Where Will the Markets Go from Here?
Podcast

What an eventful week it was! With the government revoking article 370 to the RBI announcing a rate cut. Stock markets were on a roller coaster ride.

Indian markets have been at the receiving end of a barrage of negative news and a positive counter to tip the scales is crucial.

The ongoing trade war between the US and China is making things worse.

However, optimism returned to Dalal Street on Thursday due to calm in global finance and news reports of the Finance Ministry making a positive announcement on tax issues pertaining to equity markets.

While the mainstream media is painting gloom and doom, where will the markets go from here?

Tune in to know more...


Sensex Ends 254 Points Higher; Auto and Energy Stocks Witness Buying
Closing

Indian share markets continued to trade in the green during closing hours today and ended their trading session on a positive note. Gains were seen ahead of Finance Minister Nirmala Sitharam's meet with capital market representatives including foreign portfolio investors, NBFCs and mutual funds to deliberate upon the issues plaguing the economy and sagging industrial growth.

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

At the closing bell, the BSE Sensex stood higher by 254 points (up 0.7%) and the NSE Nifty closed higher by 77 points (up 0.7%).

The BSE Mid Cap index ended up by 0.6%, while the BSE Small Cap index ended the day up by 0.9%.

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Asian stock markets finished on a mixed note as of the most recent closing prices. The Hang Seng stood down by 0.69% and the Nikkei was trading up by 0.44%, while the Shanghai Composite was trading down by 0.71%.

European markets were trading on a negative note. The FTSE 100 was down by 0.26%. The DAX was trading down by 1.09%, while the CAC 40 was down by 0.96%.

The rupee was trading at 70.73 to the US$ at the time of writing.

Speaking of Indian share markets in general, master trader Vijay Bhambwani talks to us about stocks, gold, silver, interest rates, crude oil, and how this bear market will come to an end.

investor-hour

Also, the correction which we witnessed during the past few months shows the impact of foreign investors (FPI) on the Indian share market.

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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The reason for this are many.

From slowdown in the economy to the Budget...

But, can the real reason be external?

In March this year, the Morgan Stanley Capital International (MSCI) announced it would increase the weightage of Chinese A shares (stocks trading in mainland China) by 4 times. These shares form around 10% of total Chinese shares in the index.

FPIs investing in passive funds follow the MSCI EM index for investments in emerging markets.

A comparison of India's weightage with China in the MSCI EM index provides us clues on the recent outflows from FPIs.

Will India be the Next Hot FPI Destination?

Will India be the Next Hot FPI Destination

It also explains the announcement to reduce promoter shareholding in the budget.

Will we see a similar FPI inflow in to Indian stocks?

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Looking at the recent inflow in to the Chinese stock markets, it seems very likely.

In the news from the energy sector, GAIL share price was in focus today as the company reported 2.2% year-on-year (YoY) jump in its net profit at Rs 12.8 billion for the June quarter. Revenue for the quarter advanced 5.9% YoY to Rs 183.1 billion, while other income stood at Rs 1.5 billion compared with Rs 8.6 billion in March quarter and Rs 1.1 billion in the year-ago period.

Going by the segments, the company reported a drop in revenues in LPG and petrochemicals segment. Revenue was up for natural gas, natural gas marketing and LPG, and Liquid Hydrocarbons segments.

The company said that the Petroleum and Natural Gas Regulatory Board (PNGRB) has issued various provisional transportation tariff orders in respect to natural gas pipeline tariff.

Some of these orders have been contested by the company with Appellate Tribunal for Electricity (APTEL), which were remanded back by APTEL to PNGRB for review.

Suzlon Energy share price was also in focus today. The scrip of the company witnessed buying interest after a report suggested that the troubled wind-turbine maker has offered to repay about Rs 85 billion to lenders as part of a bad-debt-resolution plan.

As per the news, creditors led by State Bank of India will have to take a haircut of as much as 44% on Suzlon's debt if the offer is accepted.

The settlement plan backed by Vestas Wind Systems A/C is the only bid in front of lenders after Brookfield Asset Management Inc. dropped out of the race.

How this development pans out remains to be seen. Meanwhile, we will keep you updated on all the news from this space.

In the news from the commodity markets, crude oil witnessed buying interest today. Most of the gains were seen on expectations of more production cuts by the Organization of the Petroleum Exporting Countries (OPEC).

