Sensex Ends 162 Points Higher; Banking and Telecom Stocks Witness Buying
Closing

After opening the day on a flat note, Indian share markets witnessed buying interest during closing hours and ended higher.

Gains were seen in the metal sector, banking sector and telecom sector, while automobile stocks witnessed selling pressure.

At the closing bell, the BSE Sensex stood higher by 162 points (up 0.4%) and the NSE Nifty closed higher by 47 points (up 0.4%). The BSE Mid Cap index ended the day up 0.1% and the BSE Small Cap index ended the day up by 0.3%.

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Asian stock markets finished on a positive note. As of the most recent closing prices, the Hang Seng was up by 4% and the Shanghai Composite stood higher by 0.9%. The Nikkei 225 was up 0.1%.

The rupee was trading at 72.05 against the US$.

Speaking of the economy and Indian stock markets, Richa Agarwal reveals her investing strategy amid all gloom and doom.

She also talks about the stock she is looking at in such times. She is very cautious in her approach and looks for the stocks that survive in all the market cycles.

Tune in to find out...

Maruti Suzuki share price was in focus today. The company said it has decided to shut down operations for two days at its Haryana plants.

In a statement, the company said it will observe "no production day" on September 7 and 9 at Gurugram and Manesar plants.

Stock of the company witnessed selling pressure and ended over 4% lower today on back of the above news.

In the news from the macroeconomic space, India's services sector activity growth eased in August as new business inflows rose at a slower pace. Following this, job creation and output expansion moderated.

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The IHS Markit India Services Business Activity Index declined from 53.8 in July to 52.4 in August, pointing to a slower rate of increase in output.

The IHS Markit India Composite purchasing manager's index (PMI) Output Index, that maps both the manufacturing and services industry, fell from 53.9 in July to 52.6 in August.

Notwithstanding the decline, the composite PMI Output Index was in expansion territory for the 18th month in a row.

Growth of aggregate new orders moderated from July and was modest.

Private sector jobs rose further in August, but the pace of expansion was slower.

In PMI parlance, a print above 50 means expansion, while a score below that denotes contraction.

Despite the decline, service providers remained confident of a rise in business activity in the coming 12 months, with optimism strengthening to a one-year high.

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

In the news from the commodity space, India's gold imports in August plunged 73% year-on-year (YoY).

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This was the lowest level in three years as a rally in local prices to a record high and a hike in import duty curtailed retail purchases of the precious metal.

As per the news, India imported 30 tonnes of gold in August, down from 111.47 tonnes a year ago.

In value terms, the country's imports in the month fell 62% to US$ 1.37 billion.

Note that Lower imports by the world's second biggest consumer could cap gains in global prices that are trading near their highest level in over six years.

Speaking of gold, globally, gold prices are up around 20% so far this year amid inflows into gold-backed assets. US-China trade war, volatility in risk assets like equities, and central banks signaling a looser monetary policy have boosted the safe-haven appeal of gold.

As per a Bloomberg report, inflows into gold-backed exchange traded funds (ETFs) topped 100 tons in August, the highest since February 2013. Holdings rose 101.9 tons, bringing total known assets to 2,453.4 tons, the third straight monthly increase after the addition of a combined 154.1 tons in June and July.

For domestic markets, jewelers hope that upcoming festive season will improve gold demand, which has been hurt due to high prices.

As many central banks diversify their portfolio, they are adding gold as global growth slows and trade and geopolitical tensions rise.

Also, speaking of gold, co-head of research, Tanushree Banerjee shares some interesting information on the Sensex to Gold (per 10 grams) ratio going back 15 years.

Have a look at the chart below:

Sensex versus Gold in Fairly Valued Zone

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

  • While the ratio has been quite volatile, the average ratio turns out to be 1.

    In other words, whenever the Sensex has risen at a much faster pace than gold prices, its fall has also been equally precipitous. The reason behind this volatility is not hard to find.

    Stock markets are more amenable to manipulation than gold prices are.

    Thus, if the Sensex to gold price ratio is way more than one, it could be a signal the Sensex is overvalued.

    Alternatively, if it is way below one, it could mean that Sensex is undervalued.

    The ratio stands at around 1.09 currently, indicating that the Sensex is trading pretty close to its fair value!

Thus, even though the market correction seems overdone in mid and smallcaps, the bluechips, particularly those in the Sensex, aren't undervalued yet.

