing most of the selling pressure.

The rupee was trading at 69.00 against the US$.

Asian stock markets finished on a negative note. As of the most recent closing prices, the Hang Seng was down by 0.28% and the Shanghai Composite was down by 0.60%. The Nikkei 225 was down 0.29%.

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European markets were trading on a positive note. The FTSE 100 was up by 0.27%. The DAX was trading up by 0.43%, while the CAC 40 was up by 0.22%.

In the news from the macroeconomic space, the Reserve Bank of India's (RBI) Financial Stability Report warned that the non-banking finance companies (NBFCs) and mortgage firms in dire straits pose a serious threat to markets.

As per the report, the contagion from the malaise gripping shadow lenders, along with a looming global trade war and instability stemming from US actions, is among the biggest threats to the markets.

The report stated that some of the large NBFCs and housing finance companies (HFCs) have the potential to cause the kind of instability that big banks could trigger.

The RBI also called for tighter supervision of NBFCs and mortgage lenders.

Note that the financial markets have been in flux ever since Infrastructure Leasing & Financial Services (IL&FS) defaulted on its payments in September. This lead to a liquidity squeeze on NBFCs.

Subsequently, mutual funds shut out many NBFCs and HFCs to which they had been lending earlier, leading to a fire sale of assets to meet payment obligations.

This led to the rise in the cost of funds for shadow lenders despite falling policy rates.

NBFCs were flush with funds from banks, insurance companies, and asset management companies i.e. mutual funds in 2016.

You can see this clear as day in the chart below...

One Chart that Predicted the NBFC and Mutual Fund Crisis Back in 2016

One Chart that Predicted the NBFC and Mutual Fund Crisis Back in 2016

And with these funds and without the necessary restrictions, NBFCs become reckless in deploying the funds.

Here's what Tanushree Banerjee wrote about this in one of the editions of The 5 Minute WrapUp...

  • Let's look back at 2016...

    Banks, mutual funds, and insurance companies were competing with each other to lend to NBFCs.

    And why not?

    Not only were the fast growing NBFCs hungry for funds, they also offered attractive yields.

    The NBFCs took more risk than banks by lending without collaterals. But they charged higher interest rates; which meant their margins remained far higher than that of banks.

    It's no wonder the NBFCs caught everyone's fancy. In fact, between 2013 and 2016, the top NBFCs saw their valuation multiples move up three to eight times.

As per Tanushree, the problem in the NBFC sector is far from over.

But she believes the good quality NBFCs, and housing finance companies will continue to flourish and you can make the most of the opportunity by buying the safest NBFCs.

In the news from the power sector, Power Grid Corporation of India share price was in focus today as the company said its board will meet next week to consider raising up to Rs 100 billion through issuance of non-convertible debentures/bonds on private placement basis during the next financial year.

As per the news, the funds will be raised from domestic market through issue of secured/unsecured, non-convertible, non-cumulative/cumulative, redeemable, taxable/ tax-free debentures/bonds under private placement during the financial year 2020-21 in up to 20 tranches/offers.

From the pharma space, Sun Pharma share price was also in focus today. The stock of the company witnessed buying interest to extend its uptrend for the fifth consecutive session.

Gains were seen as the drug major said one of its wholly-owned subsidiaries has entered into a licensing agreement with a subsidiary of China Medical System Holdings for the development and commercialisation of its dermatology products.

Regarding the products, Tildrakizumab is a biologic product for psoriasis and psoriatic arthritis, while Cyclosporine A 0.09% is an eye drop.

The agreement is for development and commercialisation in Greater China, including Mainland China, Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.


Sensex Trades Marginally Lower; IndusInd Bank & Yes Bank Top Losers
12:30 pm

Share markets in India are presently trading on a negative note. Sectoral indices are trading mixed with stocks in the telecom sector and metal sector witnessing selling pressure while capital goods stocks and healthcare stocks are trading in green.

The BSE Sensex is trading down by 112 points (down 0.3%), while the NSE Nifty is trading down by 34 points (down 0.3%). The BSE Mid Cap index and the BSE Small Cap index are trading down by 0.2%.

The rupee is currently trading at Rs 68.91 against the US$.

Speaking of Indian share markets, when it comes to stock market performance, multinational corporations (MNCs) have outperformed the broader market.

The Nifty has a MNC index. This index comprises 15 listed companies. The foreign shareholding in them is over 50% and/or the management control is vested in the foreign company.

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As can be seen in the chart below, this Nifty MNC Index has outperformed the Nifty 50 index in the last five years.

Nifty MNC Index Outperforms the Benchmark Index

Nifty MNC Index Outperforms the Benchmark Index

Why the outperformance?

Sarvajeet Bodas answers this question in the recent edition of The 5 Minute WrapUp. He writes...

  • Generally, MNCs have a vast global experience. These companies have weathered the competition in many markets across the world.

    Also, MNCs generally have strong parentage. This helps create strong brands and gain market share.

    Not to mention MNCs have strong balance sheets. This brings stability during times of market volatility.

