What to Expect Next from FM Nirmala Sitharaman?
Podcast

After trading in green throughout the week, Indian Stock markets turned volatile on Friday after a cut in domestic credit ratings outlook by Moody's.

To boost the economy, government has been taking several measures.

Recently FM Nirmala Sitharaman said the government will soon use its strong electoral mandate to usher in the next wave of reforms.

There are many reforms in the offing it seems.

What will be these reforms and what lies ahead for the stock markets?

Tune in to know more...

Now you can also listen to our podcasts on Spotify. Here's the link: Indian Stock Market WrapUp


Sensex Ends 330 Points Lower; Oil & Gas and FMCG Stocks Witness Huge Selling
Closing

India share markets witnessed huge selling pressure during closing hours and ended their day deep in the red.

At the closing bell, the BSE Sensex stood lower by 330 points (down 0.8%) and the NSE Nifty closed down by 106 points (down 0.9%).

The BSE Mid Cap index ended the day down 0.8%, while the BSE Small Cap index ended the day down 0.6%.

Sectoral indices ended on a mixed note. Stocks in the oil & gas sector and FMCG sector witnessed most of the selling pressure, while banking stocks and realty stocks were trading in the green.

The rupee was trading at 71.27 against the US$.

Asian stock markets finished on a mixed note. As of the most recent closing prices, the Hang Seng was down by 0.70% and the Shanghai Composite was down by 0.49%. The Nikkei 225 was up 0.26%.

European markets were trading on a negative note. The FTSE 100 was down by 0.29%. The DAX was trading down by 0.25%, while the CAC 40 was down by 0.36%.

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Speaking of the volatility witnessed in Indian share market lately, if you look at the stock market returns over the years, you will see that the markets have never moved in a linear fashion.

What do I mean by that?

It has never been a one-way street - only up or down.

Stock markets have always moved in cycles.

Here's what Radhika Pandit wrote about this in a recent edition of The 5 Minute WrapUp...

  • If you would have bought stocks when either the Sensex or the Smallcap index was in a downturn, you would have made big returns once the cycle turned and the bulls took over.

    Sarvajeet and I believe we are seeing a similar situation currently.

    The economic slowdown does not herald the end of the world or for that matter the end of India. It's a phase and like all phases - This too shall pass.

So, the real question is - Are you taking advantage of these price declines to buy quality stocks?

Also, amid the volatility witnessed in stock markets lately, Tanushree Banerjee, in the video below, talks about the Rebirth of India phenomenon and how 3 specific trends are racing ahead even in these gloomy times.

Tune in to find out more...

In the news relating to financial markets, mutual funds' asset base increased to Rs 26.33 lakh crore in October-end. This was a rise of 7.4% as compared with the preceding month and the same was seen on the back of robust inflows in equity and liquid schemes.

According to data from the Association of Mutual Funds in India (AMFI), the mutual fund industry logged an asset under management (AUM) of Rs 24.5 lakh crore in September-end.

Mutual fund houses witnessed an overall inflow of Rs 1.33 lakh crore last month after witnessing a redemption of Rs 1.52 lakh crore in September. Of these, liquid funds alone witnessed an impressive over Rs 932 billion last month.

As per the news, fund managers attributed growth in the asset base to higher retail participation and robust inflows in equity schemes and liquid funds.

The open-ended equity schemes witnessed an infusion of Rs 60.2 billion, while there was a small outflow of Rs 110 million in close-ended equity plans, taking total equity inflows to Rs 60.1 billion last month. In September, net inflow in such schemes stood at Rs 64.8 billion.

Among debt-oriented schemes, liquid funds with investments in cash assets such as treasury bills, certificates of deposit and commercial paper for shorter horizon saw an infusion of Rs 932 billion last month as compared to an outflow of Rs 1.4 lakh crore in September.

Overall, debt funds saw an inflow of Rs 1.2 lakh crore.

Besides, gold exchange-traded funds saw an outflow of Rs 31.45 crore after witnessing inflow in the preceding two months. The safe-haven asset saw an infusion of Rs 440 million in September and Rs 1.45 billion in August.

How this trend 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 energy space, Bharat Petroleum Corporation Ltd (BPCL) share price was in focus today as the company reported 40.1% year-on-year (YoY) jump in its net profit at Rs 17 billion for the second quarter ended September 30, 2019.

