Indian Indices Witness Selling as RBI Lowers GDP Forecast to 6.9%; Sensex Ends 286 Points Lower
Closing

After opening the day on a flat note, share markets in India witnessed negative trading activity during closing hours and ended lower.

Barring IT sector and healthcare sector, all sectoral indices ended on a negative note with metal stocks, energy stocks and automobile stocks leading the losses.

At the closing bell, the BSE Sensex stood lower by 286 points (down 0.8%) and the NSE Nifty closed down by 93 points (down 0.9%). The BSE Mid Cap index ended the day down by 0.4%, while the BSE Small Cap index ended on a flat note.

Asian stock markets finished on a mixed note. As of the most recent closing prices, the Hang Seng was up by 0.1% and the Shanghai Composite was down by 0.3%.

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The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) today announced a 35 basis points cut in repo rate in its third bimonthly policy review of this financial year. After the cut, the repo rate now stands at 5.40%.

The reverse repo rate now stands at 5.15%. The RBI press statement said four out of the six members of the MPC voted in favour of a 35 basis points (bps) rate cut in this monetary policy meet.

RBI in its release said global economic activity has slowed down since June 2019 MPC meeting amid elevated trade tensions and geopolitical uncertainty. RBI also trimmed India's GDP growth forecast for this financial year to 6.9% from 7% earlier.

The release also stated that the transmission of policy repo rate cuts to the weighted average lending rates (WALRs) on fresh rupee loans of banks has improved marginally since the last MPC meeting. Overall, banks reduced their WALR on fresh rupee loans by 29 bps during the current phase.

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The apex bank projected CPI inflation at 3.1% for Q2FY20 and 3.5%-3.7% for the second half of FY20, with risk evenly balanced. The MPC noted that inflation is currently projected to remain within the target over a 12-month ahead horizon.

RBI also said high-frequency indicators of services sector activity for May-June present a mixed picture. Tractor and motorcycle sales, indicators of rural demand, continued to contract. Among three indicators of urban demand, passenger vehicle sales contracted for the eighth consecutive month in June.

However, domestic air passenger traffic growth turned positive in June after contracting for three consecutive months.

The central bank also said that liquidity in the system was in large surplus in June-July 2019 due to return of currency to the banking system, drawdown of excess cash reserve ratio (CRR) balances by banks, open market operation (OMO) purchase auctions, and RBI's foreign exchange market operations.

RBI governor Shaktikanta Das clarified that future policy actions will be dependent on upcoming data. He also said that NBFC loans to MSME sector up to Rs 20 lakh will get priority status. He also assured sufficient liquidity to all needy sectors.

It is well known that the impact of the monetary policy on the Indian economy is felt with a significant lag, but the situation at the current juncture has become further complicated due to the ongoing crisis in both the banking and the shadow banking sectors.

While banks are struggling with high NPAs, NBFCs are struggling with solvency issues leading to credit freeze.

It would be interesting to see how this all pans out. Meanwhile, we will keep you updated on all the developments from this space.

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In news from the automobile sector, India's largest tractor manufacturer, Mahindra and Mahindra (M&M) reported a 26% decline in its consolidated net profit at Rs 9.2 billion for Q1FY20.

Reportedly, the fall in profit was attributed to sluggish domestic volume and increased cost pressure. The company had posted a profit of Rs 12.4 billion in the year-ago quarter.

Operational revenues for the quarter declined by 7% to Rs 260.4 billion against Rs 280.6 billion in the corresponding quarter of the previous fiscal. Operating profit margin contracted 180 bps to 14% in Q1FY20 from 15.8% in Q1FY19.

The company reported a one-time gain of Rs 13.7 billion for the quarter mainly on account of gain on sale of shares by M&M benefit trust and gain on buyback by an associate/transfer of certain long-term investments.

The company's domestic wholesale volumes declined across vehicle categories during Q1FY20. According to data released by Society of Indian Automobile Manufacturers (Siam), M&M dispatched 59,399 units of passenger vehicles in Q1, which marked a year-on-year decline of 2%.

In the commercial vehicle segment, it reported a drop of more than 9% YoY with volumes at 51,594 units during the three-month period. For three-wheelers (excluding electric vehicles), the company reported domestic wholesales of 12,697 units, down 2.4% YoY.

M&M share price ended the day down by 6%.

To know more about the company, you can read M&M's 2018-19 annual report analysis on our website.

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 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.