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


Sensex Remains Rangebound; Telecom and Banking Stocks Gain
12:30 pm

Stock markets in India continue trading flat. The BSE Sensex is trading up by 73 points and the NSE Nifty is trading up by 17 points. The BSE Mid Cap index is trading down by 0.5%, while the BSE Small Cap index are trading down by 0.2%.

Among the sectoral indices, consumer durables stocks and automobiles stocks are witnessing maximum selling pressure. Telecom stocks and bank stocks are trading in green.

In the news from the currencies market. The rupee today opened 21 paise higher at 72.18 against the US dollar. However, minutes later the currency slipped to 72.26 level.

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The domestic unit on Tuesday tumbled 99 paise to settle at 72.39. That marked its worst single day fall since August 5 and the lowest closing level since 13 November 2018.

The depreciation in rupee's value came on the back of heavy sell-off in the domestic equity market and a weak macro environment.

In the capital market, foreign investors (FPIs) continued their selling spree as they offloaded Rs 20.2 billion on Tuesday while domestic institutional investors (DIIs) bought equities worth Rs 12.5 billion.

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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Speaking of the economy as a whole, Richa Agarwal reveals her investing strategy amid all gloom and doom.

She also talks about the stock she is looking at in such times. She is very cautious in her approach and looks for the stocks that survive in all the market cycles.

Tune in to find out...

Moving on to the news from the banking sector. PSU bank stocks were under pressure yesterday after Finance Minister Nirmala Sitharaman on Friday announced the merger of 10 public sector banks into four entities to make them stronger and sustainable as well as increase their lending ability.

Shares of Punjab National Bank, Indian Bank, Oriental Bank of Commerce and Canara Bank fell between 5% and 9% in trade yesterday.

While Punjab National Bank share price fell up to 8.6%, Indian Bank share price lost 7.9% on BSE.

Nifty PSU Bank index fell up to 4% to 2,376 level.

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The merger announcement is seen as negative for public sector banks in the short term since they will see pressure on profitability front initially. Lack of clarity on merger ratio also led investors moving out of the PSU banks counter.

Punjab National Bank would be merged with Oriental Bank and United Bank to make it the second largest PSB with Rs 18 trillion business and second-largest branch network in India.

Similarly, Canara Bank and Syndicate Bank would be consolidated to form the fourth-largest public-sector bank with business of Rs 15.2 trillion. Union Bank of India, Andhra Bank and Corporation Bank would be merged to make it the fifth-largest bank of the country with business of Rs 14.6 trillion.

Among others, Indian Bank and Allahabad Bank will be merged into one entity, while Bank of India and Central Bank of India would remain independent.

Needless to say, most investors would be worried about the level of NPAs and current and savings accounts (CASA) of the merged entities.

Lower NPA ratio and sustenance of high CASA, in the future, could signal the banks' fitness levels to lend more.

India's Top 6 Public Sector Banks Are Getting Fitter

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

  • But what could go unnoticed is the efficiency potential of the merged entities.

    Post-merger, the employee per branch ratio of the consolidated PSU entities could be in the range of 7 to 9 per branch. This would be almost half that of their private sector counterparts like HDFC Bank and Kotak Bank.

    Leaner operations would mean use of technology to support growth.

So, I would not be surprised if the PSU entities leverage technology at a much bigger scale than their private sector peers, in a few years

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


Indian Indices Open on a Flat Note; Sun Pharma Slips 4%
09:30 am

Asian share markets are lower today after poor US economic data stoked global recession fears and further soured investor sentiment already hurt by heightened trade war concerns.

Back home, India share markets have opened the day on a negative note. The BSE Sensex is trading down by 46 points while the NSE Nifty is trading down by 11 points. The BSE Mid Cap index has opened the day down by 0.6%, while the BSE Small Cap index is trading lower by 0.3%.

Barring telecom sector and IT sector, all sectoral indices have opened the day on a negative note with realty stocks and energy stocks witnessing maximum selling pressure.

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The rupee is trading at Rs 72.27 against the US$.

In news from the pharma sector, the markets regulator has ordered a forensic audit against India's largest drug maker Sun Pharma to look into allegations of financial irregularities and lapses in corporate governance standards.

Earlier, a report said the regulator's inquiry had cleared Sun Pharma of any wrongdoing, after finding no merit in the whistleblower's allegations.

In February, Sun Pharma told stock exchanges that it had received two queries from markets regulator related to a 2004 foreign currency convertible bonds (FCCB) issuance and about Sun's business with Aditya Medisales (AML), and it had responded to both of them.

