Sensex Ends 636 Points Higher; Auto and Energy Stocks Witness Huge Buying
Closing

Indian share markets witnessed huge buying interest during closing hours today and ended their trading session in the green. Most of the gains were seen after media reports suggested that the government is likely to roll back recently-imposed higher tax on foreign portfolio investors (FPIs).

On the sectoral front, gains were seen in the auto sector and energy sector.

At the closing bell, the BSE Sensex stood higher by 636 points (up 1.7%) and the NSE Nifty closed higher by 176 points (up 1.6%).

The BSE Mid Cap index ended up by 0.4%, while the BSE Small Cap index ended the day up by 0.7%.

Asian stock markets finished on a positive note as of the most recent closing prices. The Hang Seng stood up by 0.48% and the Nikkei was trading up by 0.37%, while the Shanghai Composite was trading up by 0.93%.

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European markets were also trading on a positive note. The FTSE 100 was up by 0.13%. The DAX was trading up by 0.74%, while the CAC 40 was up by 1.14%.

The rupee was trading at 70.65 to the US$ at the time of writing.

In the news from the macroeconomic space, the Indian government is likely to withdraw higher surcharge for FPIs via notification or ordinance.

In case the government opts for ordinance, Parliament nod will be taken for the amendment in the next session.

The above move comes as the government is looking to address issues relating to FPI tax concerns.

Note that the government's proposal to increase taxes on those with annual incomes of more than Rs 20 million has rattled many foreign portfolio investors.

There's been a heavy sell-off in the Indian stock markets following the Union Budget 2019 and the biggest sellers in the ongoing correction are foreign investors.

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Why are foreign investors dumping Indian stocks?

Ankit Shah answers this question in one of the editions of The 5 Minute WrapUp. Here's an excerpt of what he wrote...

  • One of the main reasons is the higher tax burden on the super-rich in the form of additional surcharge.

    All individuals and association of persons (AOPs) come under the purvey of this additional surcharge.

    Why does this bother foreign investors?

    Here's the thing - several foreign portfolio investors (FPIs) are structured as AOPs, limited liability partnerships and trusts.

    As such, if they earn over Rs 2 crore a year, they will be subjected to the higher tax surcharge.

Due to the above development, FPIs have been on a selling spree during the last month. Have a look at the chart below that shows the net monthly flows of foreign investors in the Indian stock markets:

Foreign Investors Turn Net Sellers After Five Months of Buying

Foreign Investors Turn Net Sellers After Five Months of Buying

One must also see the sell-off in the larger context - foreign investors have been net buyers of Indian equities in 2019.

Since the start of the year, their net investment in Indian equities is worth Rs 719 billion. They have been net buyers in five out of seven months.

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So, the ongoing sell-off should not be seen as foreign investors exiting India for good. They will come back when the valuations get more attractive to compensate for the higher tax burden.

So, look out for the stocks that will rise fast when the tide of the market turns up.

We will keep you updated on all the developments from this space. Stay tuned.

In the news from the FMCG sector, Emami share price was in focus today as the company reported 47.8% year-on-year (YoY) increase in consolidated net profit at Rs 391 million for June quarter 2019-20.

Net sales were up by 5.5% YoY at Rs 6,486 million during the quarter.

Earnings before interest tax depreciation and amortization (EBITDA) grew 11% YoY and the EBITDA margin stood at 20.7% in Q1 June 2019.

The company witnessed challenges during the quarter in terms of adverse economic conditions such as channel liquidity issues and muted rural incomes which coupled with a high base in Q1 June 2018 impacted growth levels in the domestic business.

During the quarter, both Kesh King and 7 Oils continued to post robust growth. Navratna grew satisfactorily. However, muted performance of pain management, male grooming, BoroPlus and healthcare range led to lower growth in the domestic business.

While key brands like Navratna, Zandu & MenthoPlus balms, Kesh King and BoroPlus continued to gain market shares, Fair and Handsome maintained its leadership.