Market participants expect that OPEC will cut production amid fears the US-China trade row could lead to a global slowdown and thereby curb demand for crude.

Note that crude oil has been witnessing volatility lately amid weekly declines in US inventories and rising geopolitical tensions between Iran and other countries.

Meanwhile, volatility was also seen on the back of ongoing geopolitical tensions in the Middle East.

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

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


Indian Indices Extend Gains; Vedanta & Bajaj Finance Top Gainers
12:30 pm

Share markets in India have extended early morning gains and are presently trading higher amid reports that the government may exempt foreign portfolio investors from additional surcharge.

Barring telecom sector, all sectoral indices are trading in green with stocks in the capital goods sector, finance sector and realty sector witnessing maximum buying interest.

The BSE Sensex is trading up by 418 points (up 1.1%), while the NSE Nifty is trading up by 135 points (up 1.2%). The BSE Mid Cap index is trading up by 1.2% and the BSE Small Cap index is trading up by 1.4%.

The rupee is trading at Rs 70.51 against the US$.

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Market participants are tracking Cadila Healthcare share price, BHEL share price, and MRF share price as these companies are set to announce their June quarter (Q1FY20) results later today.

You can read our recently released Q1FY20 results: Tata Steel, Cummins India, Sonata Software, HCL Technologies, Siemens.

In news from the banking sector, Yes Bank has embarked on a plan to generate US$ 285 million by selling shares through a qualified institutional placement (QIP). The sale to institutional investors opened on Thursday evening.

The bank has set a floor price of Rs 87.9 per share for the issue, with a proposed discount of not more than 5%, depending on demand from investors in India and aboard.

Local investment banks JM Financial and Motilal Oswal as well as Hong Kong-based CLSA are managers to the sale. The issue is likely to stay open through the night to attract interest from investors in Europe and the US.

The private lender in a notice to the exchanges said that a committee will meet on August 16 to consider and approve the issue price and final discount.

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As per an article in The Economic Times, the bank had originally intended to raise as much as US$ 1billion. However, it had imposed a restriction on the maximum dilution, setting it at 10% of the paid-up equity capital.

Here's an excerpt from the article:

  • Since Yes Bank's market cap has fallen to about Rs 200 billion, it cannot raise more than Rs 25 billion on the expanded equity base.

    The aggregate amount raised shall not result in increase of the issued and subscribed equity share capital of the bank by more than 10% of the then issued and subscribed equity shares of the bank.

    Investors committed to subscribe to the issue include HDFC Mutual Fund, Aditya Birla Mutual Fund and UK's Ashmore Investment Management.

In the June quarter, the bank's core Tier I capital ratio declined to 8%, close to the minimum regulatory requirement of 7.375% for the year ended March 2019 and 8% for that ending in March 2020.

The private lender had to set aside Rs 11.9 billion as market provision on bonds issued by Dewan Housing Finance Corporation (DHFL) and the Anil Ambani-led Reliance Group, which were both outside the bank's Rs 100 billion watch list, raising concerns about the bank's asset quality guidance.

The bank will seek separate approval from the board and shareholders for the second tranche that will be raised through a combination of rights and fresh shares. Sources said that the second round of fund raising of an additional Rs 100 billion is likely to be through a rights issue.

Yes Bank share price is presently trading down by 2.4%.

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Speaking of the banking sector, note that public sector banks have struggled due to rising NPAs. NBFCs have struggled after the IL&FS crisis and are wary to lend.

Since the IL&FS crisis, the domino effect has affected all lenders in the Indian economy.

However, there has been a silver lining in this mess. i.e. the increased market share of private sector banks.

It is evident from the chart below that since 2014, private banks have consistently gained market share mainly at the expense of PSU banks.

India's Credit Shift Megatrend

In the Long Run, Elections Don't Influence the Stock Market

Co-head of research at Equitymaster, Tanushree Banerjee believes this trend is set to continue as PSU banks are still struggling to get out of their NPA mess.

One such good quality private bank makes it in her top 7 stocks to buy list.

These 7 stocks will be a part of many such megatrends that will play out over the next decade in India.

Moving on to news from the textiles sector, shares of Page Industries dipped over 5% intraday to hit a 52-week low of Rs 17,438, after the company reported poor numbers in the quarter ended June 2019.

The company reported a 11% fall in its net profit at Rs 1,106 million against Rs 1,244 million, while revenues grew 2.4% YoY at Rs 8,350 million against Rs 8,153 million.

