Sensex Finishes Lower on Inflation Worries; PSU & Energy Stocks Fall
Closing

Indian share markets finished the trading day on a weak note after retail inflation picked up to a seven-month high in October. At the closing bell, the BSE Sensex closed lower by 92 points and the NSE Nifty finished down by 38 points. The S&P BSE Mid Cap finished down by 0.22% while S&P BSE Small Cap finished down by 0.18%. Losses were largely seen in PSU stocks, capital good stocks and energy stocks.

Asian stock markets finished mixed to lower as of the most recent closing prices. Shares in China fell as the Shanghai Composite dropped 0.53%. The Hang Seng lost 0.10% while the Nikkei 225 in Japan closed unchanged. European markets are mixed today. The CAC 40 is up 0.31% while the FTSE 100 gains 0.13%. The DAX is even.

Rupee was trading at Rs 65.52 against the US$ in the afternoon session. Oil prices were trading at US$ 56.62 at the time of writing.

Oil prices fell as the prospect of further rises in U.S. output undermined ongoing OPEC-led production cuts aimed at tightening the market. The falls came after both crude benchmarks early last week hit highs last seen in 2015, but traders said the market had lost some momentum since then.

Oil prices has increased nearly 130% since January 2016. This is a typical capital cycle. And it gets interesting every time.

The expectation in the market is that prices could remain elevated owing to several reasons, such as drawdown in inventories, especially in the US, better compliance with the voluntary production cut by the Organization of the Petroleum Exporting Countries (OPEC), slower pickup in US shale oil and continued geopolitical risk in West Asia.

The OPEC is expected to extend a cut of around 1.8 million barrels per day into the whole of 2018. Since June 2017 onwards, prices of Brent have been on the rise, on the back of a drop in US crude inventories, geopolitical tension between OPEC countries, and disruption in production caused by the hurricane activity in the US.

Crude Oil Hits 28-Month High

From India's perspective, rising oil prices warrant close attention. This could lead to rising risks of fiscal slippage, greater inflationary pressures, and lower likelihood of a rate cut by the Reserve Bank of India (RBI) in December prompt investors to review their positions.

In news from the automobile sector, as per an article in The Times of India, Hero MotoCorp, is working on consolidating its position in some of the overseas markets with significant growth prospects as part of the strategy to grow its international business.

The company, with a presence across 35 countries, aims to sharpen its focus on markets like Bangladesh that have been performing well. The company plans on entering 50 international markets by 2020.

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Early this year, the company forayed into Argentina, its 35th global market. It is already present in countries like Sri Lanka, Nepal, Bangladesh, Egypt and Turkey in Asia, Peru, Ecuador and Colombia in South America, among others.

The company also has set a target of achieving cumulative sales of 100 million units by 2020.

Hero MotoCorp share price finished the day up by 2.1% on the BSE.

In news from the economy, Finance Minister Arun Jaitley has said that there is scope for further rationalisation of GST rates and revenue buoyancy will decide the course of rationalization giving hint of further rationalisation of goods and services tax (GST) rates. He also ruled out single tax rate of GST, saying those seeking single rate have no understanding of tariff structure.

Jaitley said that with the rate cuts, the government is expecting the gains on a host of products- from cosmetics and razors to washing powder - to be passed on to consumers. He added that GST has brought down inflation.

Earlier in the biggest GST rejig yet, tax rates on over 200 items, were cut by the GST Council, to provide relief to consumers and businesses amid economic slowdown. As many as 178 items of daily use were shifted from the top tax bracket of 28% to 18%, while a uniform 5% tax was prescribed for all restaurants, both air- conditioned and non-AC.

Moving on to news from oil & gas sector. As per an article in The Economic Times, ONGC executives have protested the government move to give private firms control over some of its producing fields to boost stagnant output, urging the prime minister to review the proposal.

ONGC executives say the fields considered for private investment are among the better performing, and are receiving substantial funds for enhancing production. Losing them would mean a drop of about 15% in annual output, and scant return on investment.

The Oil Ministry has prepared a plan to offer 60% participating interest to private players in 11 fields of ONGC and 4 of Oil India, with an aim to raise production at these ageing fields.

ONGC share price finished the day down by 1.1%.

In news from telecom sector, as per an article in The Livemint, Bharti Airtel is planning to sell a stake worth about Rs 26.17 billion (US$400 million) in mobile masts operator Bharti Infratel Ltd.

