Sensex Ends Day in Green; IT Stocks Lead Gains

After opening the day in green, share markets in India witnessed positive trading activity throughout the day and ended the day in above the dotted line. All sectoral indices traded in green, with stocks in the IT sector and stocks in the pharma sector, leading the gains.

At the closing bell, the BSE Sensex stood higher by 145 points (up 0.4%) and the NSE Nifty closed up by 53 points (up 0.5%). The BSE Mid Cap index ended the day up 0.7% while the BSE Small Cap index ended the day up by 0.4%.

The rupee was trading at Rs 68.93 against the US$ in the afternoon session. Oil prices were trading at US$ 73.17 at the time of writing.

Asian stock markets finished mixed. As of the most recent closing prices, the Hang Seng was up by 0.7% and the Shanghai Composite was up by 2.5%. The Nikkei 225 was down by 0.3%. Meanwhile, European markets too were trading on a mixeds note. The FTSE 100 was down by 0.4%. The DAX, was up by 0.6% while the CAC 40 was up by 0.1%

Moving on to news from stocks in the banking sector. IDBI Bank share price is in focus today after it was reported that the Reserve Bank of India (RBI) has given an in-principle nod to Life Insurance Corporation (LIC) for acquiring a majority stake in IDBI Bank.

The RBI's approval comes right after LIC's board approved the deal for the buyout of the state-owned IDBI Bank Ltd.

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The LIC board approved the acquisition of up to 51% stake in IDBI Bank.

The government owns over 81% stake in IDBI Bank, while LIC already holds a 7.98% stake in IDBI Bank as of end June this year; the latest approval will enable it to acquire another 43% stake in the bank.

A stake sale of 40-43% in the lender could net the government over Rs 100-110 billion.

Notably, the government had announced that it would bring its stake in IDBI Bank below 50% in the Union Budget 2016.

The IDBI Bank board is scheduled to meet soon to draw capital raising plan for the next five years.

IDBI Bank share price ended the day up by 3.1%.

LIC - The Default Bad Bank?

Ask an average Indian investor about the next best thing after safe bank deposits. I can bet they would tell you about LIC policies. For generations Indians have treasured LIC policies in their safe deposit lockers like their gold and fixed deposit receipts. Life Insurance Corp. of India (LIC) meanwhile, has been acting like the government's ATM for years. It has bailed out public issues of scores of PSUs. And helped the government milk by buying a majority stake in several state-owned lenders. The latest attempt to bail out the troubled IDBI Bank is a classic case of the state insurer buying toxic assets.

In fact, given the high stakes that LIC owns in the most troubled banks, the government needn't even consider the proposal of setting up a 'Bad Bank'. It could just turn LIC into one. At least then the investors owning investments in LIC policies, would know the real risk they carry.

Moving on to news from stocks in the pharma sector. Alembic Pharma share price is in focus today after, has received an inspection report from the US drug regulator.

In news from stocks in the pharma sector. Alembic Pharma share price is among top gainers today as the company received an establishment inspection report (EIR) from the US Food and Drug Administration (USFDA).

The company received the establishment inspection report (EIR) for its active pharmaceutical ingredient (API) facility at Karakhadi, 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.

The USFDA carried out inspection of the company's Karakhadi facility from 14-18 May.

Alembic Pharma share price ended the day up by 3.7%.

Indian pharma companies catering to the US markets are breathing a sigh of relief. After being adversely affected by import bans and the suspension of new drug approvals from manufacturing facilities in the past three years, there has been a sharp pick-up in new drug approvals in FY17.

With an aim to lower the overall healthcare costs in the country, the US Food and Drug Administration (FDA) approved a record 763 generic drugs for the financial year ending 30th September. As per Mint Analysis, Indian pharma companies received 295 approvals accounting for 40% of the overall approvals during the year.

Even the total filings of abbreviated new drug applications (ANDAs) for generic drugs rose to 1,292 in FY17 from 852 in the previous year. While, faster approvals expedite the commercialisation of product pipelines of domestic pharma companies spurring growth. At the same time however, it has raised the intensity of competition resulting in pricing pressures. The price erosion has been further compounded by a consolidation among US distributors and the decline in the number of products going off-patent over the past few years.

In other words, acceleration in generic drug approvals is like a double-edged sword. The growth boost can be quickly offset by the ensuing pricing pressures. Pharma companies that invest in creating a pipeline of complex generics or building competencies in alternative dosage forms are better equipped to tackle the changing dynamics in the US generics market.

Therefore, despite a lot of pessimism surrounding pharma stocks on regulatory uncertainty, we have stocks in open positions in StockSelect and have remained bullish on pharma stocks in our long term service, ValuePro.