International Business grew by 34% during the quarter led by a strong performance in SAARC and MENAP regions.

Commenting on the quarterly performance Mohan Goenka, Director, Emami said the macroeconomic environment continues to be challenging, with a distinct slowdown in the consumer demand curve particularly for discretionary products. Despite such challenges, the company is satisfied with the performance of Kesh King, Navratna, 7 Oils in One and international business this quarter.

He added that with the stabilization of raw material prices and the government impetus to put rural growth on the fast track, the company expects business to bounce back in the coming quarters.

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


Sensex Trades in Green; Telecom and IT Stocks Lead
12:30 pm

Stock markets in India are presently trading on a positive note. The BSE Sensex is trading up by 116 points and the NSE Nifty is trading up by 24 points. Meanwhile, the BSE Mid Cap index is trading down by 0.3% while the BSE Small Cap index is trading flat.

Among the sectoral indices, telecom stocks and information technology stocks are witnessing maximum buying interest. Consumer durables stocks and bank stocks are trading in red.

In the news from the automobiles sector. As per an article in a leading financial daily, Maruti Suzuki India cut its production in July by 25.2%, making it the sixth month in a row that the country's largest carmaker reduced its output.

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The company produced a total of 1.3 lakh units in July, compared with 1.8 lakh units in the year-ago month. Passenger vehicles' production last month stood at 1.3 lakh units as against 1.7 lakh units in July 2018, a decline of 25.6%.

Production of mini and compact segment cars, including Alto, New WagonR, Celerio, Ignis, Swift, Baleno, Dzire, stood at 95,733 units as against 1.3 lakh units in July last year, down 25%.

Utility vehicles such as Gypsy, Vitara Brezza, Ertiga and S-Cross saw reduced production at 19,464 units as against 24,718 units in the year-ago month, down 21.3%.

Mid-sized sedan Ciaz saw its production reduced to 3,497 units in July from 7,115 units in the same month last year.

Light commercial vehicle Super Carry production was also trimmed to 2,724 units last month from 3,077 units in July 2018.

Maruti Suzuki share price was trading down by 0.1% at the time of writing.

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Notably, the Indian auto sector is in the middle of a storm.

Passenger sales fell 20.5% in May 2019 compared to May 2018. This follows a 17.1% year on year decline in April as well.

Never Ending Woes For The Automobile Sector

Never Ending Woes For The Automobile Sector

The decline in May is the worst seen since 2001.

Multiple factors have affected the auto sector of late.

The liquidity crisis faced by NBFCs, regulatory changes leading to increased costs, new emission norms... they have all taken their toll.

Also, this sector is ripe for disruption with electric vehicles and ride sharing applications.

Maruti Suzuki announced it would stop making diesel cars from April next year.

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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.

Only the ones adapting their business models to the rapidly changing environment will survive and thrive.

Moving on to the news from the steel sector. Tata Steel has reported 33.6% fall in its net profit at Rs 15.4 billion for the first quarter ended June 30 as compared to Rs 23.2 billion for the same quarter in the previous year.

Total income of the company decreased by 3.8% at Rs 162.7 billion for Q1FY20 as compared Rs 169.1 billion for the corresponding quarter previous year.

On the consolidated basis, the company has reported a fall of 63.7% in its net profit at Rs 7 billion for the quarter under review as compared to Rs 19.3 billion for the same quarter in the previous year.

However, total income of the company increased marginally by 1% at Rs 362 billion for Q1FY20 as compared Rs 358.5 billion for the corresponding quarter previous year.

Poor industrial sentiment overseas and with Tata Steel recently announcing its failure to sell its European assets weighed down on earnings.

On Tuesday, Tata Steel said it had abandoned plans to sell its Southeast Asian assets to China's HBIS group. On Wednesday, the company said it has executed a memorandum of understanding to divest 70% of its stake in Tata Steel Thailand to Synergy Metals and Mining Fund, a Dubai-based private equity fund.

