Are Indian Stock Markets Due for a Rebound?
Podcast

In an already beaten down market, Thursday's carnage on D-Street dragged indices to fresh five-month lows with the BSE Sensex slipping below the 37,000 mark. On the other hand, the Nifty, too, breached 11,000 mark in the intra-day trade.

Mixed corporate earnings, weak domestic and global cues, and continuous selling by foreign portfolio investors (FPIs) were among the key reasons for the fall.

The current scenario begs the question whether we will see the rebound any time soon?

Amid the weakening market situation, Tanushree Banerjee sees the Rebirth of India opportunity. Tanushree believes there are 50 irreversible trends that will the push Sensex to 1,00,000.

Meanwhile, the global markets also witnessed the sell-off on the back of escalating trade tensions and fed rate cut this week.

Now, after the fed's rate cut, market participants will watch out for RBI's monetary policy stance next week. Will RBI cut the rates?

Tune in to know more...


Indian Indices Recover; Sensex Ends 100 Points Higher
Closing

After opening the day on a negative note, Indian share markets witnessed buying interest during closing hours and ended their trading session marginally higher.

Sectoral indices ended on a mixed note with stocks in the telecom sector, automobile sector and IT sector witnessing buying interest, while metal stocks and power stocks witnessed selling pressure.

At the closing bell, the BSE Sensex stood higher by 100 points (up 0.3%) and the NSE Nifty closed up by 17 points (up 0.2%). The BSE Mid Cap index ended the day up by 0.2%, while the BSE Small Cap index ended the day down by 0.4%.

Asian stock markets finished on a negative note. President Donald Trump escalated his trade war with China, announcing that he would impose a 10% tariff on US$ 300 billion in Chinese imports that aren't yet subject to US duties after setbacks in negotiations with Beijing.

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As of the most recent closing prices, the Hang Seng was down 2.4% and the Shanghai Composite stood lower by 1.4%. The Nikkei 225 was down 2.1%.

In news from the banking sector, State Bank of India (SBI) reported a net profit of Rs 23.1 billion for June quarter on the back of healthy growth in advances and stable asset quality. The bank had reported a net loss of Rs 48.8 billion in the corresponding quarter of the previous fiscal.

The profit beat analysts' expectations who had pegged the profit at Rs 20.7 billion.

Asset quality improved with gross non-performing assets (GNPA) at Rs 1.68 lakh crore, down 21%, from Rs 2.13 lakh crore reported in Q1FY19. It was down 2.8% sequentially from Rs 1.73 lakh crore in Q4FY19.

Net NPAs came in at Rs 656.2 billion, down 0.4% QoQ from Rs 658.9 billion. Asset quality remained stable with gross non-performing assets as a percentage of total loans standing at 7.53% at June-end, lower than 10.69% in the same period last year.

Provisions came in at Rs 91.8 billion. The management in a statement said that, "the bank has made provisions of Rs 9960 million for the quarter ended June 2019 towards arrears of wages due for revision w.e.f November 1, 2017."

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Net interest income (NII) stood at Rs 229.4 billion, up 5.2%, from Rs 218 billion earned in the same quarter of the previous fiscal.

SBI share price ended the day down by 2.9%.

Moving on to news from the telecom sector, Bharti Airtel share price was in focus today. Shares of the company climbed 5% in early trade today after the telecom operator reported an improved margin and industry- best average revenue per user (ARPU) for the June quarter.

ARPU continued to increase for the second consecutive quarter. Overall ARPU for the quarter was Rs 129 as compared to Rs 105 in the corresponding quarter last year.

However, the telecom company posted its first quarterly net loss in over a decade at Rs 28.7 billion. Reportedly, the losses were mainly due to stiff competition from Reliance Jio and depreciation of 3G network equipment and operating costs on network reframing.

Consolidated EBITDA (earnings before interest, tax, depreciation and amortization) margin improved to 41% during the quarter as compared to 34.5% in the corresponding quarter last year.

Company's expansion in mobile broadband towers rose 2.6% to 177,141 towers. Data usage per customer also saw an improvement, up 8% vis-a-vis 4.9% in March quarter.