Media reports then said that the queries were a result of the anonymous whistle-blower complaint, which had questioned transactions amounting to over Rs 58 billion between AML and Suraksha Realty from money generated by the publicly-listed company.

Sun Pharma share price has opened the day down by 4.1%.

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To know more about the company, you can read Sun Pharma's latest result analysis and Sun Pharma's 2018-19 annual report analysis on our website.

Moving on to news from the banking sector, IDBI Bank is set to get a one-time capital infusion of Rs 93 billion from its promoters - the central government and Life Insurance Corporation (LIC). Union minister Prakash Javadekar announced the decision taken by the Cabinet on Tuesday.

Of the Rs 93 billion, LIC will contribute 51% and the remaining 49% funds will come from the government as its share on a one-time basis. The government's capital infusion will come in the form of recapitalisation bonds.

Note that this is the first time the government has decided to pump money in IDBI Bank after LIC acquired a majority stake of 51% in the bank. The government holds around 46.5% stake in the lender.

As per an article in a leading financial daily, the government decided to jointly infuse capital into IDBI Bank since LIC alone couldn't have done it due to regulatory issues.

The insurance regulator permits insurers to hold only up to 15% in any listed entity. The Insurance Regulatory and Development Authority of India (Irdai) had given an exemption to LIC for hiking its stake from 8% to 51% in the lender last year.

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A financial ministry official said IDBI bank's turnaround plan had envisaged the bank to clock net profit in the third quarter of this financial year and reduce its non-performing assets (NPAs) below 6% by the end of second quarter this financial year.

The press statement issued by the finance ministry said IDBI Bank is expected to gain Rs 5 billion in 2019-20 and Rs 10 billion in 2020-21 due to business synergies with LIC. The bank has collected Rs 2.5 billion as premium from sale of insurance in the first four-and-a-half months of this financial year.

Note that IDBI Bank is under the Reserve Bank of India's (RBI's) prompt corrective action (PCA) framework, which puts certain restrictions on the expansion of lenders due to its ailing health.

The bank's finances have continued to show signs of deterioration even after LIC's acquisition. The bank posted its 11th consecutive quarterly loss of Rs 38 billion in Q1FY20 compared to Rs 24.1 billion in the year-ago period, mainly on account of higher provisioning towards bad loans.

IDBI Bank share price has opened the day down by 2.6%.

Speaking of the banking sector, it is interesting to note that public sector banks (PSBs) have struggled due to rising NPAs.

NBFCs have struggled after the IL&FS crisis and are wary to lend.

There has been a silver lining in this mess. i.e. the increased market share of private sector banks. This is evident in the chart below:

India's Credit Shift Megatrend

Since 2014, private banks have consistently gained market share mainly at the expense of PSU banks.

With PSU banks still struggling to get out of their NPA mess, this trend is set to continue.

One such good quality private bank makes it to Tanushree's 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.

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


Government's Mega PSB Merger, Slowdown in Infra Industries, and Top Cues in Focus Today
Pre-Open

On Tuesday, Indian share markets fell sharply during closing hours, tracking weak domestic and global cues.

The BSE Sensex closed lower by 770 points to end the day at 36,563. ICICI Bank and IndusInd Bank were among the top losers.

While the broader NSE Nifty ended down by 225 points to end at 10,798.

Among BSE sectoral indices, metal stocks fell the most, followed by energy stocks and telecom stocks.

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Top Stocks in Focus Today

From the steel sector, Tata Steel share price will be in focus today as the company said it would shut parts of its non-core businesses in the United Kingdom, a move that could cost about 400 jobs.

The steelmaker proposed to close its loss-making Orb Electrical Steels site in South Wales, potentially affecting up to 380 jobs, as it was "unable to find a way forward" for the business.

The company said it would cost the company more than US$ 61.4 million to upgrade the site to produce steel for electric vehicle production.

PSB Stocks Tumble After Merger Announcement

Public sector bank (PSB) stocks such as Punjab National Bank (PNB) and Corporation Bank will be in focus today. Stock of PSBs witnessed sharp selling pressure yesterday after the government announced the merger of ten state-run lenders into four.

Note that in order to revive the deepening economic slowdown, the government on Friday unveiled a mega plan to merge 10 public sector banks into four with a view to create fewer and stronger global-sized lenders with robust balance sheets that can be used to boost credit and spur growth.