At the time of writing, Tata Steel share price was trading down by 3.7%.

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


Sensex Opens 100 Points Higher; HCL Technologies & Hero MotoCorp Top Gainers
09:30 am

Asian share markets are higher today as Chinese and Hong Kong shares gain. The Nikkei 225 is up 0.5% while the Hang Seng is up 0.8%. The Shanghai Composite is trading higher by 0.9%.

US markets fell on Wednesday as investors rushed into the safety of US government bonds, fearing that the US-China trade war will inflict broad damage on the global economy.

Back home, India share markets have opened the day on a positive note. The BSE Sensex is trading up by 132 points while the NSE Nifty is trading up by 27 points. The BSE Mid Cap index and the BSE Small Cap index have opened the day on a flat note.

Sectoral indices opened on a mixed note with stocks in the telecom sector, auto sector, and IT sector witnessing buying interest, while metal stocks have opened in red.

The rupee is trading at Rs 70.75 against the US$.

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In news from the finance sector, the Reserve Bank of India (RBI) has allowed banks' lending to non-banking financial companies (NBFCs) for on-lending to agriculture, micro and small enterprises, and housing to be classified as priority sector lending, up to specified limits.

The RBI raised any bank's exposure limit to a single NBFC from the existing 15% to 20% of tier-1 capital. The idea is to ease liquidity pressure in NBFCs.

Banks' lending to NBFCs for on-lending to agriculture up to Rs 1 million per borrower will be treated as priority sector lending.

The apex bank said that this has been done to increase the credit flow to certain sectors which contribute significantly to economic growth in terms of export and employment, and recognizing the role played by NBFCs in providing credit to these.

On NBFCs' access to liquidity, RBI governor Shaktikanta Das said, "there are NBFCs with strong balance sheets which are able to access the market. Some NBFCs are stressed because of various factors and credit flow has not happened for them. But, then again, it is for banks to make their risk assessment and take the call."

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Note that after the IL&FS default last year, many large NBFCs have been struggling to get funds to even repay existing liabilities. To preserve liquidity, they have cut on disbursement.

Speaking of non-banking financial companies (NBFCs), note that NBFCs were flush with funds from banks, insurance companies, and asset management companies i.e. mutual funds in 2016.

And with these funds and without the necessary restrictions, NBFCs become reckless in deploying the funds.

You can see this clear as day in the chart below...

One Chart that Predicted the NBFC and Mutual Fund Crisis Back in 2016

One Chart that Predicted the NBFC and Mutual Fund Crisis Back in 2016

Here's what Tanushree Banerjee wrote about this in today's edition of The 5 Minute WrapUp...

  • Let's look back at 2016...

    Banks, mutual funds, and insurance companies were competing with each other to lend to NBFCs.

    And why not?

    Not only were the fast growing NBFCs hungry for funds, they also offered attractive yields.

    The NBFCs took more risk than banks by lending without collaterals. But they charged higher interest rates; which meant their margins remained far higher than that of banks.

    It's no wonder the NBFCs caught everyone's fancy. In fact, between 2013 and 2016, the top NBFCs saw their valuation multiples move up three to eight times.

As per Tanushree, the problem in the NBFC sector is far from over. But she believes the good quality NBFCs, and housing finance companies will continue to flourish and you can make the most of the opportunity by buying the safest NBFCs.

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Moving on to news from the IT sector, HCL Technologies posted double-digit revenue growth numbers in the June quarter, though its profit and margin came below market estimates.

The IT services company also maintained its revenue guidance of 14%-16% in constant currency term and margin guidance of 18.5%-19.5% for this financial year, as it expects revenues flow from the IBM IP (intellectual property) deal from second quarter onwards.

The company posted 8.2% decline in its net profit at Rs 22.3 billion on a year-on-year (YoY) basis. Sequentially, it fell 12.5%. The decline in net profit was attributed to increased cost due to hiring more people in client geographies apart from sales investment towards IBM IP deal.