Reportedly, Nettle Infrastructure Investments Ltd is offering to sell an about 3.5% stake in Bharti Infratel in a price range of Rs 400 to Rs 415.5 per share.

As of end-September, Nettle owned 7.7% of Bharti Infratel, while Bharti Airtel owned 50.3% of the tower operator. J.P. Morgan, UBS and Goldman Sachs are handling the share sale.

Bharti Airtel share price finished the trading day flat while Bharti Infratel share price finished down by 4.2%.

And here's a note from Profit Hunter:

Larsen and Turbo (L&T) is among the top loser in the Nifty 50 Index - 2.40%. Let's have a look at its chart.

The stock bottomed out at 677 in February 2016 and traded in an uptrend. It hit a high of 1,222 in May 2017. Thereafter, it consolidated in a range and found resistance from 1,260 level which was also the high made in March 2015 and July 2015.

Day before yesterday, the stock broke above this resistance level to touch a new lifetime high of 1,275. But it did not sustain up and immediately slipped lower. It is now 5% off its life high.

So does this indicate that the stock is about to begin its correction or will it challenge its life high and continue to trade in an uptrend. Let's wait and watch...

L&T off its Life High
L&T off its Life High 

Sensex Trades on a Volatile Note; Capital Goods Stocks Top Losers
01:30 pm

After opening the day flat, Share markets in India witnessed volatile trading activity and are presently trading in red. Sectoral indices are trading on a mixed note with stocks in the consumer durables sector and auto sector witnessing maximum buying interest. Energy stocks and capital goods sector are trading in the red.

The BSE Sensex is trading down by 62 points (down 0.2%) and the NSE Nifty is trading down by 30 points (down 0.3%). The BSE Mid Cap index is trading down by 0.3%, while the BSE Small Cap index is trading down by 0.2%. The rupee is trading at 65s.44 to the US$.

In news from the PSU sector. According to an article in a leading financial daily, the central government is turning to state-owned enterprises to make up for the shortfall in revenues.

The article notes that the Finance Ministry assessed the financial health of 14 state-owned firms and asked 12 of the companies to payout between 30% and as much as 100% of their FY17 or FY18 net profits in dividends, share buybacks or bonus issues. Two companies were exempted.

The government has often used dividends from state-owned firms as a means to meet the fiscal deficit targets.

India's central budget is under pressure this year following an unexpected slump in economic growth, which saw GDP (gross domestic product) growth, slip to its lowest level in three years.

As of September, the half-way mark for the fiscal year, the budget deficit had reached over Rs 5 trillion or more than 91% of its full-year target. A sharp fall in dividends from the Reserve Bank of India (RBI) owing to demonetisation costs added to the shortfall.

With this measure, the government hopes to stick to its fiscal deficit target for the year.

Fiscal Deficit target of 3% of GDP

One of the important yardstick to measure the financial health of an economy is fiscal deficit. It is the difference between the government revenues and expenditure. The difference is generally bridged by debt. The present government is committed to reduce the gap. The long term fiscal deficit target is 3% of the Gross domestic product (GDP). This simply means relatively less expenditure. Hence, less government spending.

In last one decade India is making serious efforts to reduce the fiscal deficit level. Ever since, the new government came in it has been in favor of fiscal consolidation and meet the long term fiscal deficit target of 3% by FY17-18.

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Mind you, demonetisation as well as Goods and Service Tax (GST) implementation has resulted in a slowdown. Further, government has announced flurry of projects but execution is still pending. This means the government needs to relax its spending to spurt the growth again.

This means, once again, the government needs to fight dual challenge. First, maintaining its stance on fiscal consolidation and sticking it fiscal deficit target of 3% of GDP for FY17-18. Second, it must relax the deficit target for reviving the economy from the shock of demonetisation and GST.

Moving on to news about the economy. Moving on to news about the economy. According to data released by the Central Statistics Office (CSO), retail inflation as measured by the Wholesale Price Index (WPI) rose to 3.59% in October, a sharp rise from of 2.6% in September 2017.

Wholesale inflation rate, measured by the wholesale price index (WPI), is a marker for price movements in bulk buys for traders and broadly mirrors trends in shop-end prices.