You can listen to this week's stock market updates in our brand new podcast below. Tune in!

Indian Indices Trade on a Positive Note; Sensex Up Over 150 Points
12:30 pm

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 IT sector and capital goods sector witnessing maximum buying interest.

The BSE Sensex is trading up 159 points (up 0.4%) and the NSE Nifty is trading up 48 points (up 0.4%). The BSE Mid Cap index is trading up by 0.5%, while the BSE Small Cap index is trading up by 0.1%.

The rupee is trading at 68.86 to the US$.

In the news from commodity markets, crude oil is witnessing buying interest today. Gains are seen as Saudi Arabia's OPEC governor said the kingdom's exports are likely to fall next month and inventories may be squeezed in the third quarter.

As per the news, Saudi's OPEC governor Adeeb al-Aama said that Saudi crude exports in July will be largely stable from June, but will decline by about 100,000 barrel per day (bpd) in August.

Also note that the US Energy Information Administration (EIA) reported a build of 100,000 bpd in US crude output to 11 million bpd for the week ended June 13.

Market participants are now looking for further indications from US production levels from Baker Hughes, which is slated to release weekly US rig count data later today.

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Note that, global oil prices have climbed steadily this year, helped by rising demand. They have topped US$ 80 per barrel in May for the first time in three and a half years.

Rising crude oil prices doesn't bode well for the Indian economy, as it not only affects fuel prices, but also has many other repercussions on the macroeconomic level.

They can be a big worry for the Modi government as well as it has been a big beneficiary of lower crude oil prices.

Have a look at the chart below. It shows India's total import bill of crude oil and petroleum products on an annual basis during the Manmohan Singh regime and the Narendra Modi regime.

Here's Why Crude Oil Was Modi's Best Friend So Far

As Ankit Shah wrote in one of the editions of The 5 Minute WrapUp...

  • During the UPA II regime, India's average annual oil import bill was US$ 133 billion. In fact, in the last three years of Manmohan Singh's leadership, the oil import bill exceeded US$ 150 billion. Compare that with an average annual oil bill of US$ 95 billion during the four years of Modi's leadership.

    The actual savings would have been even higher, because I believe the consumption of crude oil and petroleum products would have been quite higher in the Modi era than the Manmohan era.

    Last Thursday, Brent crude oil prices shot above US$ 80 a barrel.

    This is the highest level since 2014. In the past one year alone, oil prices have surged more than 50%.

    Now, what if oil prices go back to the levels during the Manmohan Singh regime? What would happen to India's current account and fiscal deficit? What would happen to inflation and RBI's stance on interest rates?

    With the next general elections just a year away, rising crude oil prices are going to be a big worry for the Modi government.

    It should worry you too...

Apart from that, what does rising crude oil prices mean for stock markets?

Richa Agarwal, editor of Hidden Treasure, tracks the oil and gas sector very closely. She believes the rise in crude oil prices is a bearish sign for stock markets globally. At the same time, any market correction, will throw up interesting buying opportunities in small-cap stocks.

This is what she wrote...

  • After hitting a low of US$ 30 per barrel in January 2016, prices have more than doubled to US$ 68 in April 2018.

    The recent news of Saudi Arabia wanting crude oil prices to touch US$ 100 per barrel doesn't help. The 2008 recession was preceded by crude oil touching US$ 150 per barrel. Any movement upwards can result in a possible downturn for the global market.

    While the Hidden Treasure team looks for long-term wealth creators, such macro situations can help to recommend such stocks at a bargain. The ones who keeps calm, when everyone else is losing their heads, will gain the most when the tide turns.

How the government handles this situation of rising crude oil and fuel prices remains to be seen. Meanwhile, we will keep you posted on all the developments from this space. Stay tuned.

In the news from initial public offering (IPO) space, the IPO of TCNS Clothing was subscribed over 2 times on its last day of bidding so far. The issue comprises of 15,714,038 shares which will be offered in the Rs 714-716 price band.

The company is engaged in the business of designing, manufacturing, marketing and retailing of branded apparels for women and offers top-wear, bottom-wear, drapes, combo-sets and accessories etc., catering to the varied wardrobe requirements of Indian women. The company's brand portfolio includes 3 brands as follows:

'W' - A premiere brand targeted at women's casual and workwear requirements.

Aurelia - A contemporary ethnic wear brand that grew in revenue at a CAGR of 70.8% during 2013-17.

Wishful - A premium occasion wears brand that grew in revenue at a CAGR of 66.7% during 2013-17.

To know more about the company, you can read our IPO analysis of TCNS Clothing Ltd (requires subscription).

