Sensex Closes on a Weak Note; Ashok Leyland Down 2.3% on Missing Street Estimates
Closing

Indian share markets witnessed selling pressure in the afternoon session and finished in red for second consecutive session. At the closing bell, the BSE Sensex closed lower by 152 points and the NSE Nifty finished down by 47 points. The S&P BSE Mid Cap finished down by 0.8% while S&P BSE Small Cap finished down by 0.5%. Losses were largely seen in metal stocks, energy stocks and PSU stocks.

Small caps have comfortably outperformed the Large caps and how. The BSE Small Cap Index has returned 21.7% in FY18 compared to 12.5% by BSE 100 and 11.7% by the Sensex.

Small Caps - Outperformers in Current Financial Year

Expectedly, valuations of certain Small cap companies have gone through the roof. It is important to understand the highly volatile nature of these stocks. In a downturn, these stocks tend to move in the opposite direction much faster as well.

While there, undoubtedly, lies hidden opportunities in the small cap space, it is important to focus on fundamentals of these stocks. Next, assess if they have the potential to move on to the 'Safe stock' category in the future.

Asian stock markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 0.06%, while the Hang Seng & the Nikkei 225 fell 0.30% and 0.10% respectively. European markets are mixed to lower. Shares in France are off as the CAC 40 drops 0.07%. The FTSE 100 is down 0.02% while the DAX in Germany is unchanged.

Rupee was trading at Rs 65.06 against the US$ in the afternoon session. Oil prices were trading at US$ 57.09 at the time of writing.

Axis Bank share price gained 3.4% on the reports that the bank was looking to raise as much as US$ 1 billion from a group of investors after an increase in bad loans.

Cipla share price surged 2.1% after the company reported a 17.7% year-on-year increase in consolidated net profit to Rs 4.35 billion in the September quarter, beating market expectations.

In news from the economy, the Fitch group company, BMI Research in its latest report has said that India will remain one of the fastest growing emerging markets, with real Gross Domestic Product (GDP) growth set to average 6.5% over the next five fiscal years, highlighting the ongoing economic reforms and improvements in the business environment to continue to support India's economic growth.

As per the report, insolvency regulation is a positive step in cleaning up the financial system in the country and tax reforms will help strengthen India's fiscal revenues. But it also said that significant bureaucratic inefficiencies are likely to cap the country's growth potential further.

According to the report, India's improvement in the ease of doing business ranking masks the fact that bureaucratic inefficiencies remain rife, as indicated by the stalling of the 2015 Land Acquisition Bill in Parliament and a massive backlog of unresolved cases in courts. BMI Research said that these issues are likely to continue to cap India's growth potential below the 7% level over the coming years, and the country is likely to continue facing challenges in completing large-scale infrastructure projects and establishing a strong manufacturing base.

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The report further stated that there has been a surge in foreign investment, which is likely to continue at a as global firm look to tap into India's vast market potential and that pro-business and pro-investor policies are likely to encourage investment.

Moving on to news from engineering sector. As per an article in The Economic Times, Schneider Electric SE, the French industrial multinational along with its consortium partner Temasek, has entered final rounds of negotiations with Larsen and Toubro to acquire its electric and automation division for Rs 150 - Rs 170 billion.

This comes at a time when the company is looking to prune its portfolio and exit non-core areas. The business is relatively short cycle and accounts for only 1% of L&T's US$41bn order backlog (even though it accounts for 6% of core revenue).

Reportedly, In FY17, L&T monetised its stake in its two key IT subs. This, together with the divestment of general insurance business, helped the company to completely fund its investments in Nabha Power and Hyderabad Metro in FY17.

L&T share price finished the day up by 0.6% on the BSE.

Meanwhile, Bharat Heavy Electricals (BHEL) has bagged a major order for setting up two 765 kV substations on EPC (Engineering, Procurement & Construction) basis, in West Bengal. Significantly, valued at over Rs 3.5 billion.

This is the largest value 765kV substation project order for BHEL so far. With this, the company has maintained its undisputed leadership in the 765 kV Power Transmission segment. The order has been placed on the company by Powergrid Medinipur-Jeerat Transmission (PMJTL), a 100% wholly owned subsidiary of Powergrid.

