Indian Indices End Marginally Lower; FMCG & IT Stocks Witness Losses
Closing

After opening the day on a positive note today, Indian share markets witnessed losses thereafter and ended their trading session marginally lower. Losses were largely seen in the FMCG sector and IT sector, while metal stocks ended the day higher.

At the closing bell, the BSE Sensex stood lower by 110 points (down 0.3%) and the NSE Nifty closed lower by 13 points (down 0.1%). The BSE Mid Cap index ended the day up by 0.4%, while the BSE Small Cap index ended the day up by 0.1%.

Asian stock markets finished in the green as of the most recent closing prices. The Hang Seng was up 1.1% and the Nikkei was trading up by 0.4%. The Shanghai Composite stood higher by 0.9%.

The rupee was trading at 72.61 to the US$ at the time of writing.

In the news from the finance sector, shares of IL&FS Group companies were trading on a positive note today after state-owned insurer Life Insurance Corporation of India (LIC) said it will not allow debt-ridden IL&FS to collapse and explore options to revive it.

The above announcement comes as 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.

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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.

According to Moody's Investor Services, IL&FS's outstanding debentures and commercial paper accounted for 1% and 2%, respectively, of India's domestic corporate debt market as of 31 March 2018. Its bank loans made up about 0.5% to 0.7% of banking system loans.

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

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

In the news from the banking sector, Punjab National Bank share price was in focus today. Shares of the company witnessed buying interest today after it informed bourses that the bank will consider capital infusion of Rs 54.3 billion by the government of India on Thursday.

From the airlines sector, SpiceJet share price also witnessed buying interest today. Gains were seen after reports suggested that the airline is in talks with Airbus to buy its A330neo wide-bodied planes.

As per the news, the report indicated that the airline is firming up plans to fly long haul international routes such as Europe.

We will keep you updated on how this development pans out.

Also, speaking of airline sector, note that India's aviation industry is on a high-growth trajectory.

India's domestic air traffic has seen a prolific growth of 20-25% during 2015 and 2016. And in 2017, it tapered to 17.4%.

However, for the first time, domestic air traffic crossed an important landmark of 100 million passengers in a calendar year, as can be seen from the chart below.

Indian Aviation Spreading its Wings

What's foreseeable for India's aviation traffic now is some pressure on the back of the consistent rise in crude oil prices.

Oil prices are closely monitored by the Indian air carriers, as aviation turbine fuel is their single largest input cost. A sharp rise in the cost of fuel puts pressure on margins, and consequently an increase in air fares.

Although air travel is becoming the new normal, investors need to understand the industry dynamics before buying up aviation stocks.


Sensex Trades Weak; FMCG Stocks Drag
12:30 pm

Stock markets in India are trading in negative territory weighed by fast-moving consumer goods (FMCG) stocks.

The BSE Sensex is trading lower by 160 points (down 0.4%), and the NSE Nifty is trading lower by 30 points (down 0.3%). Meanwhile, the BSE Mid Cap index and the BSE Small Cap index are trading flat. The rupee is trading at 72.71 to the US$.

2018 has been an eventful year, to say the least. The Sensex touched all-time high of 38,990 last month.

The rupee touched an all-time low. The crude is going up and gained around 13% in 2018.

The midcap and smallcap indices are feeling the heat. They are down by about 9% and 13% respectively. Whereas, the Sensex is the outperformer with an increase of 12%.

And here's how sectorial indices are performed in 2018.

Pharma and IT Outshine Their Peers

BSE IT index is up whopping 41% in 2018. The BSE Healthcare index also did well and is up 8.5%.

Over the last three months, the BSE Healthcare index rose by 24%.

Whereas, the BSE Auto and the BSE Oil & Gas indices were down 8.6% and 9.1% respectively.

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Now, normally an earlier edition of this book sells on Amazon for Rs 1,450.

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With the rupee breaching the 72 mark, IT and pharma are outperforming all other indices.

In the near term, the rupee being under pressure could benefit export-oriented businesses.

And Kunal Thanvi's last month's Smart Money Secrets recommendation will benefit from the rupee depreciation.

If you're a Smart Money Secrets subscriber, read the detailed report here.

If not...you can get the report by signing up here.

In the news from IPO space. As per an article in a leading financial daily, the initial public offer of housing finance company Aavas Financiers was subscribed 0.03 times so far on the second day of bidding today.

The IPO to raise Rs 17.3 billion received bids for 4,36,320 shares against the total issue size of 14.8 million shares.

The portion set aside for qualified institutional buyers was subscribed 0.09 times and retail investors 0.01 time.

The IPO comprises fresh issue of up to Rs 4 billion and an offer for sale of up to 1,62,49,359 equity shares, including anchor portion of 63,36,439 equity shares. Price band for the offer has been set at Rs 818-821 per share.

Aavas Financiers had on Monday raised Rs 5.2 billion from anchor investors.

The shares of the company will be listed on the BSE and NSE. Aavas Financiers offers housing loans to customers from low and middle income segments in semi-urban and rural areas.

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

According to EY India IPO Readiness 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.

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.