Also, to know how to safely profit from the ongoing IPO rush, download this FREE report now and discover How to Get Rich with IPOs

Sensex Opens Marginally Higher; Infosys & ICICI Bank Top Gainers
09:30 am

Asian stock markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.5% while the Hang Seng is also down 0.5%. The Shanghai Composite is trading lower by 0.1%. US stocks dropped on Thursday after earnings disappointed and trade jitters escalated over worries that the European Union could slap retaliatory tariffs on goods imported from the United States.

Back home, India share markets opened the day marginally higher. The BSE Sensex is trading up by 67 points while the NSE Nifty is trading up by 16 points. The BSE Mid Cap index opened up by 0.2% while BSE Small Cap index opened the day on a flat note.

The rupee is currently trading at 68.83 to the US$.

Sectoral indices have opened the day on a mixed note with information technology stocks and capital goods stocks witnessing maximum buying interest. While, PSU stocks & energy stocks have opened the day in red.

In the news from the economy. The sharp rise in crude oil prices witnessed during the first three months of the current fiscal year is expected to push India's current account deficit (CAD) to as much as 2.5% of GDP (gross domestic product) during the June quarter.

According to ratings agency ICRA, CAD may come in at US$16-17 billion or 2.5% of GDP for the quarter and for the full year, the gap may scale a six-year high of US$67-72 billion.

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CAD is the difference between foreign exchange earned and expended, with imports resulting in an outflow of forex and exports resulting in an inflow.

During the period under review, while India's imports of the usual high-value suspects (gold, silver and other precious metals) actually declined by a whopping 39.6%, petroleum product imports soared 50.1% resulting in an overall higher net import bill.

Factoring in an average crude price of US$ 75 a barrel in FY19 against US$ 56 in FY18 and a 6% rise in net imports, net oil imports are likely to rise to US$98-100 billion in FY19 from US$69 billion in FY18.

According to ICRA, with merchandise exports and imports expected to expand by 10% and 13%, respectively, in FY19, the merchandise trade deficit would widen to US$187-192 billion, from US$160 billion in the last fiscal.

This will have CAD to increase to US$ 67-72 billion or 2.5% of GDP in FY19, from US$ 48.7 billion or 1.9% in FY18.

On a positive side, a weaker Rupee has seen services trade surplus rise at a robust 9.7% in the first two months of Q1. A weaker Rupee and higher crude prices are likely to have supported remittances that would prevent a sharper worsening of the CAD, the report noted.

Moving on to the news from pharma sector. As per an article in a leading financial daily, Drug firm Alembic Pharmaceuticals has received establishment inspection report (EIR) from the US health regulator for its Karakhadi facility in Gujarat.

The company has received EIR from the United States Food and Drug Administration (USFDA) for the inspection carried out at the active pharmaceutical ingredient facility at Karakhadi from 14-18 May 2018.

With this, all of the company's manufacturing facilities for international markets are FDA compliant, the company stated.

An establishment inspection report is given by the US health regulator USFDA on closure of inspection of an establishment.

Speaking of the pharma sector, the BSE Healthcare Index has been on a roller coaster ride in the past few years. The period from 2012 to 2015 saw the index go up more than three times.

Since then it has been a painful ride downwards.

The Roller Coaster Ride of the BSE Healthcare Index

Pre-2015, pharma companies enjoyed a fairytale ride in the US market. Low labor costs, good chemistry skills, along with efficiency, ensured Indian companies could copy innovator drugs to make generic drugs at a fast pace.

The generic business had lucrative margins for all major pharma players. But the party did not last long. In the quest to supply drugs quickly, they compromised on quality at their manufacturing facilities.

No wonder, the US regulatory authority (USFDA) took strict action. Sun Pharma received a warning letter for its Halol manufacturing facility in 2015. It was like a bolt out of the blue. Since then, the downward spiral began and has continued till date.

Lupin, was also issued a warning letter for two of its plants last year.

These regulatory issues coupled with price erosion in US markets has impacted the business of major pharma players.

But the diverse business models of pharma players make it necessary to adopt a stock specific approach.

Alembic Pharma share price opened the day up by 1.7%.

To get more updates on share market, click here.

Of Depreciating Rupee, BSE Buyback, and Top Cues in Focus Today

Share markets in India closed on a flat note yesterday.

At the closing bell yesterday, the BSE Sensex stood lower by 22 points and the NSE Nifty closed down by 23 points. The BSE Mid Cap index ended the day down 0.6%, while the BSE Small Cap index ended the day down by 1%.