The company is also reportedly aiming at doubling the non-power revenue by 2022 and the projects will be executed on a turnkey basis.

The areas like municipal water, Ganga mission, solar, aerospace, defence and metro and high-speed rail projects have been identified as growth drivers.

BHEL share price plunged 3.4% in today's trade.

In news from automobile sector, Ashok Leyland share price finished down by 2.3% on the BSE after the company reported a standalone net profit of Rs 3.34 billion for the September quarter, fuelled by higher income and increased export volumes, missing street estimates.

The company had posted a net profit of Rs 2.94 billion during the same period of the previous fiscal.

Sales of medium and commercial vehicles in domestic market was up by 22%, the company said adding that volumes of light commercial vehicles were at 9,588 units, an increase of 18%.

In another development, Maruti Suzuki India has reported 6.23% rise in its production to 1,41,269 units in October 2017, as compared to 1,32,980 units in October 2016. Of total, the company manufactured 34,491 vehicles under mini segment in October 2017, as against 35,326 units manufactured in corresponding month previous year.

The company manufactured 67,692 vehicles under Compact segment; 4,358 vehicles under Midsize; 20,786 units under Utility Vehicles segment and 12,848 units under Vans category. The company has also produced 1,094 vehicles under CV segment (including super carry) in October 2017, as against 276 units produced in corresponding month previous year.

Maruti Suzuki share price finished the day up by 0.2% on the BSE.

And here's a note from Profit Hunter:

Hero Moto Corp has given multiple break-outs on the chart. Let's have a look.

The stock bottomed out at Rs 2,850 in November 2016 and traded in a strong uptrend tracking the rising trendline. It went on to hit a life high of 4,092 in September 2017. It corrected to 3,660 level before bouncing up. But the bulls couldn't hold the stock up and it reversed down from 3,880 level.

Today, the stock is down 1.6%. What's an interesting thing to watch for is that it has broken below the rising trendline connected from the November 2016 low.

It has also formed a head-and-shoulder pattern on the daily chart. This is a top reversal pattern. Today, the stock broke below the neckline line (red line) of the pattern.

So now will we see the bears taking the driving seat, or it is only a matter of time before the stock resumes its up move. Keep an eye out for it.

Hero Moto Gives Multiple Break-Outs
Hero Moto Gives Multiple Break-Outs 

Sensex Trades Flat; Metal Sector Witnesses Selling
01:30 pm

After opening the day in green, share markets in India witnessed choppy trades and are currently trading marginally below the dotted line. Sectoral indices are trading on a mixed note with stocks in the healthcare sector and stocks in the IT sector leading the gains. Stocks in the metals sector are trading in red.

The BSE Sensex is trading down by 15 points (down 0.1%), and the NSE Nifty is trading down by 17 points (down 0.2%). Meanwhile, the BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading flat. The rupee is trading at 64.99 to the US$.

In news from stocks in the banking sector. Axis Bank share price is among the top gainers on the bourses, and hit a 52-week high today.

The surge came in after the bank said that its board will meet this week to consider a proposal to raise equity capital from the market at a time when the spotlight is on worsening asset quality.

India's third largest private lender's board plans to meet on 10 November to consider the fundraising proposal. Any fundraising approved by its board would be put to shareholders for a vote.

Last week, various media reports highlighted the bank was looking to raise as much as US$ 1 billion from a group of investors after an increase in bad loans. The reports have named U.S. group Bain Capital, Singapore state investor GIC and Canada Pension Plan Investment Board among potential investors.

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Axis Bank had reported a 36% increase in net profit at Rs. 4.3 billion in the second quarter ended September despite a rise in bad loans. Axis Bank's gross non-performing assets rose to 5.9% in the quarter gone by, from 4.2% a year ago.

In the previous quarter too, the bank witnessed deteriorating asset quality. Axis Bank reported a gross non-performing asset (GNPA) ratio of 5%, a rise of 249 basis points year on year.

Asset Quality Deteriorates Further for Banks

If the trend of rising bad loans continues, there's a painful road ahead for the banking sector. The RBI expects the average GNPA ratio to increase to 10.2% by March 2018. It indicated that if macroeconomic conditions worsen, this number could go up.