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

In the news from the telecom sector. As per an article in a leading financial daily, the foreign direct investment (FDI) in the telecom sector has grown nearly five times in the last three years, from US$1.3 billion in 2015-16 to US$6.2 billion in 2017-18.

As per the Union Telecom Minister Manoj Sinha, the new sectoral policy in works envisages the FDI in the telecom space to reach US$100 billion by 2022. He added that FDI would be key to unleash the full potential of upcoming modern technologies.

Sinha has stated that the government is keen on providing 5G services in India at a par with global standards in 2020, which will play a key role in harnessing new emerging technologies like machine-to-machine communications, internet of things, artificial intelligence, etc.

The minister further said that India needs massive investments in developing newer technologies which are accessible and affordable to the people and at the same time create productive employment.

Further, he also said that India is poised to become the third largest economy in the world over the next two decades and it is the most opportune moment for the investors across the world to invest in India.

Speaking of telecom sector, the whole telecom business has been an underwhelming story so far. While the telecom subscriber base has increased from 300 million in 2008 to 1.2 billion in 2017, investors have little to cheer.

Here's what we wrote about the struggling telecom sector in one of our issues of The 5 Minute WrapUp:

  • Telecom companies are straddled with high debt, intense competition, and lack of pricing power. High spectrum costs and regulatory issues have hampered the sector. While consumers have benefited from low costs and new players fighting for their share, investors have suffered.

    With the entry of Reliance Jio, the competition has intensified further. Reliance Jio's low cost offerings and strategy of capturing market share will further dent the sector. The sector has been a classic 'valuet trap'. While it always looks cheap compared to other sectors, it has failed to provide any reasonable returns. We also believe the situation is unlikely to change in the near future. For an investor, it's important to differentiate between 'value' and 'value traps'.

Indian Indices Open Flat; Pharma Stocks Gain
09:30 am

Asian share markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.5% while the Hang Seng is up 1%. The Shanghai Composite is trading up by 1%.

Back home, India share markets opened flat. The BSE Sensex is trading up by 20 points while the NSE Nifty is trading up by 11 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 0.5% & 0.4% respectively.

Healthcare stocks, capital goods stocks and energy stocks, have opened the day in green, while FMCG stocks and IT Stocks witnessing maximum selling pressure.

The rupee is trading at Rs 72.64 against the US$.

In news from stocks in the banking sector. Yes Bank share price is in focus today after the company's board said that it would ask the Reserve Bank of India (RBI) to grant an extension of eight months to managing director (MD) and chief executive Rana Kapoor.

The board will first seek an extension for Kapoor till 30 April for finalization of financial statements for the year to 31 March, and thereafter a further extension till 30 September for completing the annual general meeting process, it said in an exchange filing.

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Now, normally an earlier edition of this book sells on Amazon for Rs 1,450.

But as an Equitymaster reader – you have the chance to claim a virtually free copy of this book, and have it delivered to your home, anywhere in India.

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------------------------------

In June, Kapoor had sought a three-year extension till 31 August 2021, but the regulator had agreed to extend his tenure only till 31 January 2019.

The board in its meeting on Tuesday also decided to set up a search committee to identify a successor to Kapoor. The committee will include three existing nomination and remuneration committee board members, along with two external experts.

Yes Bank share price has been in focus since last week and opened the day up by 1.6%.

On Friday, 21 Sep 2018, the markets witnessed a flash crash in the afternoon when the Sensex suddenly crashed 1,100 points, before recovering some of the losses.

Yes Bank, one of the constituents of the Sensex, crashed 28.7% after the Reserve Bank of India cut CEO Rana Kapoor's tenure to just four months. He has to step down from the post by 31 January 2019.

Several brokerages that had a 'buy' view on the stock were quick to downgrade the stock after the crash.

Co-Head of Research at Equitymaster, Tanushree Banerjee, on the other hand, had been concerned about the quality of lending and management's approach in provisioning for non-performing assets. As such, she stayed away from joining the pack that was cheering the company's loan book growth. After Friday's crash, she views the situation differently and has published her latest view on Yes Bank.

But as you know, Yes Bank was not the only one at the heart of Friday's market panic.

The elephant in the room was the NBFC (non-banking financial companies) sector.

Housing Finance Stocks Take a Beating

Several NBFC stocks came crashing down on Friday, Dewan Housing Finance Corporation Ltd being the leader of the pack. Nearly Rs 8,129 crore 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. As I mentioned earlier, one of the reasons for this sell-off was linked to the recent financial stress in the key Indian shadow bank Infrastructure Leasing & Financial Services (IL&FS) Group.

Recently, IL&FS and its subsidiaries were downgraded directly from the highest credit rating "AAA" to "Junk". This has led to nervousness about the credit profile of other private issuers, especially NBFCs. Many investors are now rushing to sell debt securities of various housing finance companies which are heavily dependent on debt refinancing.

It must be noted that IL&FS has missed payment on more than five of its obligations since August 2018. It has total debt of US$ 12.6 billion, of which 61% is in the form of loans from banks and other financial systems.