The growth was aided by tax reversal of Rs 5.8 billion based on favourable judgments from Income Tax Appellate Authorities over multiple issues. On the quarter-on-quarter basis, the profit grew 55% compared to Rs 10.7 billion in the June quarter.

Revenue from operations decreased 9.4% to Rs 750.5 billion in July-September of this fiscal as against Rs 829.2 billion in Q2FY19. The figure stood at Rs 858.6 billion in June quarter this year.

On the consolidated basis, the net profit stood at Rs 15 billion and revenue from operation was at Rs 756.2 billion during the quarter under review.

The earnings announcement comes at a time when the government is planning to sale controlling stake in BPCL.

On September 30, a core group of secretaries on divestment approved the privatisation of BPCL, which is likely to be completed by March 31, 2020.

The stake sale in BPCL is likely to see bids from international oil giants such as Saudi Aramco, Rosneft, Kuwait Petroleum, ExxonMobil, Shell, Total SA and Abu Dhabi National Oil Co.

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

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Moving on to the news from the commodity space, gold was witnessing buying interest today as investors sought safe-haven bets in the yellow metal after rating agency Moody's downgraded its outlook for India.

Moody's changed India's outlook to negative from stable while affirming India's Baa2 ratings.

The ratings agency expects Indian government to face very significant constraints in narrowing general government budget deficit and preventing a rise in debt burden.

In the global markets, however, gold prices were tepid, after dropping up to 2% in the previous session as hopes of headway in the Sino-US trade deal boosted risk-on sentiment, denting gold's appeal.

Note that as many central banks diversify their portfolio, they are adding gold to their portfolio 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 Trades Marginally Lower; Yes Bank Jumps 8%
12:30 pm

Share markets in India are presently trading on a negative note. Benchmark indices edged lower in early trade today after Moody's Investors Service changed the outlook on the government of India to negative from stable.

Moody's said its decision to change the outlook to negative reflects increasing risks that economic growth will remain materially lower than in the past, leading to a gradual rise in the debt burden from already high levels.

Sectoral indices are trading on a mixed note with stocks in the FMCG sector, power sector, and telecom sector witnessing maximum selling pressure, while realty stocks are trading in green.

The BSE Sensex is trading down by 83 points while the NSE Nifty is trading down by 32 points. The BSE MidCap index and the BSE SmallCap index are trading up by 0.1%.

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The rupee is trading at 71.25 against the US$.

In news from the banking sector, an affidavit filed by Citizens Whistle Blower Forum in the Delhi high court has alleged that private sector lender Yes Bank had lent over Rs 20 billion to several companies linked to the Indiabulls Group.

According to documents which were submitted by the NGO, Yes Bank loaned Rs 21.8 billion to eight unlisted companies of the Indiabulls Group which had either negative net worth or had an average equity capital of Rs 10 million each.

These companies include Airmid Aviation Services, Tupelo Constructions, Tupelo Land Development, Paidia Conconnection, Viswamukha Properties, Paidia Softinfo, Keysha Mining and Bobinar Infrastructure.

Reports state that the grant of over Rs 20 billion to companies with so little equity could raise suspicions of lax due diligence by the bank.

However, the Indiabulls Group had repaid all the loans in January, according to the data available on Registrar of Companies (RoC).

A Citizens Forum activist said that, "many of these companies are shell companies with negative net worth, no income from business operations and a huge amount of accumulated losses. Most of these companies have used the loan amount to give loan/advances to other companies or to invest in compulsorily convertible debentures with 0.001% (coupon) of other companies."

A spokesperson for Indiabulls Group said that promoters of Indiabulls have no loans outstanding from Yes Bank and all loans were fully paid back to Yes Bank a few years back, as stated in the company's rejoinder to the Delhi high court and the affidavit.

Yes Bank share price is presently trading up by 5.9%.

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Moving on to news from the realty sector, shares of DLF surged 7% today after the company reported a strong set of numbers for the quarter ended September 2019 (Q2FY20).

DLF reported 18% year-on-year (YoY) jump in its consolidated net profit at Rs 4.4 billion on the back of higher revenue. Consolidated revenues increased 26% YoY at Rs 19.4 billion.

Earnings before interest, tax, depreciation and amortization (EBITDA) margins rose at 30% for the development business.

