Strong Finish to the Week; Metal & Bank Stocks Rally
Closing

Indian share markets continued to trade higher in the afternoon session to finish in green in nine out of eleven trading session. The sentiments also remained upbeat on strong Asian markets.

At the closing bell, the BSE Sensex closed higher by 250 points and the NSE Nifty finished up by 71 points. The S&P BSE Mid Cap finished flat while S&P BSE Small Cap finished up by 0.1%. Gains were largely seen in metal stocks, realty stocks and bank stocks.

Asian stock markets finished higher today with shares in Japan leading the region. The Nikkei 225 is up 0.96% while China's Shanghai Composite is up 0.13% and Hong Kong's Hang Seng is up 0.06%. European markets are mixed. The DAX is higher by 0.12%, while the FTSE 100 is leading the CAC 40 lower. They are down 0.19% and 0.08% respectively.

Rupee was trading at Rs 64.93 against the US$ in the afternoon session. Oil prices were trading at US$ 51.52 at the time of writing.

In news from the economy, Finance Minister Arun Jaitley has said that the issue of bringing the sector under the purview of the Goods and Services Tax (GST) will be discussed in the next meeting of the GST Council, identifying real estate as the one sector where maximum amount of tax evasion and cash generation takes place.

He also expects that the move would benefit the consumers who will only have to pay one final tax on the whole product. As a result of this, the minister stated that the final tax paid on the whole product in the news tax regime would almost be negligible.

He also said that the reduction in eventual expenditure along with incentivizing people to enter the tax net may also help reduce the size of shadow economy. He indicated that a 12% GST is levied on the construction of a complex, building, civil structure or intended for sale to a buyer, wholly or partly, however, land and other immovable property have been exempted from the GST.

Besides, according to the National Housing Bank (NHB), India's real estate sector is set to become a US$180-billion industry by 2020, building on initiatives such as smart city mission and tax sops for investment trust REIT.

On the basis of the Smart City projects, land record digitisation, withdrawal of corporate tax from REIT structure, the real estate sector growth is bound to attract funds and confidence of the investors as well in a big way.

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Moving on to news from engineering sector. As per an article in The Economic Times, Larsen & Toubro (L&T) expects state-run ONGC to finalise 3-4 projects worth around Rs 50 billion before March and would be bidding for them.

On Wednesday, L&T announced that its arm L&T Hydrocarbon Engineering has bagged an order worth Rs 11.5 billion for ONGC's Daman Development Project. L&T would do the engineering, procurement and construction for the project, which is a part of ONGC's strategy to extract gas from Daman Field.

The decline in crude oil prices led to global energy majors slashing their capex, hurting order flows to companies like L&T. However, the company now believes that the industry has accepted a price range of US$45-US$60 for crude oil and is revising and reviving investment plans.

L&T has shifted its focus back to the domestic market where public-sector units continue to invest on expansion even as things remain sluggish in the Middle East. ONGC alone has a capex plan of 300 billion for 2017-18. But some orders in the domestic markets are facing delays.

L&T share price finished the day down by 0.4% on the BSE.

In news software sector, TCS share price finished the day up by 0.3% despite the company's second-quarter profits dropping 2.2% year-on-year to Rs 64.5 billion. However, the revenues grew 4.3% to Rs 305.4 billion.

The revenue performance was in line with Street expectations, and was helped by improved business from clients, but profits were ahead of analysts' estimates aided by better margins and other income.

TCS operating profit margins for the September quarter expanded 170 basis points on a sequential basis to 25.1%.

Further, digital revenues continued to increase and accounted for 19.7% of TCS' overall revenues for the quarter. On a year-on-year basis, digital revenues grew 31%. India's most valued firm by market capitalisation declared a dividend of Rs 7 per share as its revenues increased 4.3% to Rs 305.4 billion.

The top 4 IT companies have underperformed the benchmark. With the sector, heavily dependent on US customers, Trump's protectionist policy announcements have further dampened the mood in this sector.