    Similarly, in the past, MNCs have demonstrated good capital allocation. Hence they, consistently delivered high returns on capital.

    Finally, MNCs typically have high standards when it comes to board composition, corporate governance, and operational efficiency. All this helps to maximise shareholder wealth.

In Smart Money Secrets, we have recommended such a company from the MNC space.

If you haven't subscribed to Smart Money Secrets yet, you can access the report by signing up here.

In the news from the engineering sector, Larsen and Toubro Ltd (L&T) has gained a controlling interest in Mindtree, raising its stake to 60% and successfully concluding India's first hostile takeover of a software developer.

L&T completed buying the 31% additional stake it targeted to acquire in Mindtree for Rs 49.9 billion through an open offer as large investors rushed to sell their holdings.

The offer to purchase 50.9 million shares of Mindtree from public shareholders was subscribed 1.2 times on Wednesday.

Almost all the large institutional investors in Mindtree have sold their stakes to L&T in the open offer including Singapore-based Nalanda Capital (10.61%), UTI Mutual Fund (2.97%), and Amansa Holdings Pvt. Ltd (2.77%).

L&T share price is presently trading up by 1%, while Mindtree share price is trading down by 1.7%.

In the news from the realty sector, DLF share price is witnessing buying interest today after its promoters infused Rs 22.5 billion in the company against the issuance of new equity shares.

The new infusion came through two holding entities including Rajdhani Investments & Agencies and DLF Urva Real Estate Developers & Services which has taken the promoters' collective stake to 75% in the company.

Company's board has now allotted 138.1 million equity shares at Rs 217.3 each against the convertible debentures. Earlier in May, the board had issued 130 million shares at the same rate. The promoters will now have 268.1 million new equity shares in their possession since March 31 with the current infusion.

In December 2017, the promoters had infused Rs 90 billion into the company and promised to invest an additional Rs 22.5 billion.

The fund infusion was made after the promoters sold their entire stake in DLF's rental arm DLF Cyber City Developers Ltd for Rs 119 billion.

In the March quarter, the company had said it reduced its net debt to Rs 44.8 billion from Rs 72.2 billion in the December quarter, with the help of funds raised from selling shares to institutional investors.

Moving on, shares of Cox & Kings were locked in 10% lower circuit for the third straight day after the company defaulted on commercial paper worth Rs 1.5 billion.

Data on the exchanges showed that there were pending sell orders for 5.2 million shares, representing 3% of total equity capital.

The company, which runs the tours and hotels business in India and abroad, was trading at an all-time low of Rs 36.5, plummeting 40% in past one week.

In a regulatory filing on Wednesday, the company said "about Rs 2 billion was due for repayment to two investors holding the company's unsecured commercial paper. Of the aggregate amount, Rs 1.5 billion has not been paid".

Reports state that the company plans to clear all its debt obligations, arising due to cash flow mismatch and a rating downgrade, through a combination of internal accruals and monetization of assets.

Earlier this week, rating agency Brickwork ratings downgraded the company's Rs 500 - million non-convertible debentures (NCDs), while retaining its commercial paper rating. On June 11, CARE Ratings had also downgraded its rating.

Stay tuned for more updates from this space.

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.


Sensex Opens Flat; Healthcare and IT Stocks Gain
09:30 am

Asian share markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.6% while the Hang Seng is down 0.6%. The Shanghai Composite is trading down by 0.9%. The S&P 500 and the Nasdaq closed higher in a broad-based rally on Thursday as investors looked to the G20 summit in Osaka, Japan this weekend for progress in the long-running US-China trade dispute, which has whipsawed markets for months.

Back home, India share markets opened the day on a positive note. The BSE Sensex is trading up by 54 points while the NSE Nifty is trading up by 18 points. Both, the BSE Mid Cap index and BSE Small Cap index opened on a flat note.

Sectoral indices have opened the day on a mixed note with telecom stocks and realty stocks leading the losers. Healthcare stocks and IT stocks have opened the day in green.

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Speaking of the stock markets, the current pattern of the Indian stock market very closely resembles 2013.

How Long Will this Sensex Outperformance Last?

How Long Will this Sensex Outperformance Last?

Back then too, Sensex was relatively flat while mid and small caps underperformed by a huge margin.

Only this time, the divergence is larger.

While the 2013 correction was due to global macro issues, the correction in mid and small caps are due to factors back home.

Corporate governance issues leading to auditor exits plagued many mid and small caps in 2018. Then, we had the IL&FS impact leading to the NBFC crisis.

Will this Sensex outperformance continue?

Co-head of research, Tanushree Banerjee believes it will be difficult going forward. Here's an excerpt of what she wrote:

  • "But when I think of safe stocks, I think long-term about the businesses rather than how the Sensex will perform.

    I think of businesses that will be a part of India's long-term growth story. I strongly believe these businesses stand to do well irrespective of the movement of the Index."

Meanwhile, the rupee is currently trading at 68.98 against the US$.