The company's management said that the development business has been performing well and achieved net sales of Rs 7.3 billion in Q2FY20.

The net debt for the company stood at Rs 44.6 billion, pursuant to the settlement of inter-company payables.

Buying interest was also seen as stock of the real estate developer was included in the MSCI Global Standard Index with effect from November 26, 2019.

Morgan Stanley Capital International (MSCI) last night announced big semi-annual rebalancing in its global standard index.

DLF was among the eight stocks that were included in the MSCI's India Domestic Index. Others to be included were Berger Paints, Colgate, HDFC AMC, ICICI Prudential Life, SBI Life Insurance, and Siemens.

The company also appointed Vivek Anand as group chief financial officer (CFO). Anand was earlier CFO-India subcontinent of GlaxoSmithKline Consumer Healthcare.

DLF share price is presently trading up by 6%.

Speaking of quarterly results and corporate profits, economic growth (GDP) and corporate profit growth hardly go hand in hand.

Over the past few years, the share of corporate profits to GDP has steadily declined.

This is evident in the chart below:

Rebound in Corporate Profits May Not Immediately Reflect in GDP

As per Tanushree Banerjee, the revival of capex cycle may cause corporate profits to soar much faster than the GDP growth. Investors who stay focused on macro numbers may miss this bus.

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


Sensex Opens Flat; Metal and FMCG Stocks Drag
09:30 am

Asian share markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.1% while the Hang Seng is up 0.4%. The Shanghai Composite is trading up by 0.3%. Meanwhile, the Dow and S&P 500 notched record closing highs on Thursday as the latest signs of progress in US-China trade relations relieved investors, but a report raising fresh worries about the outlook for a deal limited the day's gains.

Back home, India share markets opened flat. The BSE Sensex is trading down by 78 points while the NSE Nifty is trading down by 26 points. The BSE Mid Cap index and BSE Small Cap index opened up by 0.2% and 0.3% respectively.

Sectoral indices have opened the day on a mixed note with realty stocks and automobiles stocks witnessing maximum buying interest. FMCG stocks and metal stocks are trading in red.

The rupee is currently trading at 71.23 against the US$.

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The Indian rupee declined in the early trade on November 8. It opened lower by 34 paise at 71.30 per dollar versus previous close 70.96.

On November 7, the rupee ended flat at 70.96 after it pared its initial losses against the US dollar after the US-China trade deal hopes enthused investor sentiments.

Sustained foreign fund inflows supported the local currency though the gains were capped by hardening crude oil prices.

Foreign money once again made its way into Indian equities. For one, the tax on the super-rich was not applicable on domestic and foreign investors. The Finance Minister clarified this.

More importantly, they responded positively to the cut in corporate tax rates. The new rates now, makes India globally competitive. This strengthens the case for investing in India.

Foreign Money Returns to India Again

Therefore, foreign money flowed back into the Indian markets last month. They bought Indian equities to the tune of Rs 75 billion.

Essentially, there is no clear indicator that the slowdown is structural. So far, it appears cyclical.

Hence, when the cycle turns, the stock markets will move up too.

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Moving on to the news from the economy. India's credit ratings outlook was cut to negative from stable by Moody's Investors Service on concern the government won't be able to help stunted economic growth.

Moody's cited a growing debt burden and the government's struggle to narrow the budget deficit. The rating company affirmed the nation's foreign issuer rating at Baa2, the second-lowest investment grade score.

Financial stress, especially in rural areas, and low job creation calls into question how effective the nation's government is in addressing economic sluggishness, the report noted.

The downgrade puts additional pressure on India, which already tried to kickstart the economy in September with an unexpected cut in corporate taxes.

But chances of more reforms like this have diminished, and Moody's expects the government to struggle to narrow its deficit or contain a growing debt burden.

Investors will closely watch the nation's gross domestic product data for signs of further, long-lasting weakness, which could result in another negative shift, according to Moody's.

Stabilization in the non-bank financial sector, meantime, would be credit positive and could flag less risk of negative spillover into banks.

However, Fitch Ratings and S&P Global Ratings still hold India's outlook at stable.

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


Fitch's Fiscal Deficit Forecast, Q2FY20 Results, and Top Cues in Focus Today
Pre-Open

Indian share markets witnessed huge buying interest during closing hours yesterday and ended their day on a positive note.