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


Sensex Trades Flat; RBI Cuts Repo Rate by 35 bps
12:30 pm

Share markets in India are presently trading on a volatile note after the Reserve Bank of India's monetary policy committee (MPC) reduced the repo rate by 35 basis points (bps) to 5.40%. This was the fourth straight rate cut by the central bank in 2019.

The last time RBI made such consecutive cuts was after the global financial crisis over a decade ago, when most major central banks were desperate to revive economic growth.

Sectoral indices are trading mixed with stocks in the metal sector and energy sector witnessing selling pressure, while healthcare stocks and IT stocks are witnessing buying interest.

The BSE Sensex is trading down by 33 points while the NSE Nifty is trading down by 14 points. The BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up by 0.8%.

The rupee is currently trading at 70.90 against the US$.

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Market participants are tracking Cipla share price, HCL Technologies share price, and Tata Steel share price as these companies are set to announce their June quarter (Q1FY20) results later today.

You can read our recently released Q1FY20 results of some other companies here: Bata India, Venkys India, Berger Paints, Torrent Power, Kolte Patil.

In news from the finance sector, shares of Indiabulls Housing Finance slipped 9% in early trade today after the company reported weak earnings and worsened asset quality during Q1FY20.

The non-banking finance company (NBFC) posted 24% year-on-year (YoY) drop in consolidated net profit at Rs 8 million in Q1FY20. It had a profit of Rs 10.6 billion in the year-ago quarter.

The company's total income fell to Rs 38.9 billion during the June quarter as against Rs 40.7 billion in the year-ago period.

Net interest income during the quarter declined 13% at Rs 14.8 billion from Rs 16.9 billion in the corresponding quarter of previous fiscal.

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The company's assets quality worsened during the quarter with gross non-performing asset (NPA) ratio rising to 1.47% from 0.88% in March 2019 quarter. Its net NPA ratio increased to 1.1% from 0.69% in the preceding quarter.

Loan books were down 10% YoY to Rs 1.13 trillion.

The company said it has received an approval from the Competition Commission of India (CCI) for the proposed merger with Lakshmi Vilas Bank in June 2019. It has made application for approval merger to the Reserve Bank of India and stock exchanges and is waiting for the approval.

Indiabulls Housing Finance share price is presently trading down by 8.2%.

Moving on to news from the retail sector, Titan on Tuesday reported a 10.8% rise in its consolidated net profit at Rs 3,637.4 million in the first quarter ended June 2019.

Total consolidated income rose 16% YoY to Rs 52,081.7 million in Q1FY20. Reports state that company's growth was backed by a healthy growth in the watches division though sales in jewellery segment took a hit. Company's watches division grew 20% to clock a revenue of Rs 7,150 million.

The Tata Group company said that its profit growth was subdued due to investment in one biennial overseas conference for its business associates, apart from a one-time wage settlement with some its unionized employees.

The jewellery division logged a moderate growth of 13% to Rs 40,470 million. Growth in the jewellery segment was adversely impacted due to high gold prices, especially during June, the company said.

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Titan's eyewear business grew 13% to Rs 1,490 million, while its other businesses comprising accessories, fragrances and sarees grew 38% to clock revenues of Rs 360 million.

Titan share price is presently trading down by 2.6%.

Here's an interesting data on Titan, every Rs 100 invested in the company in 2002 would have multiplied 330 times by 2019!

Every Rs 100 Invested in Titan in 2002 Multiplied 330 Times by 2019

Every Rs 100 Invested in Titan in 2002 Multiplied 330 Times by 2019

Co-head of Research, Tanushree Banerjee believes the opportunities in the Rebirth of India are not only more profitable than the ones in 2002 but the gains could come faster too.

Here's what she wrote in today's edition of The 5 Minute WrapUp...

  • Titan entered the branded jewellery market in 1996.

    The retailer faced the challenge of breaching a well-entrenched network of family jewellers. The relationship between customer and family jewellers went back to a couple of generations.

    The habit of buying from the family jeweller was strong and the trust was intrinsic. One also had the option of returning old jewellery to the family jeweler.

    Through its jewellery brand, Tanishq, Titan broke down the early entry barriers in unorganized jewellery retailing. It consolidated its lead as very few national or branded players threw their hats in the ring.

She is on the hunt for the next set of Titan, HDFC Bank, Bajaj Finance, Asian Paints-like companies. These will be the companies that would catalyze the transformation she call the Rebirth of India.

In fact, she has shortlisted 7 stocks that will benefit the most when these trends playout.

