Sensex Hits New Highs; Wipro, Infosys Rally
Closing

Indian share markets traded marginally higher in the afternoon session. At the closing bell, the BSE Sensex stood higher by 54 points, while the NSE Nifty finished up by 30 points. Meanwhile, the S&P BSE Mid Cap finished up by 0.1% & the S&P BSE Small Cap finished flat. Gains were largely seen in realty stocks, metal stocks and software stocks.

Indices Close to Peak Valuations Measured Against Sales

The average profit margins of Indian companies continue to languish near historical lows. But the worry is that the surge in valuations since 2016 has been devoid of profit growth.

Now since earnings are currently unusually low, looking at sales, which are relatively more stable, can give a good sense of how expensive markets are. It turns out the Sensex and the broader BSE 500 indices are close to their peak valuations when measured against sales.

Wipro share price gained 3.3% after it was reported that the board will consider a proposal for buyback of equity shares on 20 July.

With this, Wipro joins the growing roaster of Indian IT firms that have announced buyback offers to return surplus cash on their books to their shareholders.

Meanwhile, Fortis Healthcare share price and Religare Enterprises share price fell 8.1% and 4.5%, respectively after India Ratings and Research downgraded some non-convertible debentures (NCDs) and loans held by RHC Holding Pvt Ltd, which owns shares in Fortis and Religare, to default levels.

Jubilant Foodworks share price surged 9% in the afternoon session after the company reported rise of 25.51% in its net profit at Rs 238.4 million for the quarter under review as compared to Rs 190 million for the same quarter in the previous year. Total income of the company increased by 11.41% at Rs 6.81 billion for Q1FY18 as compared Rs 6.12 billion for the corresponding quarter previous year.

Asian stock markets finished mixed as of the most recent closing prices. The Hang Seng gained 0.31% while the Shanghai Composite lost 1.43%. European markets too are mixed. The FTSE 100 is higher by 0.20%, while the DAX & the CAC 40 are down 0.47% and 0.02% respectively.

The rupee was trading at Rs 64.37 against the US$ in the afternoon session. Oil prices were trading at US$ 46.51 at the time of writing.

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In news from economy, the latest edition of the OECD's economic outlook report on India has said that economic growth is projected to remain strong. The report stated that India will remain the fastest growing G20 economy, hailing the several initiatives taken by the new government.

It said that the acceleration of structural reforms in the Indian economy, with the efforts made by Prime Minister, is bringing a new growth impetus, which has won the confidence of the people by increasing public wages and pensions that will support consumption.

The Organisation for Economic Co-operation and Development (OECD) in its June 2017 report said that the single tax market will spur productivity, investment, competitiveness, job creation and incomes.

The report also noted that the costs of the withdrawal of high denomination notes - demonetisation - in November 2016 are wearing off, and sales of cars and two-wheelers have bounced back. It also said, exports have picked up, driven by strong demand from Asia and the euro area. Higher oil prices and gold imports, coupled with a decline in remittances inflows, are reflected in some deterioration in the current account deficit.

Moving on to news from steel sector. Tata Steel has reportedly signed a long-term tariff contract (LTTC) with Indian railways. The company has become the first steel company to enter such pact with Indian railways.

The main objectives of LTTC includes long-term revenue commitment from customers, preferential treatment to customer for supply of wagons, generation of additional traffic volumes and revenues for railways and freight concession on retention of traffic as well as on incremental traffic.

Meanwhile, the company will also seek shareholder approval to raise about Rs 100 billion through non-convertible debentures in an exercise seen to reduce its financing costs.

Tata steel share price finished the trading day down by 0.2%

In news from oil & gas sector, as per an article in The Livemint, Hindustan Petroleum Corporation (HPCL) is planning to invest Rs 610 billion over the next four years in expanding and upgrading its existing refining capacity to meet higher quality fuel norms. The company is upgrading both its Mumbai and Visakh refineries to produce fuel meeting Euro-VI emission norms.

The company will invest Rs 209.28 billion in expanding its Visakh refinery in Andhra Pradesh from 8.33 million tonnes (MT) per annum to 15 MT by July 2020. Also, the Mumbai refinery is being expanded to 9.5 MT a year from current 7.5 MT at a cost of Rs 41.99 billion.

Moreover, the company is planning to expand Mundra-Delhi, Visakh-Vijayawada and Ramanmandi-Bahadurgarh pipelines to meet rising fuel demand. Besides, new LPG lines will be laid and bottling plants set up to cater to the increased demand for cooking gas.

