Indian Indices End on a Positive Note; Banking and Healthcare Stocks Witness Buying Interest
Closing

Indian share markets ended their session on a positive note today. Gains were largely seen in the banking sector and healthcare sector.

At the closing bell, the BSE Sensex stood higher by 347 points (up 1%) and the NSE Nifty closed higher by 100 points (up 0.9%). The BSE Mid Cap index ended the day up by 0.4%, while the BSE Small Cap index ended the day down by 0.7%.

Asian stock markets finished on a mixed note as of the most recent closing prices. The Hang Seng was down 1.6% and the Nikkei was trading up by 0.3%. The Shanghai Composite stood lower by 0.6%.

The rupee was trading at 72.64 to the US$ at the time of writing.

Stocks from the telecom sector witnessed selling pressure today on news that the Department of Telecommunications (DoT) is set to conduct special audits of mobile phone operators from the fiscal year 2011-12 onwards to check for under-reporting of revenue that might account for a sharp downturn in license fees and spectrum usage charges.

Stocks such as AGC Networks and Reliance Communications were the top losers in the sector.

In the news from the IPO space, garden Reach Shipbuilders and Engineers, which opened its issue for subscription yesterday, received a tepid response as the issue was subscribed 0.01 times on its first day of bidding.

As per the data, of the 2.9 crore equity shares offered by the company, only 1% of the shares were subscribed on the first day of the bidding process. The shares earmarked for the retail segment were subscribed 0.02 times.

The IPO of the company closes on 26 September 2018. The IPO is priced in the range of Rs 115-118 per share. Retail investors and employees will receive shares at a discount of Rs 5 per share on final offer price.

The offering is entirely an offer for sale (OFS) of 29.2 million shares by Government of India. With this OFS, the Government aims to divest 25.5% stake in the company. No new shares are being issued by the company and all the IPO proceeds will go to the Government.

Garden Reach Shipbuilders and Engineers Ltd (GRSE) is a shipbuilding company under the administrative control of the Ministry of Defence (MoD). The company was incorporated in 1934, and was later acquired by the Government of India from Macneill & Barry Limited on 19 May 1960.

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The company primarily caters to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. It is also engaged in engineering and engine production activities.

To know more about the company, you can read our IPO analysis of Garden Reach Shipbuilders and Engineers Ltd. (requires subscription).

Also, with so many IPOs set to hit the markets, we at Equitymaster 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 how to safely profit from the ongoing IPO rush, download this FREE report now and discover How to Get Rich with IPOs.

In the news from commodity space, crude oil is witnessing buying interest today. Brent crude prices hit a fresh four-year high today as amid looming US sanctions against Iran.

Apart from the above, the rise in crude oil prices was also seen on the back of Organization of the Petroleum Exporting Countries (OPEC) and Russia's unwillingness to raise output to set-off the expected demand.

The US will be targeting Iran's oil exports with sanctions from November 4, and Washington is putting pressure on governments and companies around the world to fall in line and cut oil purchases from Tehran.

As per the news, while Britain, China, France, Germany, Russia and Iran said they were determined to develop payment mechanisms to continue trading despite the sanctions by the United States, most analysts expect Washington's actions to have an effect to the tune of 1-1.5 million barrels per day (bpd) of crude oil supplies out of markets.

The above cues meant tightening supplies and rising crude demand and led crude oil prices to trade on a positive note.

Note that crude oil prices are witnessing buying interest lately. This doesn't bode well for the Indian economy, as it not only affects fuel prices, but also has many other repercussions on the macroeconomic level.

Rising crude oil prices can be a big worry for the Modi government as well as it has been a big beneficiary of lower crude oil prices.

Apart from that, what does rising crude oil prices mean for stock markets?

Richa Agarwal, editor of Hidden Treasure, tracks the oil and gas sector very closely. She believes the rise in crude oil prices is a bearish sign for stock markets globally. At the same time, any market correction, will throw up interesting buying opportunities in small-cap stocks.