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


Sensex Opens Flat; Consumer Durables and Metal Stocks Drag
09:30 am

Asian share markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.2% while the Hang Seng is down 0.9%. The Nikkei 225 is trading down by 0.8%. US stocks jumped more than 1% on Tuesday, bouncing back from a sharp sell-off the previous day as China stepped in to stabilize the yuan, easing concerns that currencies would be the next weapon in the US-China trade war.

Back home, India share markets opened on a flat. The BSE Sensex is trading down by 36 points while the NSE Nifty is trading down by 27 points. Both, the BSE Mid Cap index and BSE Small Cap index opened up by 0.2%.

Sectoral indices have opened the day on a mixed note with metal stocks and consumer durables stocks witnessing maximum selling pressure. IT stocks and healthcare stocks have opened the day in green.

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Speaking of investing opportunities apart from stock markets, gold has always been a staple investment for Indian households.

There are various opinions on what proportion of the portfolio could be allocated to the yellow metal.

Stocks versus Gold Over Past 5 Years

Stocks versus Gold Over Past 5 Years

Here's what co-head of research at Equitymaster, Tanushree Banerjee wrote in one of the edition of The 5 Minute WrapUp:

  • "The magical metal will be no match for the Indian mettle over the next decade.

    So, by all means buy some gold for inflation hedge.

    But don't lose sight of the Rebirth of India opportunity."

Also, watch Vijay Bhambwani talk about investing opportunities in gold.

Moving on, the rupee is currently trading at 70.18 against the US$.

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The Indian rupee extended losses for a fourth session on Tuesday, dropping 8 paise to 70.81 against the US dollar ahead of the RBI's monetary policy decision.

Unabated foreign fund outflows and higher crude oil prices have taken a toll on the domestic currency's health.

At the interbank foreign exchange (forex) market, the domestic currency opened at 70.80 a dollar and touched a high of 70.47 and low of 70.89 during the day.

The local unit finally closed at 70.81 against the American currency, down 8 paise over its previous close.

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?

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Moving on to the news from the oil & gas sector. Eight years after they partnered to produce hydrocarbons in India, Reliance Industries and British oil major BP Plc have come together again to open a nationwide network of fuel retailing outlets.

Reportedly, the outlets will be set up through a new joint venture company that will be owned 51% by RIL and the remainder by BP. The partnership will also market aviation turbine fuel to cater to India's growing aviation industry.

Together, the companies plan to set up 5,500 fuel retail stations across the country, which may include the 1,378 retail outlets RIL independently runs across India at present.

BP received a licence to market jet fuel in India in January 2016. In October 2016, it received a licence to set up 3,500 fuel retail outlets in India.

RIL holds a licence to open 5,000 fuel outlets and plans to double its market share in the fuel retail segment from the present 7-8% share.

BP is RIL's partner in its exploration and production ventures in the country. In February 2011, London-based BP bought a 30% stake in 21 oil and gas production-sharing contracts operated by RIL for US$7.2 billion. The two are also partners in India Gas Solutions Pvt. Ltd, an equal joint venture for sourcing and marketing of gas in the country.

India is one of the few major global markets where fuel demand is growing and has attracted attention from foreign fuel retailers seeking to gain a toehold in a country where fuel retailing is dominated by state-run companies.

RIL and BP are also partners in India Gas Solutions, an equal joint venture for sourcing and marketing of gas in the country. Besides, BP has a presence in India through its automotive and industrial lubricant brand Castrol.

Reliance Industries share price opened the day up by 0.3%.

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


Of June Quarter Results, Upcoming IPOs, and Top Cues in Focus Today
Pre-Open

On Tuesday, share markets in India traded on a positive note throughout the day and ended higher.

The BSE Sensex closed higher by 277 points to end the day at 36,977. Yes Bank and Tech Mahindra were among the top gainers.

While the broader NSE Nifty ended up by 86 points to end at 10,948.

Among BSE sectoral indices, capital goods stocks gained the most by 1.5%, followed by telecom stocks and realty stocks.

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Top Stocks in Focus Today

Titan share price will be in focus today as the company reported a 10.9% rise in its net profit at Rs 3,637.4 million for the June quarter as compared to Rs 3,281.5 million for the same quarter in the previous year.

The Tata Group firm reported a double-digit jewellery volume growth in the past three quarters. But in June quarter demand got impacted due to higher gold prices resulting in a miss on the internal estimates despite sustained market share gains.

Bharat Dynamics share price will also be in focus today as the company has inaugurated a 5 MW Solar Power Project. The project has 20,928 number of 265 wp and 270 wp modules powering the whole unit.