HPCL share price finished the trading day down by 2.8% on the BSE.


Sensex Remains Positive; Cigarette Stocks Decline
01:30 pm

After opening the day on a positive note, the share markets in India continue to trade above the dotted line. Barring FMCG stocks, PSU stocks and capital goods stocks, all sectoral indices are trading in green, with stocks in the information technology sector & metal sector leading the gains.

The BSE Sensex is trading higher by 57 points (up 0.2%) while the NSE Nifty is trading higher by 20 points (up 0.2%). The BSE Mid Cap index is trading down by 0.1% while BSE Small Cap index is trading up by 0.1%. Gold prices, per 10 grams, are trading at Rs 28,040 levels. Silver price, per kilogram is trading at Rs 37,165 levels. Crude oil is trading at Rs 3,003 per barrel. The rupee is trading at 64.45 to the US$.

Shares of cigarettes companies such as ITC share price, Godfrey Phillips share price and VST Industries share price slipped up to nearly 3% today following the news buzz that the GST Council may consider hiking the compensation cess on cigarettes if prices come down post the implementation of the Goods and Services Tax (GST).

After implementation of GST, cigarettes fall in the highest 28% bracket and attract an additional cess depending on their length.

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Notably, the effective levy is about 8% lower than earlier, as per the reports. This is mostly due to the drop of additional excise duty under GST regime.

However, cigarette manufacturing companies are yet to revise prices post GST. If the price of cigarettes come down, the government may not look at levying central excise duty but may consider increasing the cess on the demerit good, the reports noted.

As we have saying, GST is a much-needed economic reform. It should eventually expand India's narrow tax base and increase government revenues.

That said, every coin has two sides. GST is no exception. It will have its fair share of chaos in the coming months.

GST's Impact on Aam Aadmi's Spending

While GST will impact businesses and industries in a big way, it won't directly affect the salaried class and self-employed personnel (Aam Aadmi). Since it is an indirect tax, it does not change the way they pay their personal taxes. The only impact they will see would be due to the change in rates of the goods and services they avail.

Moving on to the news from stocks in automobile sector. Mahindra & Mahindra share price was trading up over 1.7% on the reports that the auto major is set to open an auto manufacturing plant in Detroit this year, becoming the first Indian car maker to do so in the US.

Reportedly, M&M has deployed US$1.5 billion in US to generate revenue of US$2.5 billion. The company is targeting doubling these figures in next two or three years.

The company plans to manufacture off-road utility vehicles in the plant. The automaker also plans to hire 3,000 people for its US greenfield auto manufacturing plant.

Later this month, the group is expected to take a final call on approving the global launch of luxury electric sports cars along the lines of Tesla Inc. under the Pininfarina brand.


Indian Indices Trade on a Flat Note; IT Stocks Witness Buying
11:30 am

Share markets in India are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the IT sector and metal sector witnessing maximum buying interest. FMCG stocks are trading in the red.

The BSE Sensex is trading up 63 points (up 0.2%) and the NSE Nifty is trading up by 21 points (up 0.2%). The BSE Mid Cap index is trading down by 0.1%, while the BSE Small Cap index is trading flat. The rupee is trading at 64.35 to the US$.

As per an article in the Economic Times, foreign investors have pumped in nearly Rs 110 billion in the Indian capital markets during the first two weeks of July.

As per the latest depository data, FPIs invested a net Rs 4.9 billion in equities during July 3-14, and poured Rs 104 billion in the debt markets.

However, despite the above foreign inflows, foreigners seem less enthused about India compared to some other emerging market countries in FY17, as can be seen from the chart below:

FIIs Not Very Bullish at the Moment

As per an article in the Business Standard, FII flows in 2017 have been impressive at US$ 6.3 billion. But it is only 0.32% of the market cap of the Indian stock market.

1% is considered a sign of a full-fledged bull market. FII flows were 1.04% of market cap in 2014 when the markets were on a roll after the NDA came to power.

Things have not been great since then. The lack of big bang reforms was one reason why FIIs have been cautious.

That said, one shall note that the recent rollout of the Goods and Services Tax (GST) can again motivate FIIs to pour money in the Indian financial markets.

Only time will tell how things pan out on this front. Meanwhile, we'll keep you updated on the latest developments on this front.

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Speaking of GST, the Goods and Services Tax became the order of the day at the start of this month. And all these months we have been subjected to a relentless propaganda by the government and the supporters of the GST, on how it will change our world, only for good.