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Oriental Bank of Commerce and United Bank will merge with Punjab National Bank to create the nation's second-largest lender behind State Bank of India. Also, Syndicate Bank will merge with Canara Bank while Andhra Bank and Corporation Bank would subsume into Union Bank of India. Allahabad Bank will be amalgamated with Indian Bank.

The above mergers, together with two set consolidations done last year, will reduce the number of public sector banks to 12 from 27 in 2017.

Needless to say, most investors would be worried about the level of NPAs and current and savings accounts (CASA) of the merged entities.

Lower NPA ratio and sustenance of high CASA, in the future, could signal the banks' fitness levels to lend more.

Here's what Tanushree Banerjee wrote about the above development in the recent edition of The 5 Minute WrapUp...

  • But what could go unnoticed is the efficiency potential of the merged entities.

    Post merger, the employee per branch ratio of the consolidated PSU entities could be in the range of 7 to 9 per branch. This would be almost half that of their private sector counterparts like HDFC Bank and Kotak Bank.

    Leaner operations would mean use of technology to support growth.

    So, I would not be surprised if the PSU entities leverage technology at a much bigger scale than their private sector peers, in a few years.
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Slowdown in Growth of Core Infra Industries

Data released by the ministry of Commerce and Industry showed the growth of eight core infrastructure industries slowed down to 2.1% in July 2019 as compared to 7.3% in the same month a year ago. The slowdown was seen on the back of contraction in coal, crude oil and natural gas production.

The combined Index of eight core industries was 2.1% higher compared to the index of July 2018. Its cumulative growth during April to July, FY20 was 3%.

The Eight Core Industries, coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity comprise 40.3% of the weight of items included in the Index of Industrial Production (IIP).

Among eight core sectors, coal production having 10.3% weight declined 1.4% in July 2019 over July 2018. Petroleum Refinery production having 28% weight fell 0.9% in July 2019 as compared to same month last year.

The Natural Gas production having 6.9% weight declined by 0.5% percent in July 2019.

Steel production having 17.9% weight increased by 6.6% in July this year. Electricity generation having 19.9% weight jumped by 4.2% in July 2019.

Cement production rose by 7.9%, fertilizer production surged by 1.5%, while crude oil production declined by 4.4% in July this year.

How this pans out in coming months remains to be seen. We will keep you updated on all the news from this space.

Maruti Suzuki Reduces Production for Seventh Straight Month

In the news from the automobile sector, Maruti Suzuki has reduced its production by 34% in the month of August 2019. The company produced a total of 1,11,370 units in August as against 1,68,725 units in the year-ago month.

This is the seventh straight month that the country's largest car maker reduced its output. In July, the automaker had cut its production by 25.2% at 1,33,625 units.

Passenger vehicles' production declined by 33.7% at 1,10,214 units as against 1,66,161 units in August 2018.

Production of mini and compact segment cars including Alto, New WagonR, Celerio, Ignis, Swift, Baleno and Dzire stood at 80,909 units as against 1,22,824 units in August last year, down 34.1%.

Production of utility vehicles such as Vitara Brezza, Ertiga and S-Cross declined 34.9% to 15,099 units as compared with 23,176 units in the year-ago month.

On Sunday, the company reported a 33% dip in total sales at 1,06,413 units as compared with 1,58,189 units in August 2018.

The company also said that it will make all the small cars in its portfolio available in compressed natural gas (CNG) variants to reduce dependence on imported oil and cut down on vehicular pollution.

The company's Chairman RC Bhargava told The Economic Times that all small cars in the company's portfolio will get converted to CNG. There is an acceptance from the government that CNG is a cleaner fuel, and it is being accepted for transportation. They are setting up 10,000 CNG distribution outlets.

To know more about the company, you can read Maruti Suzuki's latest result analysis and Maruti Suzuki's 2018-19 annual report analysis on our website.

Speaking of the Indian auto industry, note that the sluggish market environment prevalent in the first quarter has continued in the beginning of the second quarter as well as its impact are visible in the dispatch volumes.

The sector has been battling many negative forces - slowing economic activity, rising car prices (led by stricter emission norms and insurance costs), shortage of financing options because of the NBFC crisis, and weak rural sentiment. All these factors have dampened demand.

It seems unlikely that the upcoming festival season will work wonders in terms of bolstering growth...unless the government steps in to help the industry.

In the video below, Tanushree Banerjee talks about what helped the auto stocks back in 2002 become 7, 15 and 24 baggers in a decade.

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