Underperformance of Top IT Stocks

Also, with automation on the horizon, Indian IT companies' low cost labor outsourcing is turning into a thing of the past. IT companies need to re-invent itself.

Automation is needed in their traditional businesses like BPO, application management, and infrastructure management.

While near term challenges are there, current valuations of top IT companies are at multi-year lows. But is this the new normal? The challenge is to find the companies better placed than others to adapt to this structural change.

In news from IPO segment, the Rs 113.7 billion mega initial public offer (IPO) of General Insurance Corporation of India (GIC Re) got fully subscribed on Day 3 day of the bidding process thanks to huge demand from qualified institutional buyers (QIBs).

GIC's IPO is India's third biggest after Coal India's Rs 152 billion and Reliance Power's Rs 117 billion issues in 2008.

And here's a note from Profit Hunter:

The Nifty 50 Index traded another week on a strong note. On Monday, it opened the session a bit higher and continued to trade positive until mid-week, where it found some selling pressure. But, the bears couldn't hold the index down as the up-move resumed on Thursday, where the index rose nearly 120 points. On Friday, the index opened gap up and continued the bullish momentum to apex to a fresh lifetime high of 10, 192. It finally ended the weekly session 2% up.

Last time we mentioned that the index is stuck in a range of 9,700 - 10,150 since July. Today, the index broke above the range and finished at a new life high just above the 10,150 resistance level.

Now, if the index sustains itself above the 10,150 level, the bulls party might continue. But on the flip side, if the index slips below this level, it might again trade in a broad range of 9,700 - 10,150.

Nifty 50 Index at a New Lifetime High
Nifty 50 Index at a New Lifetime High 


Sensex, Nifty Continue to Trade in Green; Bank Stocks Rally
01:30 pm

Indian share markets, bonds and the rupee continued to trade positively after data showed inflation held steady, instead of accelerating as expected. Gains were largely seen in bank stocks, metal stocks and realty stocks.

The BSE Sensex is trading higher by 264 points and the NSE Nifty is trading higher by 75 points. Meanwhile, the BSE Mid Cap index is trading up by 0.2% & the BSE Small Cap index is up by 0.5%. The rupee is trading at 65.10 to the US$.

Pharma stocks are trading on an optimistic note with Ajanta Pharma share price and IPCA labs share price leading the gains.

As per an article in a leading financial daily, Sun Pharmaceuticals Industries will acquire an additional 8.3% stake in its arm Ranbaxy Malaysia for MYR 2.8 million (US$ 678,000).

Ranbaxy Malaysia Sdn Bhd. is a subsidiary of the company, and the total shareholding of Sun Pharmaceutical Industries, along with its wholly owned subsidiary is 71.2%, prior to this proposed purchase of shares.

With this, Sun Pharma's stake in the company will increase to 79.5%.

Post completion of this purchase of shares, the total holding of the company along with its wholly owned subsidiary will increase from 71.2% to 79.5% in Ranbaxy Malaysia Sdn Bhd.

Interestingly, the Indian pharma majors have been on an acquisition spree over the past few years. The value of M&As that took place in 2016 were at US$ 69.75 billion. This even beats the previous record of US$ 66.96 billion set in 2007.

However, at the end of the day, whether the company is able to derive value from the acquisitions and augment the overall performance will be the key thing to watch out for.

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Sun Pharma share price was trading down by 0.9% on the BSE.

Indian pharma companies catering to the US markets are breathing a sigh of relief. After being adversely affected by import bans and the suspension of new drug approvals from manufacturing facilities in the past three years, there has been a sharp pick-up in new drug approvals in FY17.

With an aim to lower the overall healthcare costs in the country, the US Food and Drug Administration (FDA) approved a record 763 generic drugs for the financial year ending 30th September. As per Mint Analysis, Indian pharma companies received 295 approvals accounting for 40% of the overall approvals during the year.