At the closing bell yesterday, the BSE Sensex stood higher by 183 points (up 0.5%) and the NSE Nifty closed higher by 49 points (up 0.4%).

The BSE Mid Cap index ended up by 0.7%, while the BSE Small Cap index ended the day up by 0.5%.

On the sectoral front, gains were seen in the energy sector and metal sector. Oil & gas sector and capital goods sector, on the other hand, witnessed selling.

Fitch Raises India's Fiscal Deficit Forecast

In the news from the macroeconomic space, Fitch Solutions raised India's fiscal deficit forecast to 3.6% of the gross domestic product (GDP) for this fiscal year, from 3.4% previously. The forecast was raised due to weak revenue collections resulting from sluggish economic growth and government's sweeping corporate tax rate cut.

Fitch said it was revising the fiscal deficit forecast as revenue collection is likely to fall far short of the projections in the FY20 Union Budget due to weak goods and services tax (GST) and corporate income tax collections.

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The government on September 20, had announced that it would be slashing corporate income taxes for domestic companies to 22% from 30% previously.

This would bring effective corporate tax rate, including all additional levies, to about 25.2% for companies which are not receiving any incentives or exemptions.

The move is estimated to result in Rs 1.45 trillion in revenue loss for the government during FY20.

However, corporate tax accounts for 28% of total receipts. Therefore, the sharp reduction in tax rates will drag heavily on revenue collection.

Separately, Fitch expects weak private consumption growth to weigh on GST collection and this is already being reflected in the growing shortfall in GST collections thus far in FY20.

The agency added that private consumption growth more than halved to 3.1% year-on-year (YoY) in Q1FY20 from 7.2% YoY in Q4 FY19 largely due to the collapse of the Infrastructure Leasing & Financial Services Ltd (IL&FS), in September 2018.

From the Results Corner...

Sun Pharma reported a net profit of Rs 10.6 billion for the quarter ended September 30.

The drug major had posted a net loss of Rs 2.6 billion for the corresponding period a year ago.

The company in a regulatory filing said its revenue from operations came in at Rs 81.2 billion in the second quarter of current financial year, as against Rs 69.3 billion in the year-ago period.

From the energy sector, Hindustan Petroleum Corporation (HPCL) reported 29.8% quarter-on-quarter (QoQ) growth in September quarter.

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The profit increased to Rs 10.5 billion in the quarter ended in September against Rs 8.1 billion in the June quarter.

The revenue from operations fell 14.3% sequentially to Rs 608.6 billion during the July-September period.

The calculated gross refining margin for the quarter stood at US$ 2.60 a barrel.

From the steel sector, Tata Steel reported a 6% year-on-year (YoY) rise in consolidated profit at Rs 33 billion for the quarter ended September 30, on one-time deferred tax gain of Rs 43.7 billion.

The company had posted a net profit of Rs 31.2 billion in the corresponding quarter last year.

The company's total revenues declined by 15.4% to Rs 345.8 billion during Q2FY20.

Consolidated EBITDA of the company plunged 56.6% to Rs 38.2 billion in the September quarter. The figure stood at Rs 88 billion in the same period last year. Margins declined sharply to 11% from 21.5% on a yearly basis.

Moody's Warns Yes Bank of Rating Downgrade

Yes Bank share price will be in focus today as global ratings agency Moody's placed the private sector lender's ratings under review for downgrade.

The agency said that the Ba3 rating of the bank can be downgraded because of the weak September quarter earnings and the bank managing to get only a commitment for US$ 1.2 billion in funding recently.

The agency warned that any inability to raise the fund will negatively impact the credit profile and ratings of the bank.

Moody's also sees the bank's total dud asset to top 12% this year basing on bank's own assessment of over 40% of its Rs 300 billion of exposure to lower rated entities turning sour before March.

The agency also ruled out an upgrade in the next 12-18 months saying the outlook can be changed to stable if the asset quality is stable and the capital raise happens.

Note that Yes Bank has been passing through a rough period ever since the Reserve Bank of India (RBI) asked the promoter-chief executive Rana Kapoor to leave the bank by January 31, 2019 in August last year over concerns on governance and loan practices. The bank has also been in news as Rana Kapoor's successor Ravneet Gill disclosed large underreported stressed assets.

How all these pans out remain to be seen. Meanwhile, we will keep you updated on all the developments from this space.

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