Our colleague Vivek Kaul, has studied the finer aspects of the GST and predicted what could go right and wrong.

Download his special report - The Good, the Sad and the Terrible (GST).

In the news from global financial markets, Ms Yellen recently stated the US economy is healthy enough for the Fed to keep raising interest rates and begin winding down its massive bond portfolio. She hinted that the world's top economy is showing improvement. The economy continues to add jobs and is near full employment. Household consumption is steady. And business investment is improving.

Thus Yellen indicated the Fed would gradually increase interest rates and begin to reduce its US$4 trillion portfolio of treasury bonds and mortgage-backed securities this year. Ms Yellen also said that 'rates won't have to rise much further to get to neutral'.

This was key, a somewhat dovish statement.

Inflation remains a major concern in the US. It's still a bit below the Fed's 2% target.

It is important to understand the short term impact Fed rates can have on the emerging markets. Fed rate is the interest rate that the US Fed is willing to provide for banks in the US. Banks use this rate for their borrowing and lending activities. It increases savings deposits from borrowers, increases borrowing rates for customers.

Emerging markets like India generally have higher interest and inflation rates as compared to developed nations like US.

As a result, a lot of financial institutions borrow money from countries like US since it's cheaper. They invest that money in India since rates are higher.

As we stated in a recent edition of The 5 Minute WrapUp...

  • With US Fed increasing interest rates, the interest rate difference between US and India comes down. As a result, risk-averse investors are likely to shift their money from countries like India to the US. The usual scenario after a Fed rate hike has been that of sharp fall in equity indices, a weaker rupee and sustained foreign fund outflows.

However, one must note that India has recently become resilient to these interest rate changes. Strong domestic inflows have negated the impact of foreign fund outflows.

Data from the past one year shows that BSE Sensex did not move more than 1% on either side after Fed announced its interest rate policy. When the US central bank hiked rates in December 2016, Sensex tripped only 0.3%, while after the rate hike in March it actually rose by 0.7%.

While the Fed rate hike, whenever it happens, might have a short-term impact, long term investors needn't be worried about the prospects of share market in India.


Sensex Opens Marginally Up; Wipro Gains Over 3.3%
09:30 am

Asian equities are trading mixed today as investors awaited the release of China's second-quarter GDP. Hong Kong's Hang Seng surged over 95 points. China's Shanghai Composite which is trading at 3,182 has slipped 40 points. The US markets ended the week on a high note. The Dow and S&P 500 hit record highs on Friday after weak economic data dulled prospects of more interest rate hikes this year.

Back home, share markets in India have opened the day on a positive note. The BSE Sensex is trading higher by 62 points while the NSE Nifty is trading higher by 19 points. The BSE Mid Cap Index and BSE Small Cap index opened the day up by 0.4% & 0.3% respectively.

Barring FMCG stocks, all sectoral indices have opened the day in the green with energy stocks and capital goods stocks leading the pack of gainers. The rupee is trading at 64.45 to the US$.

Wipro share price surged over 3.3% on the reports that its board will consider a proposal for buyback of equity shares on 20 July.

With this, Wipro joins the growing roaster of Indian IT firms that have announced buyback offers to return surplus cash on their books to their shareholders.

Pharma stocks opened the day on a mixed note with Cadila Healthcare and Dishman Pharma leading the losses. As per an article in a leading financial daily, Zydus Cadila has received a tentative nod from the US health regulator to market Fingolimod capsules used for treatment of multiple sclerosis.

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The company has received tentative approval from the United States Food and Drug Administration (USFDA) to market Fingolimod capsules 0.5 mg.

The drug will be produced at the group's formulations manufacturing facility at pharma SEZ in Ahmedabad, the reports noted. As per market estimates, the US market for Fingolimod Capsules is approximately US$ 2.1 billion.

With this, the group now has over 120 approvals and has so far filed more than 300 Abbreviated New Drug Applications (ANDAs).

Meanwhile, Alkem Laboratories announced that the US health regulator has not issued any 'observation' post inspection of its Taloja facility in Maharashtra.

USFDA had conducted an inspection at the company's bioequivalence facility located at Taloja from 10 July to 14 July 2017.

Notably, USFDA alerts on Indian pharma companies have increased over the past few years. Regulators used to visit the plants every two years. Now they come every eight months.

Increasing inspections have led to a total of 41 import alerts in the past eight years. This clearly signifies increased USFDA scrutiny on Indian pharma firms. If that wasn't enough, increasing pricing pressure in the generics segment has dented realizations.