Although RBI is showing urgency in tackling the NPA issue, a lot more needs to be done by lenders too to stop the rot.

At the time of writing, Axis Bank share price was trading up by 3%.

Moving on to news from the telecom sector. According to an article in The Economic Times, the Telecom Regulatory Authority of India (TRAI) is considering the removal of the 50% limit on spectrum holdings within a particular band.

The article noted that TRAI is considering reducing the limit to 25%. Currently, government rules bar any company from holding more than 25% spectrum allocated in a service area or circle, and above 50% in a spectrum band. Carriers in India use airwaves in the 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz bands.

The proposal, if it goes through can prove beneficial for Vodafone and Idea, as they will be able to retain their spectrum post the merger as opposed to them requiring selling off the airwaves under the current rules.

The relaxation will also afford Reliance Jio Infocomm leeway to acquire more airwaves in 850 MHz band of Reliance Communications, which may otherwise breach limits in some circles, they said. The government is also likely to benefit as it should mean more bidders available for a band at the next auction, possibly boosting revenue.

TRAI recently held consultations with carriers on spectrum holding limits after the Department of Telecommunications (DoT) sought the regulator's opinion on the issue.

TRAI is likely to give its recommendations to DoT by the end of the month. It would be interesting to see how the change affect the dynamics of the Indian telecom space which is currently undergoing consolidation.


Indian Indices Trade Marginally Higher; Healthcare Stocks Witness Buying
11:30 am

Stock markets in India are presently trading marginally higher. Sectoral indices are trading on a positive note with stocks in the healthcare sector and IT sector witnessing maximum buying interest. Telecom stocks are trading in the red.

The BSE Sensex is trading up 72 points (up 0.2%) and the NSE Nifty is trading up 15 points (up 0.1%). The BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index is trading up by 0.3%. The rupee is trading at 65.08 to the US dollar.

In the news from global financial markets, Bank of Japan (BoJ) board member Yukitoshi Funo stressed the need to continue the central bank's current easing program. This comes as the bank's 2% inflation target remain distant.

He also said it was important to track the developments in firms' price-setting behavior and a possible delay in the increase of consumers inflation expectations.

Yukitoshi Funo, along with the majority of the BoJ's board, has voted to shift the policy focus to targeting interest rates from increasing the money supply.

The BoJ has pushed back the timing to reach its price target six times since it deployed its massive stimulus programme in 2013. It now hopes that consumer inflation will achieve its 2% target by March 2020, as signs of strength in the economy and a tight job market boost wages giving households higher purchasing power, allowing firms to hike prices.

What remains are many issues that can hamper Japan's economic growth going forward.

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Note that the recent win of Japanese Prime Minister Shinzo Abe in elections also signals the continuation of Abenomics - the ultra-loose monetary and fiscal policies. These policies have influenced excessive money printing, too much debt, and too much government intervention in Japan.

As Ankit writes in a recent edition of Equitymaster Insider... "With Abenomics, Japan has gone overboard trying to revive its economy. The Bank of Japan is a Top 10 holder in over 90% of Japanese stocks. And it remains one of the biggest buyer of Japanese stocks."

It would be interesting to see the impact central bank's ultra-easy money policies will have on the economy going forward. Meanwhile, we'll keep you updated on all the recent developments in this space.

In other news, the Organisation of the Petroleum Exporting Countries (OPEC) said in its 2017 World Oil Outlook that demand for its crude would rise more slowly than previously expected in the next two years. This, as per the organization, is on the back of a recovery in prices due to OPEC's return to supply management stimulates output growth outside the group.

Recently, OPEC has significantly improved compliance with its pledged supply cuts and Russia is also seen keeping to the deal.

The above developments had led to a rise in crude oil prices.

Rising oil prices do not bode well for the Indian economy. This we say is because India is hugely dependent on petroleum imports. In fact, the share of petroleum imports for India has only increased over the years, as can be seen from the chart below:

India's Growing Dependence on Petroleum Imports

India is the world's third-largest oil consumer. And energy consumption in India is set to grow as our economy remains one of the few 'bright spots' in a slowing, aging world economy. And India could face a potent risk with a rise in crude oil prices.

