Sensex Trims Early Gains to Finish Flat; Indigo Slips 2.3%
Closing

Indian share markets trimmed its early gains in the afternoon session to finish just above the dotted line amid mixed global cues. At the closing bell, the BSE Sensex stood higher by 23 points, while the NSE Nifty finished up by 13 points. Meanwhile, the S&P BSE Mid Cap & the S&P BSE Small Cap finished up by 0.3% and 1% respectively. Gains were largely seen in metal stocks, realty stocks and FMCG stocks.

Indigo share price slipped 2.3% in afternoon trade after it was reported that the company has expressed unsolicited interest in Air India.

IndiGo is the first company that has shown interest in buying stake in Air India, Aviation Ministry said on Thursday. The ministry expects more airlines to approach to buy stake in Air India.

The government, on Wednesday, gave approval to privatise debt-laden Air India, the first step of a process that could see the government offload an airline struggling to turn a profit in the face of growing competition from low-cost rivals.

The Modi government has infused nearly Rs 160 billion since coming to office in 2014 and the central exchequer is no longer keen on keeping the airline afloat with little sign of a revival.

India's aviation industry is on a high-growth trajectory. India's domestic air passenger traffic has almost doubled in the past six years. This is on the back of strong economic growth and emergence of low-fare airlines. Indian carriers have now set their sights on International traffic. Indian carriers have been slowly increasing their market share. It is important to note that foreign carriers still dominate international traffic to and from India.

Domestic Airlines Fly High in Foreign Skies

As per the report by rating agency ICRA, the share of domestic airlines in India's international traffic increased from 30.1% in FY14 to 35.1% in FY17. In the coming years, this share is expected to increase as the government replaced the 5/20 rule with 0/20 rule. The 5/20 rule mandates that airlines need to fly at least 5 years domestically and should possess 20 aircraft. The new 0/20 rule does away with the five-year requirement, but carriers will still need to demonstrate a fleet of 20 aircraft.

It is important to note that certain industries have relatively dull economics compared to others. And investors would do well to keep this in mind, particularly in the case of aviation. Investors need to understand the industry dynamics before buying up aviation stocks.

Asian stock markets finished broadly higher today with shares in Hong Kong leading the region. The Hang Seng is up 1.10% while China's Shanghai Composite is up 0.47% and Japan's Nikkei 225 is up 0.45%. European markets are mixed. The FTSE 100 is higher by 0.30%, while the CAC 40 is leading the DAX lower. They are down 0.48% and 0.16% respectively.

The rupee was trading at Rs 64.47 against the US$ in the afternoon session. Oil prices were trading at US$ 44.95 at the time of writing.

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In news from economic sector, raising concerns over the recent spate of declarations of farm loan waivers across the country, the credit rating agency, Fitch Ratings in its latest report has said that these moves could have a significant impact on state government finances and might undermine efforts to bring down general government debt. The rating agency noted that the farm loan waivers will also lead to further fiscal slippage at the state level or will reduce the funds available for public investment.

While the central government has indicated that it will not participate in the waivers, the report pointed that the combined finances of the states - which are included in general government debt and deficits - have been under pressure.

Besides, the agency said that public pay hikes, election spending and higher interest costs stemming from the UDAY scheme - under which state governments have taken on debt from power distribution companies - are all likely to add to expenditure.

Fitch rating highlighted that banks could also be affected by the waiver schemes, but it could benefit banks if they offload farm loans with weak repayment prospects to state governments. The agency also indicated uniform farm loan waivers could lead to moral hazard and weaken the general repayment culture among financially healthy farmers, but they will still have an incentive to repay loans to retain access to future funding.

Moving on to news from bank stocks. Axis bank share price surged 3.5% in today's trade after the bank clarified to the exchanges that its 80% insolvent loans are secured.

This move is seen positive because provisioning requirement on secured loans is lower as compared to unsecured loans. The bank had exposure to eight out of the 12 stressed accounts that the Reserve Bank of India advised initiating insolvency process on.

As per Livemint, the total fund-based outstanding from these eight accounts is Rs 50.7 billion. Non-fund-based outstanding was Rs 2.12 billion. Against this outstanding, the provision held was Rs 24.97 billion.

In news from FMCG sector, as per an article in The Economic Times, the cumulative sales of ITC's non-cigarette FMCG brands has crossed the US$2-billion mark in the fiscal ending March 2017, at Rs 140 billion growing by 16% over the previous year.

Aashirvaad which operates in packaged atta, ghee, spices and instant meals is the largest brand at Rs 35 billion growing by over 16% followed by Sunfeast, which is into biscuits at over Rs 30 billion.