Top Stocks in Focus Today

From the banking space, Kotak Mahindra Bank share price will be in focus today as the bank on Thursday reported a 12% YoY growth in standalone net profit at Rs 10.2 billion for the June quarter on the back of better asset quality.

Bajaj Finserv share price will also be in focus today as the company posted 41.3% YoY growth in its consolidated net profit at Rs 8.2 billion for the June quarter.

JK Tyre & Industries share price will be in focus today as the company yesterday reported a consolidated net profit of Rs 642.4 million for the first quarter ended 30 June, mainly driven by robust sales. The company had posted a net loss of Rs 1172.1 million in the year-ago quarter.

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BSE Concludes its Buyback Programme

BSE share price will also be in focus today as the exchange in a public notice said that it has repurchased over 20 lakh shares for nearly Rs 1.6 billion under its buyback programme.

As per the data, the company bought back an aggregate of 20,19,170 equity shares, utilising a total of Rs 1,659.9 million, which represents 99.99% of the maximum buyback size.

The above shares were bought back at an average price of Rs 822.12.

The development comes as in January, the board of BSE had approved plan to buy back shares worth Rs 1.6 billion within one year of its listing.

Speaking of buybacks, the number of buyback offers in 2017-18 were at an all-time high. Never, in the last two decades, Indian markets saw fifty-nine companies announcing buyback plans.

As per Rahul Shah, co-head of Research, investors should not assume buybacks are always good. Here's an excerpt of what he wrote in one of the editions of The 5 Minute WrapUp:

  • The reason behind the buyback must be investigated. At the end of the day, an increase in earnings should be more a function of the inherent robustness of the business, as that's what will help it continue to grow at a healthy pace.

At Equitymaster, we believe, as a shareholder in cash rich companies, you should not only be wary of expensive buybacks. But if possible use it to your advantage to rake in some cash.

It's a matter of time before you get to use the cash for buying stocks, you've always wanted to, at attractive bargains.

Rupee Weakens Past the 69-Mark Against the US Dollar

In the news from currency markets, the Indian rupee weakened past the 69-mark against the US dollar, tracking losses in its Asian peers after Chinese yuan fell to a one year low.

So far this year, the rupee has weakened 7.4%, while foreign investors have sold US$ 964.3 million and US$ 6.3 billion in equity and debt markets, respectively.

The fall in rupee is seen amid rising crude oil prices and a strengthening US dollar.

What does the fall in rupee mean for the Indian economy?

A depreciation in rupee means importers buying goods and services at a higher rate that earlier. This doesn't bode well for a developing economy that relies heavily on imports.

Also, India imports most of its oil requirements. So, a fall in rupee leads to a consequent rise in the import bill. The depreciation of the rupee will also add to crude oil's rising cost.

On the corporate side, companies who have taken foreign loans from abroad will be impacted. The repayment obligations in terms of principal and interest will rise, leading to a dent in the cash flows and financials.

Further, companies who import a majority of their raw material requirements will get impacted provided they have not hedged their foreign currency exposure.

Looking at the brighter side, rupee depreciation brings a cheer on the exports front.

A depreciating rupee will provide a much-needed cushion to falling exports. However, a falling rupee will not be the only factor to boost exports. There are certain structural issues too which the government needs to address.

Ankit Shah has explained how the depreciation in rupee is linked to foreign investor outflows and forex reserves in one of his editions of Equitymaster Insider. You can read the entire article here (requires subscription).

From the IPO Space...

The initial public offering (IPO) of Women's apparel maker TCNS Clothing Company which opened for offer on Wednesday, was subscribed by 2 times on day 2 of the bidding process. The firm sells its products under W, Aurelia and Wishful brands.

As on 30 September 2017, TCNS sold its products through 418 exclusive brand outlets, 1,305 large format store outlets and 1,361 multi-brand outlets in different parts of the country. It also sold products through six exclusive brand outlets in Nepal, Mauritius and Sri Lanka.

To know our view on the IPO of TCNS Clothing, you can read our entire IPO analysis here (subscription required).

Further, HDFC Asset Management Company, the country's second largest mutual fund firm, has fixed a price band of Rs 1,095-1,100 per share for its initial public offering. The IPO is estimated to garner Rs 28 billion.

The initial share sale offer will be open for public subscription from July 25 to 27.

HDFC AMC operates as a joint venture between Housing Development Finance Corporation (HDFC) and Standard Life Investments.

Reportedly, the proposed IPO will put up to 25.4 million equity shares of the fund house on sale, of which 8.6 million shares will be put up by HDFC and up to 16.8 million shares by Standard Life.

HDFC AMC is selling a 4.1% stake in the IPO, while Standard Life will offload 8%.