The only way out for India is to reduce its dependence on oil imports and achieve fuel-sufficiency.

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.


Sensex Opens Marginally Up; Cipla & Axis Bank Top Gainers
09:30 am

Majority of Asian stock markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.38% while the Hang Seng is up 0.17%. The Nikkei 225 is trading down by 0.28%. Overnight, US stocks closed mixed. The Dow Jones Industrial Average eked out a fourth consecutive record high close on Tuesday, while the S&P 500 ended marginally lower.

Back home, India share markets have opened marginally higher. The BSE Sensex is trading higher by 57 points while the NSE Nifty is trading higher by 10 points. The BSE Mid Cap index and BSE Small Cap index opened up by 0.3% & 0.4% respectively.

Barring PSU stocks & energy stocks, all sectoral indices have opened the day in green with healthcare sector and information technology sector leading the gains. The rupee is trading at 64.73 to the US$.

Axis Bank share price gained 3.6% on the reports that the bank was looking to raise as much as US$ 1 billion from a group of investors after an increase in bad loans.

Cipla share price surged 4.2% in the early trade after the company reported a 17.7% year-on-year increase in consolidated net profit to Rs 4.35 billion in the September quarter, beating market expectations.

Telecom stocks opened the day on a mixed note with Reliance Communications and Bharti Infratel being the most active stocks in this space. As per an article in a leading financial daily, an affiliate of Qatar Foundation Endowment will sell its 5% stake in Indian telecom carrier Bharti Airtel Ltd for about Rs 95 billion (US$1.46 billion) in block deals today.

The affiliate, Three Pillars Pte Ltd, has put up about 199.9 million shares for sale in a price range of 473-490 rupees each.

Depending on the pricing, the share-sale could fetch anywhere between Rs 94.5 billion and Rs 97.6 billion. The lower end of the price band is nearly 8% discount while higher end is 5% discount to Tuesday's closing price of Rs 514.

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UBS Securities India will act as the sole book running lead manager for the transactions. The other major public shareholder of Bharti Airtel includes ICICI Prudential Mutual Fund, ICICI Prudential Life Insurance, and LIC.

Our team of Equitymaster analysts have been working on a project to track the smartest minds in value investing. They have compiled a special report on them, called The Superinvestors of India.

Now, because of insights from these interactions, the team has glued their eyes on insider activity and bulk and block deals...

As per them...

  • "The three approaches - tracking superinvestor shareholdings, catching these moves early through bulk and block deal disclosures, and keeping tabs on changes in promoter holdings - have unveiled some critical smart money secrets..."

Bharti Airtel share price opened the day down by 2.7%.

Moving on to the news from power sector. As per an article in a leading financial daily, Tata Power Renewable Energy (TPREL), 100% subsidiary of Tata Power, has commissioned its 25 MW solar plant in Charanka, Gujarat Solar Park.

The project was won by the company in November 2016 under the National Solar Mission of Government of India through VGF mode, and its commissioning is earlier than timelines of December 2017 in the PPA.

With this development, TPREL's total installed operating capacity now stands at 1484 MW.

The solar plant has been built over 113 acres of land and the Sale of power from solar plant has been tied up under a 25-year Power Purchase Agreement with SECI at a tariff of Rs 4.43/ unit.

Of the many industries facing disruption, energy sector tops the list. It's not just the oil and gas prices. The rise of renewable energy, especially solar energy, is an emerging threat for conventional energy companies.

Does this mean every direct player in solar sector stands to gain? Richa Agarwal, our oil & gas sector analyst doesn't think so.

Will the Solar Energy Revolution Benefit Direct Players at These Tariffs?

In India itself, solar tariffs are dropping to record lows. Solar developers recently bid a record low tariff of Rs 2.44 per unit. With average tariffs for thermal plants hovering at Rs 3.2 per unit, solar tariffs are nearly 25% cheaper. Here's an excerpt of what she wrote:

  • "As the solar developers get aggressive to win bids, we wonder if the projects are even viable at these ultra-low rates.

    This is another example where rise in an industry may not benefit the direct players
    . That said, there could be some indirect players that could gain from the government's ambition to add 100 GW of solar power capacity till 2022."