Reportedly, the company is gearing up to meet new consumer trends such as emergence of health and wellness products, increasing preference for products rooted to 'Indianness' and with regional or cultural connect, growth in demand for 'on-the-go' consumption formats and rising influence of social media and digitalisation on consumer preferences.

While ITC's packaged food business is already profitable, the other FMCG businesses are yet to become profitable. The foods business is expected to be the majority contributor to its goal of achieving a turnover of Rs 1 trillion from its non-cigarette FMCG businesses by 2030.

ITC share price finished the trading day up by 1.1% on the BSE.

And here's a note from Profit Hunter:

The Nifty 50 Index ends its June expiry today. Let's have a look how the index performed during the expiry.

The index traded on a volatile note during the expiry. In the initial days, the index traded with a positive bias to hit a new life high of 9,709. But the buying interest did not last long and the index dragged to a low of 9,560 during the mid-expiry. It bounced strongly to retest its life high, but the bears continued to dominate and the index slipped to a low of 9,475 in the last week of expiry.

Today, the index rallied 85 points but again slipped sharply during the second half of the session to end the June expiry flat.

Towards the end of the expiry, the index broke below its 20-day exponential moving average (EMA), which has acted as strong support since January. The RSI indicator also broke below 50, which had acted as support during declines.

Does this indicate end of the bull rally? The rollover of the Nifty might give us a clearer picture. Watch out for the rollover report in tomorrow's Profit Hunter newsletter in the Market Notes section.

Nifty 50 Index Ends June Expiry Flat
Nifty 50 Index Ends June Expiry Flat 


Sensex Trim Gains to Trade Marginally Higher; JSW Steel Surges 3%
01:30 pm

Indian share markets trimmed some of their early gains to trade marginally higher during the noon session. Metal stocks and software stocks witnessed majority of the buying momentum. Bank stocks traded in red.

The BSE Sensex is trading higher by 73 points and the NSE Nifty is trading higher by 23 points. Meanwhile, the BSE Mid Cap index & the BSE Small Cap index is up by 0.6% & 1% respectively. The rupee is trading at 64.52 to the US$.

In news from steel sector, JSW Steel share price is trading on an optimistic note (up 2.9%) after the company received its board's approval to set up a Slurry Pipeline to transport iron ore from coastal Karnataka to the Vijayanagar works.

This Slurry Pipeline can be set up within 24 months at an estimated cost of Rs 21 billion. This will facilitate transporting iron ore through Slurry Pipeline at a very competitive 15% cost of alternate means of transport.

This strategic project will enable the company to source almost 50% of the current requirement of iron ore at Vijayanagar works from outside Karnataka either from imports or from Odisha / eastern sector at prices lower than the prevailing prices in Karnataka.

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Meanwhile, as per an article in The Financial Express, one of the major irritants in the growth journey of Indian steel industry has been the poor record of repayment of loans taken from the banks and other financial institutions.

Out of the total loans to the industry, the steel sector has a share of 10.24% (Rs 3.1 trillion). It is reported that the stressed assets of steel sector out of the gross NPAs comprise around 29.38% of the total and stands at Rs 1.5 trillion.

Which Sectors are a Menace to Indian Banks?

The financial liabilities of SMEs are a major worry as many them are served notices for violation of environment norms and therefore need to close their operations. Under the current subdued market conditions and the continuing economic restructuring that is taking place in China, the demand for conventional standard grades of steel is on the wane and the suppliers of these grades of steel from induction furnaces and other SMEs that are environment polluting would be facing a huge problem of survival.

Indian steel industry had passed through an agonising period in FY15 and FY16 when the government lent a helping hand to the ailing industry suffering maximum losses, including fall in profitability and drop in market share from cheap and dumped imports from China, Korea, Japan and Russia by imposing MIP, safeguard and AD duties.

Moving on to news from energy sector. As per a leading financial daily, Hindustan Petroleum Corporation (HPCL) is planning to raise at least US$500 million by selling US dollar bonds to investors in Asia and Europe. The money raised will be used to refinance existing debt and to meet some capital expenditure.

As per Livemint, this proposed round of funding could be used to buy the stake in Russia's oil fields along with Indian Oil Corp., Oil India, and BPRL.

HPCL has joined a domestic consortium eyeing to snap up 49% stake in Russia's Vankor Cluster oil fields in the Arctic Region. The fields are owned by Rosneft, the Russian national oil company. The asset includes the Suzunskoye, Tagulskoye and Lodochnoye oil fields, for which ONGC Videsh had originally signed an agreement to buy a stake.

Later, IndianOil, Oil India and Bharat PetroResources came in. Already the consortium owns 23.9% stake in the field that pumps out 6.56 million tonnes oil and for which it paid Rs 129 billion. There were also reports that the HPCL would soon be tapping the markets to raise Rs 270 billion in debt to start work on its fund upcoming 9 million tonnes per annum Rs 431.29 billion project Rajasthan refinery in which it owns 75%.