This is what she wrote...

  • After hitting a low of US$ 30 per barrel in January 2016, prices have more than doubled this year.

    While the Hidden Treasure team looks for long-term wealth creators, such macro situations can help to recommend such stocks at a bargain. The ones who keeps calm, when everyone else is losing their heads, will gain the most when the tide turns.

It's also interesting to note that whenever oil prices have surpassed US$ 100/barrel, they didn't stay there for very long. In technical term, it is sort of 'resistance level'.

Resistance Kicks in Once Crude Touches US$ 100/barrel


This is what we wrote about this in one of the editions of The 5 Minute WrapUp...

  • Oil prices have collapsed thrice because of demand destruction: in 1979, 2008, and 2014.

    In 1979, the trigger for oil price increase was the Iranian Revolution and the Iran-Iraq war. Due to this, oil prices rose from US$ 50/barrel to above US$ 100/barrel between January 1979 and April 1981.

    Then, new production from the North Sea, Mexico, Alaska, and Siberia flooded the market. By March 1986, prices had fallen to US$ 27/barrel.

    In 2008, when oil touched US$ 150/barrel, it was quickly followed by the financial crisis and recession.

    Then, between 2011 and 2014, when oil was above of US$ 100/barrel, several years of triple-digit oil prices led to a near doubling of shale production in the US, a volume that helped trigger the crash in 2014.

In fact, as per the media reports, even Saudi officials think US$ 60 is a reasonable price for oil in the long term.

It would be interesting to see how Iranian sanctions will influence crude oil prices. Meanwhile, we will keep you posted on all the updates from this space.


Sensex Surges 250 Points; IT, Pharma Stocks Gain Most
12:30 pm

After opening the day in red, share markets in India are trading on a volatile note and are presently trading above the dotted line. Sectoral indices are trading on a mixed note, with stocks in the IT sector and stocks in the pharma sector witnessing maximum buying interest.

The BSE Sensex is trading up by 240 points (up 0.7%) and the NSE Nifty is trading up by 65 points (up 0.7%). Meanwhile, the BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading down by 0.5%. The rupee is trading at 72.80 to the US$.

In news from stocks in the financial services sector. In what could be a further deepening of the ongoing debt crisis in Infrastructure Leasing & Financial Services (IL&FS) Group it was reported that a group firm could not service commercial papers.

A Group firm, IL&FS Financial Services (IFIN), said it could not service commercial papers (CPs) that fell due on Monday. IFIN has been having trouble servicing CPs over the past 10 days or so.

It could not service CPs that fell due on September 14; they were settled the next day. Again, on September 18, the company could not service CPs due that day.

CPs, which are issued in the form of a promissory note, are unsecured money market instruments - a low-cost alternative to bank loans.

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Earlier this month, it came to light that IL&FS group defaulted on a short-term loan of Rs 10 billion from SIDBI, while a subsidiary has also defaulted Rs 5 billion dues to the development finance institution.

While IL&FS has nearly Rs 350 billion consolidated debt, IL&FS Financial Services has Rs 170 billion of debt, which sits as standard asset for most of the lenders, the reports noted.

The group has seen its various long-term and short-term borrowing programmes downgraded to 'default' or 'junk' grades by credit rating agencies, even as the regulators are also probing alleged delay in disclosure about certain loan defaults.

Shadow Banking in India has outperformed the traditional private and public-sector banks in India in recent times.

Credit growth in non-banking financial companies (NBFCs) has seen robust growth in recent years. From 2013-2017, NBFCs grew by 13% as compared to 5.4% for banks.

A major reason for this is the gain in market share from public sector banks (PSBs). The recent NPA woes of the PSBshas seen them tighten up their credit lines.

The NBFCs have stepped in, along with private sector banks, to fill this gap.

Is the NBFC Party in India Coming to an End?

But the recent liquidity crisis at IL&FS has raised concerns over how long this growth will continue.

Such a liquidity crisis will increase lending costs for NBFCs. Once borrowing costs rise for NBFCs, their profitability is bound to take a hit.