According to Moody's Investor Services, IL&FS's outstanding debentures and commercial paper accounted for 1% and 2%, respectively, of India's domestic corporate debt market as of 31 March 2018. Its bank loans made up about 0.5% to 0.7% of banking system loans.

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

Moving on to news about the economy. According to data published by the Comptroller General of Accounts (CGA), India's budgetary fiscal deficit for April-August at Rs 5.91 trillion accounted for 94.7% of the full year's target of Rs 6.24 trillion.

Till August this year, the government's total expenditure stood at Rs 10.70 trillion (43.85 per cent of the budget estimates) while the total receipts were Rs 0.0479 billion (26.38 per cent of the budget estimates).

Notably, fiscal deficit during the corresponding five months of the previous financial year was 96.1%.

The government missed its fiscal deficit target for FY18 by 30 basis points. Against a target of 3.2%, the government managed to keep fiscal deficit at 3.5% in FY18. It has also outlined the projected fiscal deficit target of 3.3% in FY19 in its budget.

Maintaining this deficit target in FY19 won't be easy. Fiscal deficit basically means the amount a government earns minus the amount it has to spend. The lesser the fiscal deficit, the better the government has performed.

In the past, the government has relied on reducing expenditure to keep the fiscal deficit in check.

For this year, the government is banking on earning much more than it has in the past. It expects a major portion of the revenue to be collected through GST tax collections. Also, the recent rise in crude oil prices has cast a doubt over how much the government will be to curb its spending.

The dual pressure of increasing expenditure and lower inflows makes this FY19 deficit target an uphill challenge.


Indian Indices End Positively, Aavas Financiers IPO, and Top Stocks in Action Today
Pre-Open

Share markets in India ended on a positive note yesterday with gains largely seen in the banking sector and healthcare sector.

At the closing bell yesterday, 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 up by 0.4%, while the BSE Small Cap index ended down by 0.7%.

Top Stock in Focus Today

From the pharma space, Suven Life share price will be in focus today as the company has secured one product patent from Canada and another from Sri Lanka corresponding to the New Chemical Entity for the treatment of disorders associated with Neurodegenerative diseases and patents.

Market participants will also be tracking Infosys share price.

Infosys' subsidiary - Infosys Public Services Inc. (IPS) has been awarded a canadian $80.3 million contract by Public Services and Procurement Canada (PSPC) to modernize and automate their procurement processes.

IPS is working with Ernst & Young LLP (EY) and SAP Canada Inc. (SAP) to digitize PSPC procurement system through the implementation and management of a cloud-based electronic procurement solution

To know more about the company, you can access Infosys Q1FY19 result and Infosys 2017-18 Annual Report on our website.

NTPC share price will also be in focus today. As per an article in a leading financial daily, the company has received environment clearance from the Union Environment Ministry for expansion of the Talcher Thermal Power Station in Odisha worth Rs 77.3 billion.

The proposal is to add two additional units of 660 MW each in the existing premise of the Talcher Tehermal Power Project (TTPP) located in Angul district in the state of Odisha.

To know more, check out our share market updates here.

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Equitymaster's Secrets :: Our Biggest Lessons From Over Two Decades Of Investing Journey
We just published Equitymaster's Secrets: 2018 Limited Edition – our collection of insights and secrets from over 20 years of successful investing.

We believe every serious investor should have a copy of this book on their bookshelf.

Now, normally an earlier edition of this book sells on Amazon for Rs 1,450.

But as an Equitymaster reader – you have the chance to claim a virtually free copy of this book, and have it delivered to your home, anywhere in India.

You'll find all the details here.
------------------------------

From the IPO Space...

In the news from IPO space, Biscuits maker Anmol Industries, has received approval from the markets regulator for its initial public offering (IPO).

The offer comprises an offer for sale by the shareholders. The face value of each equity share is Rs 10. The share sale consists an offer for sale of up to Rs 7.5 billion.

In another news, the IPO of Aavas Financiers opened yesterday for subscription.

The price band for the offer starts from Rs 818 to Rs 821 per equity share. Bids can be made for a minimum lot of 18 equity shares and in multiples of 18 equity shares thereafter.

The company serves customers that are largely untapped by the top housing finance corporations (HFCs). Its customer base is primarily low and middle income self-employed customers in semi-urban and rural areas in India. The company offers customers home loans for the purchase or construction of residential properties, and for the extension and repair of existing housing units.

To know more about the company, you can read our IPO analysis of Aavas Financiers 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.

RBI to Improve Liquidity

As per an article in a leading financial daily, cutting banks' cash reserve ratio (CRR), or the amount of funds they set aside with the central bank, are among options that the central bank is looking at to improve liquidity in the system.

The Reserve Bank of India (RBI) could also consider buying more bonds from the open market and open a special window for mutual funds to inject liquidity.

At present, the CRR is at 4% of banks' total deposits.

Rising Crude Oil Prices

Saudi Arabia and Russia, two of the world's biggest oil producers, have rejected the US demand to increase pumping, causing a further spike in the global crude prices.

At $81.48 a barrel, Brent crude was trading at its highest level since November 2014.

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.