Revenues rose by 18.4% YoY at Rs 164.3 billion, while revenues grew 2.7% sequentially. Similarly, the revenue growth in constant currency term was 17% YoY.

With 17% constant currency revenue growth, the company reported the highest growth as compared to its larger peers. TCS' revenues grew 10.6% YoY on constant currency term in Q1FY20, while Infosys posted 12.4% growth during last quarter.

The company added 5,935 staff on net basis in Q1 to take its total head count to 143,900 at the end of the June quarter. Its attrition also fell 40 basis points to 17.3% during this period.

HCL Technologies share price has opened the day up by 3.9%.

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


Falling Crude Oil Prices, RBI's Repo Rate Cut, and Top Stocks in Action Today
Pre-Open

On Wednesday, Indian share markets fell sharply during closing hours and ended lower. The BSE Sensex closed lower by 286 points to end the day at 36,691. Tata Motors and Tata Steel were among the top losers.

While the broader NSE Nifty ended down by 93 points to end at 10,856.

Among BSE sectoral indices, metal stocks fell the most by 2.7%, followed by automobile stocks and energy stocks.

Top Stocks in Action Today

Mphasis share price will be in focus today as the company has signed a multi-year deal with Ardonagh Group, UK's largest independent insurance intermediary with global reach.

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

Thomas Cook share price will also be in focus today as its wholly owned subsidiary - Horizon Travel Services LLC, USA has acquired 51% stake in Digiphoto Entertainment Imaging LLC, USA.

Market participants will also track Page Industries share price, Tata Chemicals share price, and Abbott India share price as these companies will announce their June quarter results later today.

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Results Corner

Cipla has reported 77.7% rise in its standalone net profit at Rs 6.9 billion for the June quarter (Q1FY20) as compared to Rs 3.9 billion for the same quarter in the previous year. Total income increased by 7.4% at Rs 33.2 billion for Q1FY20 as compared Rs 30.9 billion for the corresponding quarter previous year.

Voltas has reported a fall of 11.1% in its consolidated net profit at Rs 1,663.2 million for the quarter under review as compared to Rs 1,870.6 million for the same quarter in the previous year.

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.

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Indiabulls Housing Finance 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.

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

From the Currencies Space...

On Wednesday, the rupee witnessed high volatility and slipped towards 71 level after the Reserve Bank of India cut repo rate by 35 basis points to boost the slowing economy.

The rupee had opened on a weak note at 70.92 at the interbank forex market, then fell further to 70.99 against the US$.

Following the RBI's Monetary Policy Committee (MPC) decision, the local currency witnessed heavy volatility. It fell to a low of 70.99 and a high of 70.88 within minutes of RBI policy decision.

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RBI Cuts Repo Rate by 35 bps

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) 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.

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 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.

Oil Prices Hit New 7-Month Lows

Oil prices fell further on Wednesday, extending recent heavy losses as deepening US-China trade tensions weighed on the outlook for the global economy and energy demand.

Brent crude futures were down 40 cents at US$ 58.54 a barrel, setting a fresh seven-month low. Prices have lost more than 20% since hitting their 2019 peak in April.

Brent has plunged more than 9% over the past week after US President Donald Trump said he would slap a 10% tariff on a further US$ 300 billion in Chinese imports from September 1, sending global equity markets into a tailspin.

Tensions in the Middle East remain high after Iran seized several tankers in recent weeks in the Strait of Hormuz, a major chokepoint for oil shipments.

Saudi Energy Minister Khalid al-Falih and US Energy Secretary Rick Perry on Tuesday expressed mutual concern over threats targeting freedom of maritime traffic in the Gulf.

The Energy Information Administration (EIA) lowered its domestic oil growth forecasts for the year after Hurricane Barry disrupted Gulf of Mexico output in July. Production is set to rise by 1.28 million barrels per day to 12.27 million bpd this year.

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