Generic Drug Approvals Hit The Roof

Even the total filings of abbreviated new drug applications (ANDAs) for generic drugs rose to 1,292 in FY17 from 852 in the previous year. While, faster approvals expedite the commercialisation of product pipelines of domestic pharma companies spurring growth.

At the same time however, it has raised the intensity of competition resulting in pricing pressures. The price erosion has been further compounded by a consolidation among US distributors and the decline in the number of products going off-patent over the past few years.

Moving on to the news from the economy. With softening prices of vegetable and cereal, India's retail inflation eased to 3.3% in September 2017, as compared to 4.4% in the same month previous year and 3.4% in August 2017.

The rate is below the Reserve Bank of India's (RBI) medium-term target of 4%, while the August inflation has been revised downwards to 3.3% from 3.4%. The inflation data also showed that the Consumer Food Price Index (CFPI) - an indicator for food prices - came down to 1.3% in September from 1.5% in August.

According to the data, vegetables prices softened to 3.9% in September as compared with 6.2% in August. Cereals prices also came down to 3.7% in September from 3.9% in August. Food and beverages during the month under consideration came at 1.8% from 4.1% in the same month last year.

However, fuel inflation rose 5.6% in September, as compared with 3.1% in the September 2016 and 4.9% in August 2017. Similarly, housing inflation grew 6.1% in September, other notable categories such as milk-based products became dearer by 3.9% and meat and fish recorded a rise of 3.2%.


Indian Indices Continue Momentum; Telecom Stocks Witness Buying
11:30 am

After opening the day on a positive note, stock markets in India have continued their momentum. Sectoral indices are trading on a positive note with stocks in the telecom sector and banking sector witnessing maximum buying interest.

The BSE Sensex is trading up 242 points (up 0.8%) and the NSE Nifty is trading up 65 points (up 0.8%). The BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading up by 0.5%. The rupee is trading at 64.93 to the US$.

From macroeconomic news, as per the data released by Central Statistics Office, the index of industrial production (IIP) rose 4.3% in August. This was as against a contraction seen in June and faster than a 0.9% rise in July.

Further, inflation based on the consumer price index (CPI) came at 3.28% in September, unchanged from August.

In the news from IT sector, share price of TCS is witnessing buying interest today. This comes as the company announced its earnings for the July-September quarter yesterday.

The company reported reported 8.4% year-on-year (YoY) and 2.1% sequential rise in net profit at Rs 64.5 billion for the September quarter.

The company also announced an interim dividend of Rs 7 per share.

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At the time of writing, TCS share price was trading up by around 1%.

In the news from IPO space, General Insurance Corporation of India (GIC's) 113 billion IPO got subscribed over 90% on the second day of the bidding process today. Today is the last day to subscribe to the IPO.

General Insurance Corporation of India (GIC Re), a leading Government PSU, was incorporated in 1972 and is the largest re-insurance company in India. It provides reinsurance for various general insurance products.

GIC Re is the largest reinsurance company in India in terms of gross premiums accepted in Fiscal 2017, and accounted for approximately 60% of the premiums ceded by Indian insurers to reinsurers during Fiscal 2017.

We recently released our IPO note for the above IPO. You can access the same in our IPO section.

Speaking of IPOs, the IPO activity in FY17 is mainly driven by Offer for Sale (OFS) rather than fresh issues, as can be seen from the chart below:

The Rising proportion of OFS

An OFS is a route through which existing promoters and private equity investors offload their stake. Here, the money from the sale goes to the selling shareholder. Whereas, in a fresh issue, the money raised goes to the company, who, normally, utilizes this money for repaying debt, capital expenditure, etc.

Most of the above rise in OFS offerings is seen on the back of a rising equity markets. As we wrote in a recent edition of The 5 Minute WrapUp...

  • One of the key reasons for this surge in OFS offering is due to a surge in the Indian equity market backed by liquidity and increasing investor demand for financial assets. Private equity investors and promoters are taking advantage of the absurd demand for IPOs.