One way to counter that would be to raise their lending rates. But then, it would make them less competitive as compared to banks.

In times like these, I believe, NBFCs with strong asset liability management will come out stronger. On the other hand, NBFCs with a low capital base will struggle in the upcoming high interest rate period.

Moving om to news from stocks in the IT sector. Infosys share price is in focus today after the company bagged a major contract.

The company's public services arm announced that it has been awarded a CAD 80.3 million approx Rs 4.5 billion contract by Public Services and Procurement Canada (PSPC) to modernise and automate their procurement processes.

Infosys Public Services Inc (IPS) is working with Ernst & Young LLP (EY) and SAP Canada Inc (SAP) to digitise PSPC procurement system through the implementation and management of a cloud-based electronic procurement solution, the homegrown IT firm said in a statement.

The new solution will provide an intuitive, web-based portal for PSPC and its suppliers to access procurement information and services in both English and French, it added.

The new platform will enable PSPC to purchase various goods and services through a single portal, configure specific requirements, and access data, reporting and analytics information in real-time to support more effective decision-making.

At the time of writing, was trading up by 2%.


Sensex Opens Flat; Realty & Bank Stocks Lose
09:30 am

Asian stock markets opened in red today after a new round of US-China trade tariffs kicked in. Meanwhile, the S&P 500 and the Dow closed lower on Monday as market participants awaited a widely-expected interest rate hike by the Federal Reserve. While oil prices jumped after top producers including Russia ruled out boosting crude output.

Back home, India share markets opened flat. The BSE Sensex is trading down by 50 points while the NSE Nifty is trading down by 30 points. The BSE Mid Cap index and BSE Small Cap index opened the day down by 0.4% & 0.7% respectively.

Barring healthcare stocks, capital goods stocks and energy stocks, all sectoral indices have opened the day in red with bank stocks and realty stocks witnessing maximum selling pressure.

The rupee is trading at Rs 72.98 against the US$.

In the news from the economy. As per an article in a leading financial daily, the Reserve Bank will conduct open market operations (OMO) on Thursday to purchase government bonds to infuse liquidity of Rs 100 billion.

Based on an assessment of prevailing liquidity conditions and also of the durable liquidity needs going forward, the RBI has decided to conduct purchase of government securities under OMO.

The purchase will happen through multi-security auction using the multiple price method, the reports noted.

As part of the OMOs, the RBI will purchase government securities maturing in 2020 bearing interest rate of 7.8%, 2022 (8.2%), 2025 (7.72%), 2027 (6.79%) and 2031 (6.68%).

The RBI said it has the right to decide on the quantum of purchase of individual securities and can also accept offers for less than Rs100 billion.

Note that, OMOs are the tools which can be used to either inject or drain liquidity from the system. It is employed to adjust rupee liquidity conditions in the market on a durable basis.

The RBI and capital markets regulator on Sunday said they were closely monitoring activities in the financial markets and ready to take appropriate actions, if required, following a sharp meltdown on Friday in equity and debt markets.

The stock market is on the roil for past week on the back of debt defaults by diversified IL&FS group.

There are also worries about NBFCs even though the country's largest lender SBI assured lending support to the NBFC sector.

Several NBFC stocks came crashing down on Friday, Dewan Housing Finance Corporation Ltd. being the leader of the pack. Nearly Rs 81.3 billion worth of the company's market cap got wiped out in a single session.

Housing finance companies came under sudden heavy selling pressure as interest rates on their debt spiked.

Housing Finance Stocks Take a Beating


There are concerns that the defaults by IL&FS could cause a contagion in the Indian financial sector.

In our latest edition of the stock market podcast, Apurva Sheth, our lead Chartist and Editor of the premium newsletter, Profit Hunter Pro joins us to share his technical view on the massive stock market crash that we witnessed on Friday. He also talks about the stocks that could create value in such times. Listen in... visit SoundCloudiTunes or Stitcher.