The Indian rupee opened higher at 69.01 per dollar on Friday against previous close 69.06.

The rupee slipped below 69 per dollar mark for the first time since April 11.

On June 27 the Indian rupee ended 8 paise higher at 69.06 against the US dollar on the back of easing crude oil prices and weaker greenback.

Rupee rose against the US dollar for the third successive sessions despite broad strength in the greenback against its major crosses. On the domestic front, market participants could remain cautious ahead of the important G20 meeting that is scheduled during the weekend.

Meeting between US and Chinese leader will be majorly in focus and could bring in volatility for the currencies.

In the run-up to the meeting, the Trump administration has sent mixed messages and any increased uncertainties could push investors towards the safe haven Japanese Yen., the reports noted.

Moving on to the news from the pharma sector. As per an article in a leading financial daily, Lupin has received tentative approval from the US health regulator for generic version of Mirabegron Extended Release (ER) tablets of Astellas Pharma Global Development Inc used to treat overactive bladder.

The approval by the US Food and Drug Administration (USFDA) is for generic version of Mirabegron ER tablets of strengths 25 mg and 50 mg.

The medicine is indicated for the treatment of overactive bladder (OAB) with symptoms of urge urinary incontinence, urgency, and urinary frequency.

As per IMS MAT March 2019 data, the tablets had annual sales of approximately US$ 1,501.6 million (about Rs 105 billion) in the US.

Lupin share price opened the day up by 2.1%.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.


Oil Prices Amid G20 Summit, Global Stock Market Drivers and Top Stocks to Watch Out Today
Pre-Open

The Indian share markets ended with marginal cuts on the last day of the June Futures & Options (F&O) series in Thursday's volatile session.

The benchmark S&P BSE Sensex was little changed from its previous day's close, up 6 points to 39,586, with Tech Mahindra, HCL Tech, Reliance Industries, ITC, and Infosys the biggest BSE losers.

In a volatile session, Sensex rose to 39,817 while Nifty reclaimed the 11,900 level but failed to hold the same.

Top Stocks in Focus

Sun pharma share price will be in focus as its wholly owned subsidiary has entered into an exclusive licensing agreement with a subsidiary of China Medical System Holdings (CMS) for the development and commercialization of Cyclosporine A 0.09% (CsA) eye drops for dry eye disease in Greater China.

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Larsen & Toubro's (L&T) subsidiary, L&T Heavy Engineering (LTHE) has won twin orders from Oil & Natural Gas Corporation (ONGC). The secured order is in the range of Rs 25 to 50 billion.

Welspun India will hog limelight today as the company has signed joint venture agreement with Sense Organics Import & Trading GmbH, Germany.

Aurobindo Pharma's Nellore unit received 'No Action Indicated' tag from US Food and Administration. USFDA completed its audit at Nellore unit on April 19.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Global Stock Market Drivers

US equity futures were mixed on Thursday and European stocks turned lower amid edgy trading in the build-up to a potentially pivotal G-20 meeting in Japan. Treasuries reversed a small drop and gold pared a decline.

Contracts for all three of the main US gauges had been solidly up, but those for the Dow Jones Industrial Average dropped as Boeing fell in pre-market trading after the FAA found new risks related to its grounded 737 Max.

S&P 500 and Nasdaq 100 futures pared some of their gain and Treasuries turned higher when the Wall Street Journal reported that China's insistence the US lift a ban on technology sales to Huawei will be included in President Xi Jinping's terms for a trade truce.

The Saturday sit-down between President Donald Trump and Xi in Osaka, Japan, looms as a key event for markets, with reports about a tariff pause contrasting with Trump's repeated reminders that more duties are possible.

The nervous trading and reaction to the Wall Street Journal report helped underscore the stakes. Separately, the president picked another trade fight with India before a Friday meeting with Prime Minister Narendra Modi and Japan's Shinzo Abe.

Oil Prices Slip

Oil prices fell on Thursday to erase some of the previous session's strong gains, as traders wait for the G20 summit in Japan and for a meeting of OPEC and other crude producers to decide on an extension of output cuts.

Brent crude futures were down 42 cents, or 0.6%, at US$66.07.

US West Texas Intermediate (WTI) crude futures were down 0.6%, at US$59.05.

Oil prices rose more than 2% on Wednesday to their highest in about a month, buoyed by US government data showing a larger-than-expected drawdown in crude stocks as exports hit a record-high and surprise drops in refined product stockpiles.

From the IPO Space...

IndiaMART InterMESH's IPO was subscribed more than 36 times on Wednesday, its final day of issue.

The IPO comprised an offer for sale (OFS) by promoters.

Delhi-based IndiaMart InterMESH is an online marketplace and business-to-business (B2B) classifieds platform.

The IPO opened for subscription on Monday, and closed on Wednesday, June 26.

The Rs 4.8 billion IPO of IndiaMart InterMESH comprised an offer for sale (OFS) by promoters, which means the company will not get any proceeds from public issue. After the issue, the promoters' holding will be reduced to 53% from 58%.