Sensex Opens Firm; Bharti Airtel & Tata Teleservices Rally on Merger Buzz
09:30 am

Asian stock markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.23% while the Hang Seng is up 0.13%. The Shanghai Composite is trading up by 0.12%. US stocks closed lower on Thursday as Wall Street digested earnings from some of the top financial companies.

Back home, share markets in India have opened the day on a firm note. The BSE Sensex is trading higher by 136 points while the NSE Nifty is trading higher by 31 points. The BSE Mid Cap and BSE Small Cap index opened the day up by 0.2% & 0.4% respectively.

Barring FMCG stocks & power stocks, all sectoral indices have opened the day in green with stocks from metal sector and oil & gas sector leading the pack of gainers. The rupee is trading at 65.1 to the US$.

Information technology stocks have opened the day in green with only TCS witnessing selling pressure. TCS share price opened on a negative note after the company's second-quarter profits dropped 2.2% year-on-year to Rs 64.5 billion. However, the revenues grew 4.3% to Rs 305.4 billion.

The revenue performance was in line with Street expectations, and was helped by improved business from clients, but profits were ahead of analysts' estimates aided by better margins and other income.

TCS operating profit margins for the September quarter expanded 170 basis points on a sequential basis to 25.1%.

Further, digital revenues continued to increase and accounted for 19.7% of TCS' overall revenues for the quarter. On a year-on-year basis, digital revenues grew 31%.

India's most valued firm by market capitalisation declared a dividend of Rs 7 per share as its revenues increased 4.3% to Rs 305.4 billion.

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During the quarter, the company added six clients in each of the US$ 10 million and above, US$ 20 million and above, and US$ 50 million and above billing segments of clients. The US$100 million and above reported one addition.

While the growth momentum in the second quarter was strong, the fact that the constant currency revenue grew at a slower pace of 1.7% sequentially compared with the reported pace of growth reflects weak demand scenario.

Meanwhile, Reliance Industries share price will be closely watched today ahead of its Q2 results ending September.

Moving on to the news from telecom sector. As per an article in a leading financial daily, Bharti Airtel Ltd is acquiring virtually for free Tata Teleservices in a deal that will enable the Sunil Mittal led company to expand its subscriber base and spectrum network as the Tata Group opts out of a loss-making venture that has been draining its resources.

The two companies announced on Thursday that they have entered into an understanding to merge consumer mobile businesses of Tata Teleservices and Tata Teleservices Maharashtra into Bharti Airtel. The acquisition is subject to requisite regulatory approvals.

Reportedly, the transaction will be done on a "debt-free cash-free" basis, although Bharti Airtel will take over a "small portion" of Tata's unpaid liabilities for spectrum acquired in government auctions.

As part of the deal, Tata's mobile customers in 19 service areas will shift to Bharti Airtel along with airwaves that Tata had purchased.

The telecom companies are going through a phase of financial distress as they are also saddled with huge debt raised for financing costly spectrum purchases.

Further, Tata is in the initial stages of exploring a combination of its enterprise business with Tata Communications Ltd and its retail fixed-line and broadband business with satellite TV arm Tata Sky. Tata will retain its stake in tower company Viom, and will take care of the liabilities associated with it.

One shall note that, 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.

The BSE Sensex has gone up 3.25 times in nine years, but the BSE Telecom Index has not moved an inch from its levels of 2008.

Telecom Sector: A decade of Underperformance

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.

Going forward, whether the situation will change in the future will be the key thing to watch out for.

Bharti Airtel share price & Tata Teleservices share price surged 5.9% & 10% respectively.


TCS Beat Estimates, Reliance Industries Q2 Result, Tata-Bharti Deal, Global Cues among Top Factors That May Sway Markets Today
Pre-Open

In a choppy trade, the share markets in India extended gains in last leg of trade on Thursday after index heavyweight Reliance Industries (RIL) hit its record high ahead of its September quarter earnings today.