Expediting Drug Approval Process to be a Positive for Industry

In this dull scenario, there appears to be some respite as the USFDA has expedited the drug approval process. Drug approvals for Indian companies have gone up 50% in the period from January to June 2017 compared to the same period last year.

Cadila Healthcare share price and Alkem Laboratories share price opened up by 1.4% & 1.8% respectively.

In another development, foreign investors have pumped in nearly Rs 110 billion in the capital markets in the first two weeks of this month on the back of the trouble-free rollout of GST and stimulating Indian economy.

The latest inflow comes following a net infusion of over Rs 1.62 trillion in the previous five months (February-June) on several factors.

Prior to that, such investors had pulled out over Rs 34.96 billion from debt markets in January.

According to the latest depository data, FPIs invested a net Rs 4.98 billion in equities during July 3-14, while they poured Rs 104.05 billion in the debt markets during the period under review, translating into a net inflow of Rs 109.03 billion (US$1.7 billion).

With the latest inflow, the total investment in the capital markets (equity and debt) has reached Rs 1.6 trillion (over US$24 billion) this year.


Infosys Raises Revenue Growth Forecast; Axis Bank in search of a new CEO and Stocks to Watch Out Today
Pre-Open

Indian share markets ended the week marginally lower due to selling pressure in software stocks after muted results from TCS, the flagship software company.

At the closing bell, the BSE Sensex stood lower by 17 points, while the NSE Nifty finished down by 5 points. Meanwhile, the S&P BSE Mid Cap finished up by 0.2% & the S&P BSE Small Cap finished down by 0.4%. Gains were largely seen in PSU stocks, pharma stocks, and energy stocks while, software stocks finished in red.

Let us now have a look at some of the major events that market participants will be tracking today.

Infosys Raises Revenue Growth Guidance for FY18

Infosys share price will be in focus today after the company reported better than expected earnings. The company reported 3.3% quarter-on-quarter (QoQ) in June quarter net profit at Rs 34.83 billion.

Infosys also raised its revenue growth forecast in dollar terms for FY18. Strong growth in the current quarter prompted Infosys to revise its estimates upwards to 7.1%-9.1% in FY18 from its earlier guidance of 6.1%-8.1%.

Axis Bank start search for a new CEO

Axis Bank has started the search for a new CEO to succeed its current CEO Shikha Sharma whose term ends in 2018. The board has hired executive search firm Egon Zehnder to identify a new CEO. Axis bank has been one the best performing banks amongst major banks since Shikha Sharma took charge in 2009.

Axis Bank share price has been under pressure recently after a disappointing end to FY17. The bank reported 3.9% YoY growth in net interest income while net profits declined 43.1% YoY in 4QFY17.

Its Asset quality pains continued throughout the year with Gross non-performing assets rising 3.98% during the quarter to Rs. 212.8 billion at end of FY17.On a YoY basis, it has more than tripled from Rs. 60 billion.

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Top Cues in Action Today

In news from IPO space, the initial public offer of infrastructure firm Salasar Techno Engineering will close today. The IPO was oversubscribed 5.07 times on 14th July, its second day of bidding.

The IPO received bids for 16,852,375 shares against the total issue size of 3,321,000 shares, data available with the NSE showed.

Proceeds from the issue will be utilized for meeting working capital requirements and general corporate purposes. Salasar Techno provides customised steel fabrication solutions in the domestic market.

In news from the pharma stocks, Cipla and Swiss giant Novartis are reportedly in preliminary talks to jointly market asthma drug Xolair, just months after they ended a legal battle over another respiratory drug. Xolair (Omalizumab) is an injectable prescription medicine used to treat moderate to severe persistent asthma in patients whose symptoms are not controlled by inhaled corticosteroids.

Cipla lost its battle with Novartis in March, when the Delhi High Court stayed the company's request to sell copies of Novartis respiratory brand Onbrez (indacaterol).

Meanwhile, Biocon Ltd share price has been on an upswing after the company said FDA Oncologic DAC Favors Nod for Proposed Biosimilar. FDA Oncologic Drugs Advisory Committee unanimously recommends approval of Mylan and Biocon's proposed biosimilar Trastuzumab.

Volatility in Crude Oil Prices continue

Crude oil traded in an uptrend during the past week. After witnessing a volatile start to the week, the commodity ended the week on a positive note and was up 5.5%. The traction in the crude was in response to a fall in US fuel inventories and a cut in the US government's forecast for crude output next year.