Market participants will also track Nilkamal share price, Indiabulls Housing Finance share price, and Pidilite Industries share price as these companies announced their June quarter (Q1FY20) results yesterday.

You can read our recently released Q1FY20 results of some other companies here: Ceat, Apollo Tyres, ITC, Nestle, Bata India.

June Quarter Results...

Berger Paints share price posted a 31.7% year-on-year (YoY) increase in consolidated net profit to Rs 1.8 billion for the first quarter ended June 2019.

The company's revenue from operations during the quarter rose 15.9% to Rs 17.3 billion from Rs 14.9 billion in the corresponding quarter of the previous fiscal.

Berger Paints' total expenses rose 13.2% to Rs 14.6 billion from Rs 12.9 billion in the year-ago period.

Meanwhile, in a separate filing, the company informed that it is considering investment opportunities in Russia to complement its existing operations. However, the company said, no decision has been taken in this regard.

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Dilip Buildcon share price reported a 54.9% YoY fall in its consolidated net profit in Q1 June 2019.

The company's net sales were down 3.4% YoY and stood at Rs 24.3 billion.

On standalone basis, the company's net profit fell 50.9% YoY to Rs 1.2 billion on 6.1% YoY fall in net sales to Rs 22.8 billion.

The company's net order book as on 30 June 2019 stood at Rs 190.2 billion.

The company's 74.3% of the order book is constituted by roads and highways project, special bridge projects contribute 3.81%, mining contributes 14.37%, irrigation projects contribute 2.82%, metro projects contribute 2.22%, tunnel projects contribute 2.26% and urban development projects contribute 0.17%.

From the textiles sector, SRF share price will be in focus today as the company posted strong numbers for the quarter ended June 2019.

The company registered 42% jump in its Q1 profit to Rs 1,892 million against Rs 1,338 million in the same quarter last year. Revenue rose by 9% at Rs 18,284 million versus Rs 16,762 million.

The company's net sales witnessed 5.4% growth at Rs 15,240.4 million in June 2019 from Rs 14,458.8 million in June 2018. EBITDA stood at Rs 3,224.2 million in Q1FY20, up 18.6% from Rs 2,717.6 million in Q1FY19.

The board of directors of the company declared interim dividend at 70% i.e. Rs 7 per equity share on the paid-up share capital of the company.

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From the IPO Space...

From the IPO space, the initial public offering (IPO) of microfinance lender Spandana Sphoorty Financial opened for subscription on Monday and was subscribed 6% on the first day of bidding. The portion reserved for qualified institutional buyers was subscribed 19%.

The company plans to raise around Rs 12 billion through the public issue, which consists of a fresh issue of Rs 4 billion and offer for sale of Rs 8 billion by promoters and investors.

The net proceeds from the fresh issue are proposed to be utilised towards augmenting its capital base to meet future capital requirements and general corporate purposes.

Ankit Shah, in his premium newsletter Insider, has shared the detailed note of the IPO. You can read it here.

Meanwhile, Shapoorji Pallonji-led Sterling and Wilson Solar's (SWSL) Rs 31.3 billion IPO will hit the markets yesterday. The IPO comprises entirely of an offer for sale of 40.3 million shares. The issue is priced at Rs 775-780 per share.

SWSL is an end-to-end solar EPC solutions provider and was the world's largest solar EPC solutions provider in 2018 based on annual installations of utility-scale Photo-voltaic (PV) systems of more than 5 megawatt (MW).

The company provides EPC services primarily for utility-scale solar power projects with a focus on project design and engineering. It also provides operations and maintenance (O&M) services.

The company operates in around 26 countries and is the largest solar EPC solutions provider in each of India, Africa and the Middle East.

As of March 31, the company's order book stood at Rs 77.4 billion, which includes letters of intent worth Rs. 39.1 billion for solar power projects for which it has won the bid but has not yet executed definitive.

Speaking of IPOs, the first half of 2019 hasn't seen a lot of activity in the IPO market.

There have been just 8 IPO on the main board, raising as much as Rs 55.1 billion, compared with 24 that raised Rs 309.6 billion in the year earlier period.

Despite lackluster activity in India's primary markets, there have been attractive money-making opportunities for attentive investors.

Ankit Shah recommended applying to the IPO of Polycab India and the more recent IPO of IndiaMART InterMESH.

Both IPOs were subscribed many times over. And both gave handsome double-digit returns on the listing date.

At Equitymaster, we believe a merit-based selection, primarily including valuation, business, and management quality, is the logical way to go about investing in IPOs.

If it means going against the herd, so be it. And going by recent past, this strategy has been proven to be successful more often.

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