HPCL share price is presently trading up by 0.4% on the NSE.


Indian Indices Continue Momentum; Metal Stocks Witness Buying
11:30 am

After opening the day marginally higher, stock markets in India have continued their momentum. Sectoral indices are trading on a positive note with stocks in the metal sector and telecom sector witnessing maximum buying interest.

The BSE Sensex is trading up 201 points (up 0.7%) and the NSE Nifty is trading up 65 points (up 0.7%). The BSE Mid Cap index is trading up by 0.8%, while the BSE Small Cap index is trading up by 1.3%. The rupee is trading at 64.45 to the US$.

It's raining IPOs in the Indian capital markets.

In the month of June, we evaluated and gave our verdicts on all the IPOs that hit the Indian primary markets - Tejas Networks, Eris Lifesciences, Central Depository Services Limited (CDSL), and GTPL Hathway.

One of the above IPOs - Eris Lifesciences - made its debut on the stock markets today.

The company made a modest introduction on the BSE, with the stock of the company listing at Rs 612. This meant a 1.49% premium to its issue price of Rs 603.

Speaking of IPOs, the primary markets have caught the frenzy of investors. However, are IPO's a sure shot way to make money in the stock markets?

According to Hindu Business Line, till June 2016, only 40% of the IPOs launched between 2004 and 2011 were trading above their issue price, as can be seen from the chart below.

Are IPOs a Sure Shot Way to Make Money?

So the best way to invest in IPOs is by evaluating each IPO on its merits by considering its fundamentals, and most importantly, the valuations. And this is particularly important when the hype surrounding IPOs is at its peak.

If you're new to the 'dizzy' world of IPOs, we have something for you...

Our new and completely free report - How to Get Rich with IPOs - will tell you how to find those money spinning IPOs and avoid the disasters in the coming year and beyond.

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Apart from the four IPOs we saw this month, there's one more open for subscription presently. The company is AU Small Finance Bank Ltd.

AU Small Finance Bank Limited (AU SFB) is a small finance bank that has recently transitioned from retail focused non-banking finance company which primarily served low and middle-income individuals and businesses that have limited or no access to formal banking and finance channels.

The company received a license from RBI to set up small finance bank (SFB) on 20 December 2016 and it is the only NBFC categorised as an asset finance company to obtain such a license. It commenced SFB operations from 19 April 2017.

Should you consider participating in this IPO?

Here's our view on the AU Small Finance Bank Ltd IPO (subscription required).

In other news, as per an article in the Economic Times, the Finance Ministry has started notifying various provisions of law relating to interest calculation, input tax credit and valuation under the GST regime.

Also, provisions in the Central GST Act (CGST), Integrated GST (IGST) Act and Union Territory GST Act and rules under them are being notified.

All this come with a day left for rollout of GST.

Implementation of GST promises to transform India into a single common market and there are many sectors which will gain immensely from this transition.

The implementation of the same is bound to bring more companies under the new tax regime, thus providing a level playing field to organized players that face huge competition from the unorganized segment.

If you would like to dig deeper into the practical implications of GST, I strongly recommend you download Vivek Kaul's free report, What the Mainstream Media DID NOT TELL YOU about GST.

For individual stocks, GST should not change one's perception about businesses and the way they value them. In other words, following a bottom-up approach and picking undervalued stocks during such times could continue to prove the best play.


Sensex Opens Firm; Axis Bank & Bharti Airtel Top Gainers
09:30 am

Asian stock markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.54% while the Hang Seng is up 0.82%. The Shanghai Composite is trading higher by 0.23%. The US stocks edged higher on Wednesday led by a rally in financial and technology stocks.

Meanwhile, share markets in India have opened the day on a positive note. The BSE Sensex is trading higher by 149 points while the NSE Nifty is trading higher by 46 points. The BSE Mid Cap Index and BSE Small Cap index opened the day up by 0.7% & 0.6% respectively.

All sectoral indices have opened the day in green with realty stocks and metal stocks leading the gains. The rupee is trading at 64.53 to the US$.

Bharti Airtel share price opened over 2.5% up on the reports that the telecom major is the most likely acquirer of the struggling Tata Teleservices as the Indian telecom sector consolidates into a four-operator market in the next three years.

Reportedly, with the big merger-in-progress between Vodafone and Idea Cellular, Bharti Airtel, a strong peer is starting its talks of acquiring Tata Teleservices. If the Vodafone and Idea merger actually gets implemented, it will outpace Airtel's revenue and lead to its loss of market capitalisation. To mitigate this, Airtel's chief Sunil Mittal devised a new strategy to maintain its leadership in the market.