Moving on to the news from IPO space. Aavas Financiers Ltd's initial public offering (IPO) to raise up to Rs 17.3 billion opens today, amid the mayhem in the non-banking finance companies (NBFCs) space.

Aavas, earlier known as AU Housing Finance, was the mortgage lending business of Jaipur-based small finance bank AU Small Finance Bank Ltd. In February 2016, Partners Group and Kedaara Capital had acquired it for Rs 9-10 billion.

Aavas has fixed its price band at Rs 818-821, aiming to raise up to Rs 17.3 billion at the upper end of the price band.

Speaking of IPOs, the stock market is gearing up for a burst of IPO activity.

According to EY India IPO Readlines survey report, globally, Indian exchanges recorded the highest IPO activity as the country saw 90 IPO launches that raised US$ 3.9 billion in the first half of this year.

Meanwhile the amount raised by SME IPOs in 2017 stood at Rs 17.9 billion. This is more than three times the amount raised in 2016. The number of SME IPOs launched also doubled from 66 to 132.

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 how to safely profit from the ongoing IPO rush, download this FREE report now and discover How to Get Rich with IPOs.

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


Indian Indices Trade in Red, Oil on the Boil, and Top Stocks in Action
Pre-Open

On Monday, share markets in India opened on a negative note and ended the day in red after a dull day of trading.

The BSE Sensex closed lower by 53 points to end the day at 36,305. While the broader NSE Nifty ended the day down by 136 points to end at 10,975.

Among BSE sectoral indices, realty stocks fell the most by 5.1%, followed by auto stocks at 3.8%. HDFC Ltd and Mahindra & Mahindra. were among the top losers.

Top Stocks in Action Today

Cipla share price is likely to be in focus today after it was reported that the US drug market regulator, USFDA, is carrying out a surprise inspection at the company's Goa facility.

Tata Steel share price will be in focus today after it was reported that the company will acquire the steel business of Usha Martin Ltd for Rs 43-47 billion.

Usha Martin's steel business comprises the specialized 1 million-tonnes-per-annum (MTPA) alloy based manufacturing capacity in the long products segment based in Jamshedpur, a producing iron-ore mine, a coal mine under development and captive power plants.

Oil Prices at 4 Year Highs

Oil prices jumped more than 2 percent to a four-year high on Monday after OPEC declined to announce an immediate increase in production despite calls by U.S. President Donald Trump for action to raise global supply. Benchmark Brent crude hit its highest since November 2014 at US$ 80.94 per barrel.

OPEC leader Saudi Arabia and its biggest oil-producer ally outside the group, Russia, ruled out any immediate extra increase in output, effectively rebuffing a call by Trump for action to cool the market.

The Organization of the Petroleum Exporting Countries as well as top producer Russia has been discussing raising output to counter falling supply from Iran, although no decision has been made public yet.

In the past one year alone, oil prices have surged more than 50%.

Also note that rising crude oil prices not only affect fuel prices, but also has many other repercussions for the Indian economy.

They can be a big worry for the Modi government as well.

As Ankit Shah wrote in a recent edition of The 5 Minute WrapUp...

  • During the UPA II regime, India's average annual oil import bill was US$ 133 billion. In fact, in the last three years of Manmohan Singh's leadership, the oil import bill exceeded US$ 150 billion. Compare that with an average annual oil bill of US$ 95 billion during the four years of Modi's leadership.

    The actual savings would have been even higher, because I believe the consumption of crude oil and petroleum products would have been quite higher in the Modi era than the Manmohan era.

    Last Thursday, Brent crude oil prices shot above US$ 80 a barrel.

    This is the highest level since 2014. In the past one year alone, oil prices have surged more than 50%.

    Now, what if oil prices go back to the levels during the Manmohan Singh regime? What would happen to India's current account and fiscal deficit? What would happen to inflation and RBI's stance on interest rates?

    With the next general elections just a year away, rising crude oil prices are going to be a big worry for the Modi government.

    It should worry you too...