The index portrays new series of WPI data released by the government earlier this fiscal, with 2011-12 as the base year, replacing existing the base year of 2004-05.

Food articles turned out to be major drivers as the data showed that prices of wholesale food articles rose by 3.2% in October, as against a 2% rise in the previous month. Vegetable index was up by 19.9% as compared to a rise of 15.5% in September.

Primary articles, which accounts for more than a fifth of the entire wholesale price index grew 3.3% in October from 0.2% in September.

Last month, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) forecasted that retail inflation will hover around 4.2-4.6% between October-March this year, higher than the previous projection of 4-4.5%.

The RBI retained its neutral policy stance, citing uncertainty on the future trajectory of inflation because of several uncertainties, flagging possible return of inflationary pressures. However, it also kept the door ajar for a future rate cut if incoming data were conducive. While the government has been eyeing a sharp cut in interest rates, RBI has maintained its cautious stance.


Sensex Trades Flat; CPI Inflation Rises to 3.58% in October
11:30 am

After opening the day in green, Share markets in India witnessed choppy trades and are presently trading marginally below the dotted line. Sectoral indices are trading on a mixed note, with stocks in the auto sector and stocks in the consumer durables sector witnessing maximum buying interest, while stocks in the capital goods sector are leading the losses.

The BSE Sensex is down up by 65 points (down 0.2%) and the NSE Nifty is trading down by 23 points (down 0.2%). Meanwhile, the BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading up by 0.2%. The rupee is trading at 65.48 to the US$.

In news about the economy. According to data released by the Central Statistics Office (CSO), retail inflation as measured by the Consumer Price Index (CPI) rose to a six-month high of 3.58 % in October 2017, up from 3.28% in September.

Retail inflation in India picked up in Oct. led largely by higher vegetable and fuel prices, lowering hopes of a rate cut ahead of the Reserve Bank of India's monetary policy review next month.

Higher inflation was driven by vegetable prices which rose 7.5% over last year. Onion prices in India have been on the rise due to tight supplies. The surge was likely driven by a drop in kharif onion crop sowing because of unseasonal rains.

CPI Inflation Continues Steady Rise

The food and beverages component of CPI saw a growth of 2.3% in October, the fastest pace since March, and up from 1.7% in September. This was mainly driven by a sharp uptick in vegetable prices.

Within the food segment, vegetable inflation quickened rapidly to 7.5% in October, from 3.9% in September

Core inflation, which excludes food and fuel inflation, eased marginally to 4.5% in October, from 4.6% in the previous month, breaking a three-month quickening streak. However, oil prices are continuing to firm up and this could lead to added inflationary pressures going forward.

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Last month, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) forecasted that retail inflation will hover around 4.2-4.6% between October-March this year, higher than the previous projection of 4-4.5%.

The RBI retained its neutral policy stance, citing uncertainty on the future trajectory of inflation because of several uncertainties, flagging possible return of inflationary pressures. However, it also kept the door ajar for a future rate cut if incoming data were conducive. While the government has been eyeing a sharp cut in interest rates, RBI has maintained its cautious stance.

Moving on to news from the IPO space. Khadim India made a weak debut on the bourses today.

The Kolkata based footwear company's shares opened at a discount of over 4% at Rs 727 compared to its issue price of Rs 750.

The initial public issue (IPO) of Khadim India, which ended on 6 November 10, was subscribed about 1.9 times. The price band for the offer was fixed at Rs 745-750 per share.

Khadim India would be utilising the net IPO proceeds towards payment of loans and general corporate purposes.

The company is the second largest footwear retailer in India. It operates exclusive retail stores under the 'Khadims' brand with major presence in East India. We had analysed and reviewed the IPO and released a recommendation note. You can check the same on the IPO page.

One space which tests the investor's contrarian philosophy is the IPO space. The demand for IPO's has reached sky-high levels. Avenue Supermarts was the first company this year to cross the 100-time subscription mark swiftly followed by CDSL and Dixon technologies lately, with MAS Financial Services being the newest entrant to the list.

The market euphoria is something similar to what was seen in 2007-08. When everyone around you is clamoring to get a piece of the IPO pie, it makes sitting tight difficult. And, why should you sit tight when stocks like Avenue Supermart lets you pocket a cool 100% gain from day 1 of the listing?