In terms of revenue, the company was able to retain its top spot in the market as its top line was up 2.8% at Rs 153.5 billion. Vodafone Idea posted revenue of Rs 112.7 billion in the June quarter and Reliance Jio's revenue was Rs 116.8 billion.

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Meanwhile Airtel Africa, the other key business segment, reported a steady quarter with revenue and operating profit growing slightly from the March quarter.

Note that Bharti Airtel has been the victim of loss of pricing power in the sector. Sliding operating margins had a direct impact on the company's return on equity over the past decade. And the poor operating numbers apart from debt heavy balance sheet weighed on the valuations.

Bharti Airtel's Sliding Valuations

Bharti Airtel's Sliding Valuations

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

  • Just as pricing power helps businesses create shareholder wealth, the lack of it can destroy wealth.

    How?

    Just look at the top telecom companies in India.

    They had healthy financials about a decade back. But intense competition and lack of pricing power brought them to their knees. Shareholder wealth is a now a thing of the past for the sector.

    So, never assume that a business which grew 10 times in the past will repeat that feat.

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


Sensex Trades Marginally Lower; Tata Motors & Bharti Airtel Top Gainers
12:30 pm

Indian share markets have recovered early morning losses and are presently trading marginally lower amid weak global cues.

Barring automobile sector and telecom sector, all sectoral indices are trading on a negative note with stocks in the metal sector and realty sector witnessing maximum selling pressure.

The BSE Sensex is trading down by 69 points while the NSE Nifty is trading down by 28 points. The BSE Mid Cap index is trading down by 0.3% and the BSE Small Cap index is trading down by 0.8%.

The rupee is trading at 69.40 against the US$.

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The domestic currency opened lower by 20 paise at 69.25 against the US dollar. Yesterday, the rupee fell 27 paise to close at a near five-week low of 69.05 against the US dollar amid heavy selling in domestic equities.

Forex traders said market sentiment took a hit after the US announced additional 10% tariff on US$ 300 billion in Chinese goods.

Speaking of currencies, Vijay Bhambwani, editor of Weekly Cash Alerts, tells you the main reasons why not to trade commodities and currencies the same way you would trade equities. Here's an excerpt of what he wrote...

  • Currencies are traded in pairs and the most liquid is the USDINR. Currencies are traded in four decimal points just as bonds are. The international derivative trader's association has indicated that forex may be traded in 6 decimals in the coming few years.

    It takes months sometimes for the currency pair to pass the next round figure, say from 70 to 71.

    Can you really trade commodities and currencies alike or for that matter, equities and currencies alike? Definitely not!

To know more, you can read Vijay's entire article here: Is Trading in Equities, Commodities, and Currencies the Same?

Market participants are tracking ITC share price, BEML share price, Exide Industries share price, and State Bank of India (SBI) share price as these companies are set to announce their June quarter (Q1FY20) results later today.

You can read our recently released Q1FY20 results: Jagran Prakashan, Hero MotoCorp, UPL, Axis Bank, IOC, Vinati Organics, Ceat, Apollo Tyres.

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In news from the banking space, a foreign investor in the Indian property market, Ocean Deity Investment Holdings has alleged in a complaint to Reserve Bank of India (RBI) that Yes Bank and HDIL have moved funds to evergreen loans.

As per an article in The Economic Times, Ocean Deity is understood to have drawn RBI's attention to a series of fund transfers between March 2014 and March 2016 which showed that soon after Yes Bank disbursed a loan tranche to Mack Star, almost the entire amount was simultaneously transferred to accounts maintained by HDIL group companies with Yes Bank.

Here's an excerpt from the article:

  • Ocean Deity told RBI that while Rs 1.4 billion was lent and transferred through such transactions between 2014 and 2016, there was a similar pattern of transaction, involving Rs 0.6 billion in multiple instalments, in 2011 and 2012.

    There were cases where money moved to the loan escrow account maintained by Privilege Power & Infrastructure Pvt Ltd (an HDIL group company) with Yes Bank, and the current account of Sapphire Land Development with the same private lender.