Earnings before interest, tax, depreciation and amortization (EBITDA) fell to Rs 1,866 million, and margins contracted to 22.3%.

The company's board has declared an interim dividend of Rs 51 per equity share.

On the back of poor results, Credit Suisse cut the company's target to Rs 15,000 per share and also maintained an underperform rating.

Page Industries share price is presently trading down by 4.6%.

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


Sensex Opens Higher; Power and Realty Stocks Top Gainers
09:30 am

Asian share markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.7% while the Hang Seng is down 0.5%. The Shanghai Composite is trading down by 0.2%. Meanwhile, the S&P 500 registered its largest one-day percentage gain in about two months on Thursday, with technology shares providing the biggest boost as equities continued to rebound along with bond yields. All major sectors advanced at least 1%, and the S&P 500 technology index climbed 2.4%.

Back home, India share markets opened on a strong note. The BSE Sensex is trading up by 225 points while the NSE Nifty is trading up by 47 points. Both, the BSE Mid Cap index and BSE Small Cap index opened up by 0.4%.

Barring IT stocks, all sectoral indices have opened the day in green with power stocks and realty stocks witnessing maximum buying interest.

The rupee is currently trading at 70.49 against the US$.

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The Indian rupee opened higher by 14 paise at 70.55 per dollar today versus Thursday's close 70.69.

The rupee snapped its five-day losing streak to close higher by 20 paise at 70.69 against the US dollar on August 8, tracking sharp gains in domestic equities after reports of rollback of a tax surcharge on foreign portfolio investors.

At the interbank foreign exchange, the rupee witnessed high volatility against the US dollar.

The local unit opened strong at 70.80 and during the day touched a high of 70.55 and a low of 70.94 against the American currency.

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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?

Moving on to the news from the NBFC 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 10 lakh a borrower will be treated as priority sector lending.

So, too, for loans up to Rs 20 lakh for micro and small enterprises and housing.

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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 recognising the role played by NBFCs in providing credit to these, the reports noted.

In the Union Budget, the government aimed to encourage public sector banks to buy high-rated pooled assets of up to Rs 1 trillion of financially sound NBFCs. For which, it said, it would give a one-time and six-month partial credit guarantee for the first loss of up to 10%.

And, the RBI had changed banks' bond-holding norms, saying government securities of up to one per cent of the deposit base would be considered high-quality assets under Basel-III norms.

This will allow banks to borrow an additional Rs 1.34 trillion exclusively for buying such pooled assets and giving loans to NBFCs.

After the IL&FS default last year, many large NBFCs have also been struggling to get funds to even repay existing liabilities. To preserve liquidity, they have cut on disbursement. RBI has assured the sector that it will do what is required to support it.

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.

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


Q1FY20 Results, FPI Surcharge, and Top Stocks in Focus Today
Pre-Open

Indian share markets witnessed huge buying interest during closing hours yesterday 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).

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

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

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

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Top Stocks in Focus Today

Adani Enterprises share price will be in focus today as the company posted consolidated net profit at Rs 6 billion in June quarter against Rs 1.6 billion during the same quarter last year. Revenue was up 39.7% at Rs 105.6 billion. The profit included one-time gain of Rs 3.3 billion.

From the pharma space, Lupin share price will be in focus today as the company announced the completion of the United States Food and Drug Administration (USFDA) inspection carried out at its Nagpur oral solid manufacturing facility. The inspection closed without any 483 observations.

Market participants will also be tracking Borosil Glass Works as the company has made an additional investment of Rs 5,00,00,089 by way of subscription to the fresh rights issue of partly paid up equity shares of Klass Pack, a subsidiary company. The company's shareholding in Klasspack has increased from 75.73% to 79.52%.

Govt. Likely to Withdraw Higher Surcharge for FPIs

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 such as foreign portfolio investors' (FPI) tax concerns.

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

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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.

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.

So, if the government does withdraw the higher surcharge, we could see FPI money coming back to Indian share markets.

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.

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June Quarter Results

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.

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.

From the steel sector, Tata Steel 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.

Maruti Suzuki India Cuts Production for the Sixth Month

In the news from the automobiles sector, as per an article in a leading financial daily, Maruti Suzuki 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.

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 production was also trimmed to 2,724 units last month from 3,077 units in July 2018.

How this development pans out ahead remains to be seen. Meanwhile, we will keep you updated on all the developments from this space.

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