Tata Power share price opened the day up by 0.7%.


Indian Indices Trade Weak, Oil Prices at Two-year High, and Top Stocks in Action
Pre-Open

On Tuesday, share markets in India opened in green and declined throughout the day and ended the day deep in red.

The BSE Sensex closed lower by 360 points to end at 33,370 while the broader NSE Nifty ended the day lower by 102 points to close at 10,350.

Among BSE sectoral indices, pharma index fell the most by 3.5%, followed by realty stocks at 2.2%. Lupin and Cipla, were among the top losers.

Top Stocks in Action Today

Lupin share price is likely to be in focus today the company received warning letters from the US Food and Drug Administration (USFDA) for its facilities in Goa and Indore. The company said the USFDA warning will likely delay new product approvals from Goa and Pithampur facilities. There will be no disruption of existing product supplies from either of these locations.

Bharat Heavy Electric Ltd (BHEL) will be among the stocks to watch today after the company reported a 5.9% increase in net profits YoY, despite operational losses.

Tata Motors will be in focus today after the company's subsidiary, Jaguar Land Rover (JLR) reported flattish growth in retail vehicle sales for October. The company reported a 0.2% increase in sales at 46,418 for October. Jaguar retail sales were down by 14.3% YoY, while Land Rover sales were up by 6.8% YoY in October.

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Oil Prices at Two Year High

Crude oil has been witnessing buying interest lately after it was reported that the Organisation of the Petroleum Exporting Countries (OPEC) has significantly improved compliance with its pledged supply cuts and Russia is also seen keeping to the deal.

The oil price has hit its highest level since July 2015 after Saudi Arabia's crown prince increased his power in the kingdom by launching an anti-corruption purge. Also, Saudi Arabia's Energy Minister Khalid al-Falih said that the focus remained on reducing oil stocks in industrialized countries to their five-year average. He also raised the prospect of prolonged output restraint once an OPEC-led supply-cutting pact ends.

Rising oil prices do not bode well for the Indian economy. This we say is because India is hugely dependent on petroleum imports. India is the world's third-largest oil consumer. And energy consumption in India is set to grow as our economy remains one of the few 'bright spots' in a slowing, aging world economy. And India could face a potent risk with a rise in crude oil prices.

Global Indices Upbeat

Global financial markets showed no signs of slowing down and continued to rally. Japanese shares scaled a 26-year high on Tuesday on expectations of strong earnings from Japanese companies. European shares too were trading in green. Market participants in the US are focused on the progress of a U.S. tax-cut plan being developed by President Donald Trump. Tax negotiators in the U.S. House of Representatives seek to overcome their differences this week and work on a plan, aiming for their self-imposed deadline of passage this month.

IPO Buzz

HDFC Standard Life Insurance Company's initial public offer (IPO) was subscribed by 40% day one of the offer, according to data available on the bourses as of the market close.

The life insurer's IPO will remain open till November 9. Prior to opening its offer to the public, HDFC Life raised Rs 23.2 billion from anchor investors through allocation of 80.6 million equity shares at Rs 290 per share, the upper end of the price band.

It would be the third life insurance company getting listed on bourses; and is the first initial public offering by a company promoted by HDFC, since the initial public offering of HDFC Bank in 1995.

HDFC Life is the first private life insurance company to register in India and was established in 2000 as a joint venture between HDFC Limited and Standard Life Aberdeen plc through its wholly owned subsidiary, Standard Life Mauritius.

It has set a price band of Rs 275-290 and seeks to raise up to Rs 86.95 billion.

But do the company's fundamentals justify the price it is asking for in the primary market? We have released an IPO note, with our recommendation for the HDFC Life IPO, you can access it here.

IPOs are all the rage in the share markets these days. With new companies listing by the day, all with promises of superior returns.

However, we don't need thousands of IPOs to get rich. That's not how super investors make their fortunes. But a few good IPOs could certainly become the multibaggers in your portfolio in a few years.

We have reviewed each of them and have released their recommendation notes. You can check the same on their IPO page.

Download this FREE report now and discover How to Get Rich with IPOs. This guide will show you how to safely profit from the 2017 IPO rush.