Denying the allegations, Managing Director of HDIL, Sarang Wadhawan said the company or its subsidiaries are not aware of any entity named Ocean Deity Investments or its dealings with Mack Star.

Ocean Deity also pointed out to RBI that as per the Articles of Association of the JV, the company was barred from borrowing without the approval of the majority shareholder.

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The offshore investor has alleged that the primary objective was ever-greening of loans to certain HDIL entities and it was orchestrated by the private lender.

Yes Bank share price is presently trading up by 2%.

Speaking of the banking sector, in one of the editions of The 5 Minute WrapUp Tanushree Banerjee shares an interesting observation she is witnessing in this space.

Here's what she wrote...

  • After the IL&FS debacle, the NBFC sector is in a liquidity crisis. The housing finance regulator, National Housing Bank, has also restrained some entities from lending.

    So, the quantum of funds as well as the cost of loans have both shot up.

    Smaller public sector banks are struggling to keep themselves afloat.

    The few good quality private sector banks are only lending to retail clients, most cautiously.

This is evident in the chart below:

Banks are Lending Only to the Aam Aadmi

Banks are Lending Only to the Aam Aadmi

No wonder funding to corporates for capex has come to a standstill.

Amid this it is difficult to expect Indian companies to increase their capacities. Thus, their earnings may not grow at a fast clip.

And sooner than later their valuations will also succumb to a reality check.

But according to Tanushree, there is a silver lining to this cloud. You can read all about it here: The Bitter Pill that Will Lay the Foundation for Sensex 100,000

Moving on to news from the automobile sector, shares of Ashok Leyland hit an over 5-year low to trade at Rs 61 per share, slipping 12% intra-day, as analysts remained cautious on the company's medium-term outlook for the domestic medium and heavy commercial vehicle industry.

The company's net profit dropped 45% to Rs 2.3 billion in Q1FY20 from Rs 4.2 billion reported in the corresponding quarter of the last year.

Revenues declined by 9% to Rs 56.8 billion from Rs 62.6 billion year-on-year (YoY).

Meanwhile, the company's sales continued to slide in July 2019. The total sales fell by 28% YoY to 10,927 units in July 2019 over July 2018, whereas the total domestic sales fell by 29% to 10,101 units in July 2019 over the same month in the previous year.

Note that, automobile sales have fallen every month for almost a year now, except for October when the numbers were flat. In June nine out of India's 11 main passenger vehicle makers reported a double-digit decline in sales.

Richa Agarwal, editor of Hidden Treasure, believes that the companies which will adapt their business models to the rapidly changing environment will survive and thrive.

In fact, she has picked out 4 Rebound Stocks to profit from the market crash.

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


Sensex Opens Lower; Metal and Automobile Stocks Top Losers
09:30 am

Asian share markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 2.4% while the Hang Seng is down 2.3%. The Shanghai Composite is trading down by 1.8%. Wall Street fell again on Thursday, abruptly reversing early gains after US President Donald Trump put concerns about the US-China trade war back in the spotlight, tweeting that he would impose an additional 10% tariff on US$300 billion in Chinese imports.

Back home, India share markets opened the day on a negative note. The BSE Sensex is trading down by 294 points while the NSE Nifty is trading down by 88 points. Both, the BSE Mid Cap index and BSE Small Cap index opened down by 0.1%.

Sectoral indices have opened the day on a mixed note with metal stocks and automobiles stocks witnessing maximum selling pressure. Telecom stocks and FMCG stocks have opened the day in green.

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The rupee is currently trading at 69.25 against the US$.

In the news from the economy. India's manufacturing activity strengthened in the month of July, on the back of quicker upturn in factory orders.

As per the survey report, the Nikkei India Manufacturing Purchasing Managers' Index (PMI) surged to 52.5 in July from 52.1 in June.

As per the survey report, consumer goods producers led the upturn in July for the third month in a row, although there was also a stronger improvement in business conditions at intermediate goods makers.

The capital goods sub-sector dipped into contraction, with lower sales causing reductions in output & quantities of purchases.

Besides, new export orders also continued to rise, but a slowdown in growth was noted. Besides, external sales rose to the least extent since April 2018 as factories took a hit from subdued global trade flows. Hiring continued in July and additional inputs were purchased.