A strong rally in Hindalco, Bharti Infratel, Sun Pharma and Tata Consultancy Services also contributed to the gains.

All BSE sectoral indices ended in the positive zone. Among them, realty index gained the most by 1.7%, followed by metal 1.6%, FMCG 1.2% and healthcare 1.2%.

TCS Beat Estimates

TCS share price will be in focus today as the company announced its earnings for the July-September quarter yesterday. The company reported reported 8.4% year-on-year (YoY) and 2.1% sequential rise in net profit at Rs 64.5 billion for the September quarter.

The company also announced an interim dividend of Rs 7 per share. Stay tuned to the 9.30 am market commentary to get a detailed view on this story.

Top Stocks in Action Today

Bharti Airtel share price & Tata Teleservices share price will hog limelight today as the companies entered into an agreement to merge Consumer Mobile Businesses (CMB) of TTSL and TTML into the Sunil Mittal-led telco.

IndusInd Bank share price will be in focus today after it reported a 25% rise in its net profit at Rs 8.8 billion for the September 2017 quarter as compared to Rs 7 billion for the same quarter in the previous year.

Real Estate stocks will be in action today as Govt mulls bringing the sector under the ambit of the Goods and Services Tax.

Housing Development Finance Corporation (HDFC) is planning to raise Rs 25 billion by issuing bonds on private placement basis to augment its housing finance business. The issue will open for subscription on 17 October and closes the same day.

Man Industries share price will be in focus today as it received a prestigious order of around Rs 9.3 billion from GAIL (India) for supply of about 1,16,000 MT of Line pipes for its Jagdishpur-Haldia-Bokaro-Dhamra Pipeline Project (JHBDPL), Phase II.

Tata Steel took a step which places it at the forefront of lower-carbon steel innovation by acquiring the full intellectual property rights in a revolutionary technology. The company has been testing the groundbreaking technology called HIsarna at its IJmuiden steelworks in the Netherlands.

Bharti Infratel will also likely gain on the reports that private equity firm KKR-led consortium in talks to buy Indus Towers and Bharti Infratel.

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Earnings Today

Reliance Industries, Kotak Mahindra Bank, Bhansali Engineering, Karnataka Bank, Kirloskar Oil, MCX India, Reliance Naval among others are the companies reporting the financial results for the July-September quarter today.

Global Stock Market Drivers

Asian stocks reached a 10-year high on Thursday, riding the bull run in global equity markets, while the dollar sagged after the Federal Reserve showed a more guarded view towards inflation.

The Fed minutes from its last policy meeting were released overnight for Asian investors, and they showed some rate setters worried that subdued inflation may be more entrenched than initially thought.

While markets still think US interest rates will rise in December, the minutes cast some doubt on the likelihood of many more rises at least until inflation has clearly and sustainably been shown to be heading up.

What's coming up this week:

  • Earnings season begins for major US banks, led by JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co.
  • ECB President Mario Draghi, Fed's Brainard participate on policy panel in Washington. ECB's Praet, Coeure, Lautenschlaeger and BOE's Haldane are also due to speak.
  • The Bank of England will release its credit conditions survey and then investors will get data on Eurozone industrial production and Canadian house prices.
  • From the US will come initial and continuing jobless-claim data along with another look at crude oil inventories.

From Commodities Space

Oil prices slipped on Thursday as US fuel inventories rose despite efforts by OPEC to cut production. Brent crude, the global benchmark, was down 0.4% to US $56.71 a barrel in London midmorning trading on the Intercontinental Exchange.

Meanwhile, gold prices rose to their highest in two weeks on Thursday amid a muted dollar, after minutes from the US Federal Reserve's September policy meeting revealed low inflation concerns.

Spot gold was up 0.2% at US$1,294.3 an ounce after earlier marking its best since 27 September at US $1295.5. US gold futures for December delivery climbed 0.6% to US$1,296.5 per ounce.

To keep a tab on the movements in crude oil and other commodities, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency and commodity markets.