Airline stocks opened the day in green with Spicejet Ltd & Interglobe Aviation witnessing maximum buying interest. In the latest development, the Cabinet on Wednesday gave in-principle approval for "disinvestment" of debt-laden Air India, making its intent to sell the debt-laden airline rather clear for the first time.

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A nagging drain on the exchequer for long, the national carrier has a total debt of around Rs 500 billion and an annual interest outgo Rs 45 billion. It is surviving on a 2012 bailout package, under which it has so far received Rs 240 billion.

Reportedly, the move will not only embellish the credentials of the National Democratic Alliance (NDA) as a reformist administration, but also ease the fiscal pressure on the union government - especially in indirectly servicing the airline's outstanding debt burden.

The group under Jaitley will decide on the treatment of unsustainable debt of Air India, hiving off certain assets to a shell company, spinning off and selling stakes in three profit-making subsidiaries, the quantum of disinvestment, and the eligibility criteria for the bidders.

Speaking of the aviation industry, India's aviation industry is on a high-growth trajectory. According to International Air Transport Association (IATA), India has moved up two places to become the fourth largest aviation market in terms of number of passengers.

Indian Aviation Spreading its Wings

Notably, domestic air passenger traffic surged nearly 17.4% YoY to 10.2 million in May 2017. In May 2016, this figure was 8.7 million.

Interestingly, Air India also improved its market share marginally in May 2017. The carrier's share rose to 13% from 12.9% in April, though still below 14% that it had in January.

Although greater air travel is becoming a new normal, investors need to understand the industry dynamics before buying up aviation stocks.

In another development, Eris Lifesciences is set to debut on the stock market today after concluding its initial public offer (IPO) last week.

The company's IPO was subscribed 3.29 times during 16-20 June. The portion set aside for qualified institutional buyers (QIBs) was oversubscribed 4.68 times, non-institutional investors 45% and retail investors 3.51 times.

The price band for the share sale was fixed at Rs 600- 603. Eris Lifesciences is into manufacturing of branded pharmaceutical products in select therapeutic areas.

The company is one of the fastest growing players in the acute and chronic segment and has a product profile of 80 mother brands. Even as other export focused pharma companies have been facing the regulatory heat in developed markets, this company due to its 100% domestic exposure is relatively well placed.

Recently, one of the issues of The 5 Minute Premium laid out all the financial details of Eris Lifesciences, our view on whether to apply and the risks to the IPO. Do take a look, if you haven't already.

We, at Equitymaster, have always recommended IPOs cautiously. Here's Rahul Shah, co-head of research at Equitymaster, explaining our rationale behind the approach:

  • 'We know what a dirty game the IPO business is. We've seen it over and over again: It's a game where the odds are stacked against investors. So for us, the equation is simple. We'd rather face criticism in the short run than see our subscribers lose money over the longer term. We weren't afraid to do this during the hot IPO days of 2007, and we're not afraid to do it today.'

The Bottomline: You need to evaluate each IPO on its merits by considering its fundamentals, and most importantly, the valuations. And this is particularly important when the hype surrounding IPOs is at its peak.

We have reviewed each of them and have released their recommendation notes. You can check the same on our IPO page.


How These Companies are Remodeling to Sustain the Megatrend
Pre-Open

India is among the countries worldwide having cheap labour. Cheap labour lowers operating costs and aids in making India's exports competitive in the world market.

Unfortunately, the cost of doing business in the country has been on an uptrend. Add to it, technological advancements have led to increased competition from neighboring countries . Therefore Indian businesses are remodeling their export markets to stay on course, if not ahead of the competition.

A case in point is the textile industry.

We came across an article in Business Standard which states how garment manufacturers are looking to set up their manufacturing facilities overseas.

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The nation they have their eye on is Ethiopia and have lined up over Rs 6 billion in investments in the country.

One of the main reasons why Indian garment manufacturers are flocking to Ethiopia is because the country gives duty-free access to Europe and US markets. Also, the labour costs in Ethiopia for these firms is half that in India. Add to it lower shipment time to the US which results in big cost savings.

Besides that, power cost is also low (below Rs 2 as compared to Rs 7 in India) and the Ethiopian local government does not insist garment manufacturers to invest in land and buildings.

India, on the other hand, does not give duty free access to Europe and the US making it difficult for domestic garment manufacturers to compete with Bangladesh and Sri Lanka.

Companies such as Raymond, Arvind Ltd, Best Corporation and JJ Mills are setting up manufacturing plants in Ethiopia to regain their competitive strength in global markets.

While challenges remain such as training of local labour and developing the manufacturing landscape, we believe the above development will unleash the megatrend opportunity for Indian textile manufacturers and exporters.

And companies with solid fundamentals and a competitive moat will capture most of the value from the above trend.