On the price front, input costs increased slightly in July as higher prices for steel, chemicals, cotton and freight were partly offset by lower charges for base oil, copper and plastics.

The overall rate of inflation was at a three-month low and well below its long-run average. Output charges rose marginally in July, following reductions in each of the two previous months.

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Moving on to the news from the automobiles sector. Eicher Motors' motorcycle division has reported 22% fall in sales at 54,185 units in July 2019 as compared to 69,063 motorcycles sold in July 2018.

During July 2019, export of number of motorcycles increased by 143% to 5,003 units from 2,062 units in July 2018.

The company's sales of vehicles with engine capacity up to 350 cc decreased by 29% at 45,041 units in July 2019 against 63,713 units in the same period year ago.

However, the sales of its vehicles with engine capacity exceeding 350 cc increased by 71% at 9,144 units as against 5,350 units in July last year.

Meanwhile, Atul Auto has reported sale of 3,272 units for the month of July 2019, a fall of 15.12%, as compared to 3,855 units sold in July 2018.

Total Sales from April to July 2019 stood at 13,786 units.

Eicher Motors' share price and Atul Auto share price opened the day down by 2.2% and 2.5% respectively.

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Note that, automobile sales have fallen every month for almost a year now, except for October when the numbers were flat. In June nine out of India's 11 main passenger vehicle makers reported a double-digit decline in sales.

Reports state that many dealers who have recently entered the auto industry are finding it difficult to manage their repayment obligations. Banking industry experts estimate the total outstanding loans to automobile dealers to be in the range of Rs 700-800 billion.

However, it is interesting to note that despite the slowdown in the auto sector, the sales volume of electric vehicles (EVs) are growing at a robust pace.

Have a look at the chart below:

Electric Vehicle Sales on a High Growth Trajectory!

Electric-2 wheelers sales volume registered 130% YoY growth in FY19. 4-wheeler EVs grew by 200% YoY.

Similarly, electric three-wheelers reported the highest sales volume of 630,000 units. It is important to note that the electric three-wheeler industry has been growing without government support.

The base is quite low compared to the internal combustion engine (ICE) vehicle sales. However, you cannot ignore the growing momentum in EV sales.

The recently announced government incentives will give a further boost to EV sales. The coming one year will be a real test for India's auto companies.

It will also tell us if this slowdown is temporary or if there has been a structural change in the sector.

Richa Agarwal, editor of Hidden Treasure, believes that the companies which will adapt their business models to the rapidly changing environment will survive and thrive.

In fact, she has picked out 4 Rebound Stocks to profit from the market crash.

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


Global Stock Market Drivers, Key Q1FY20 Results, and Top Cues in Focus Today
Pre-Open

On Thursday, Indian share markets hit fresh 5-month lows at the benchmark level as global cues, weak corporate earnings and continuous selling by foreign portfolio investors knocked off investment sentiment.

The BSE Sensex closed lower by 463 points to end the day at 37,018. Vedanta and Tata Motors were among the top losers.

While the broader NSE Nifty ended down by 138 points to end at 10,980.

Among BSE sectoral indices, metal stocks fell the most by 3.4%, followed by telecom stocks and IT stocks.

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Top Stocks in Action Today

Eicher Motors share price will be in focus today as its motorcycle division has reported 22% fall in sales at 54,185 units in July 2019 as compared to 69,063 motorcycles sold in July 2018.

To know more about the company, you can read Eicher Motors' latest result analysis on our website.

Zee Entertainment (ZEEL) share price will also be in focus as Invesco Oppenheimer Developing Markets fund has agreed to make an additional investment in the company. The fund has agreed to buy up to 11% stake in ZEEL from its promoters, for a total consideration value of up to Rs 42.2 billion.

Market participants will also track Bata India share price, Nestle share price, HDFC share price, and ITC share price as these companies will announce their June quarter results later today.

Results Corner

Marico has reported a rise of 17.3% in its net profit at Rs 2.5 billion for the June quarter (Q1FY20) as compared to Rs 2.1 billion for the same quarter in the previous year.

Total income of the company increased by 5.6% at Rs 18 billion for Q1FY20 as compared Rs 17.1 billion for the corresponding quarter previous year.

UPL has reported a fall of 57.2% in its net profit at Rs 2.2 billion for the quarter under review as compared to Rs 5.1 billion for the same quarter in the previous year.

CARE Ratings has reported 46% decline in its consolidated net profit at Rs 135 million. Consolidated operational revenues slipped 17% at Rs 4,990 million against Rs 6,000 million in the corresponding quarter of previous fiscal. Operating profit margin during the quarter contracted to 20.1% from 45.6% in the previous year quarter.

You can read our recently released Q1FY20 results: Jagran Prakashan, Hero MotoCorp, UPL, Axis Bank, IOC, Vinati Organics.

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Global Stock Market Drivers

The Federal Reserve cut interest rates on July 31 to shore up the economy against risks including global weakness, but the head of the US central bank said he did not view the move as the start of a lengthy series of rate cuts.

Fed Chairman Jerome Powell cited global weakness, simmering trade tensions and a desire to boost too-low inflation in explaining the central bank's decision to lower borrowing costs for the first time since 2008 and move up plans to stop winnowing its massive bond holdings.

In a statement at the end of its latest two-day policy meeting, the Fed said it had decided to cut rates "in light of the implications of global developments for the economic outlook as well as muted inflation pressures."

The central bank also said it will "continue to monitor" how incoming information will affect the economy and "will act as appropriate to sustain" a record-long US economic expansion.

Speaking of the US Fed policy decision effects in India, one of the key reasons foreign investors poured money into India was the shift in monetary policy stance by the US Federal Reserve.

The US central bank, until some months ago, was on track to hike interest rates and shrink the Fed balance sheet. But seeing signs of slowdown in the economy and the nervousness in the stock markets, it showed its willingness to turn dovish.

So, it's unlikely we'll see any interest rate hikes by the US Federal Reserve in 2019.

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Rupee hits Five-Week Low

On Thursday, the Indian rupee fell as the dollar surged to a two-month high and US Treasury yields climbed following comments from Federal Reserve chief Jerome Powell, which were more hawkish than expected.

After a gap down opening, the domestic currency recovered during closing hours. The rupee opened at the lowest level since June 27.

On July 31 the rupee has recovered from the lows and finished 6 paise higher at 68.79 against the US dollar ahead of the outcome of US Federal Reserve meeting.

From the Automobiles Sector...

Country's largest carmaker Maruti Suzuki reported 36.2% decline in passenger vehicle sales in the domestic market at 98,210 units for July. Total sales declined 33.5% at 1,09,264 units in July. The company had sold 1,64,369 in July last year.

While sales of mini cars Alto and old WagonR dropped 69.3% to 11,577 units, those of compacts (Swift, Dzire, Baleno, Ignis, Celerio and new WagonR) fell 22.7% to 57,512 units.

Sales for Vistara Brezza, Ertiga, S-Cross dropped 38.1% to 15,178 units and vans by 37.9% to 9,814 units. Sales of light commercial vehicle Super Carry stood flat at 1,732 units during the month.

Exports in July were down by 9.4% at 9,258 units as against 10,219 units in the corresponding month last year.

Meanwhile, Bajaj Auto registered a fall of 5% in total sales to 381,530 units in July 2019 against 400,343 units in July 2018.

Motorcycle sales decreased by 3% and stood at 322,210 units in July 2019 against 332,680 units in July 2018.

The company reported 12% fall in commercial vehicles sales, which stood at 59,320 units as compared to 67,663 units in month of July 2018.

However, the company's total exports stood at 176,060 units, registering a gain of 8% as compared to 162,832 units sold in the corresponding month last year.

Automobile sales have fallen every month for almost a year now, except for October when the numbers were flat. In June, nine out of India's 11 main passenger vehicle makers reported a double-digit decline in sales.

Richa Agarwal, editor of Hidden Treasure, believes that the companies which will adapt their business models to the rapidly changing environment will survive and thrive.

In fact, she has picked out 4 Rebound Stocks to profit from the market crash.

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