History suggests that these cases are few and far between. More than 70% of the IPOs listed in 2007 and 2008 are in the red, even today when the Sensex is at an all-time high.

This allows us to stay on the fence when it comes to investing in IPOs. But it doesn't make sense to completely ignore this space. For every Reliance Power-like issue, there have been issues like MarutiTCS, and Jubilant Foodworks Ltd (with returns over 4,000%, 1,000% and 500% respectively) that have created immense wealth for shareholders.

A merit-based selection primarily including valuation, business, and management quality is the logical way to go about it. 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 than not.


Sensex Opens Marginally Higher; Bharti Infratel Plunges 2.3%
09:30 am

Asian stock markets are lower in morning trade as shares in China fall. The Shanghai Composite is off 0.45% while the Hang Seng is down 0.1%. The Nikkei 225 is trading up by 0.27%. Overnight, the US markets closed slightly higher.

Meanwhile, Indian share markets have opened the day marginally higher. BSE Sensex is trading higher by 61 points and NSE Nifty is trading higher by 8 points. S&P BSE Mid Cap is trading up by 0.2% and S&P BSE Small Cap is trading up by 0.3%.

Gains are largely seen in automobile stocks and FMCG stocks. Energy stocks, metal stocks and capital goods stocks witness majority of the selling activity. The rupee is trading at Rs 65.43 against the US$.

As per an article in The Livemint, Bharti Airtel is planning to sell a stake worth about Rs 26.17 billion (US$400 million) in mobile masts operator Bharti Infratel Ltd.

Reportedly, Nettle Infrastructure Investments Ltd is offering to sell an about 3.5% stake in Bharti Infratel in a price range of Rs 400 to Rs 415.5 per share.

As of end-September, Nettle owned 7.7% of Bharti Infratel, while Bharti Airtel owned 50.3% of the tower operator. J.P. Morgan, UBS and Goldman Sachs are handling the share sale.

Bharti Airtel share price opened the trading day up by 1% while Bharti Infratel share price plunged 2.3% in early trade.

In another development, Idea Cellular and Vodafone India they have separately agreed to sell their standalone tower businesses to ATC Telecom Infrastructure Pvt. Ltd for about US$1.2 billion.

The two operators have about 20,000 towers. Vodafone and Idea are in the process of merging operations to create the largest mobile operator in the country. While Idea Cellular would get Rs 40 billion, Vodafone would get Rs 38.5 billion if the tower deal goes through prior to their merger.

If the completion of the sale of the standalone telecom tower businesses precedes the completion of the proposed Idea-Vodafone, Vodafone India will receive US$592 million, while Idea will get US$615 million.

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Idea and Vodafone merger is aimed at dominating a market which billionaire Mukesh Ambani's Reliance Jio Infocomm Ltd has disrupted with free voice calls and low data prices.

Idea share price opened the trading day down by 1% on the BSE.

In news from aviation sector, as per a leading financial daily, Jet Airways is in "serious discussions" about ordering 75 more Boeing 737 Max aircraft, having already ordered 75.

The airline said last month it had agreed to buy 75 of the aircraft and that it could acquire another 75 to help it expand in a booming Indian market.

The aviation industry has been on a high the past year. Warren Buffett invested upwards of US$2 billion a piece into the four largest US airline stocks - American Airlines Group Inc, Delta Air Lines Inc, Southwest Airlines Co, and United Continental Holdings Inc. When crude prices crashed, the lower cost of air turbine fuel suddenly changed the economics of the aviation business.

Market Share of Indian Domestic Airlines - 2017 (%)

Despite recent positives, the airlines industry back home is plagued by cutthroat competition and rock-bottom fares. As a result, Indigo has been the only profitable airline in India in the recent past.

Jet Airways share price opened the day down by 0.3% on the BSE.


Global Markets Turn Cautious, IPO News & Cues to Watch out Today
Pre-Open

On Monday, share markets in India finished in red, marking a negative start to the week.

The BSE Sensex closed lower by 281 points to end at 33,034 while the broader NSE Nifty ended the day lower by 97 points to close at 10,225.

Among BSE sectoral indices, metal stocks fell the most by 1.9%, followed by consumer durables stocks 1.8%. Coal India and ONGC were among the top losers.

Top Stocks in Action Today

Idea Cellular share price is set to be in focus today after the company and Vodafone India said that they have separately agreed to sell their standalone tower businesses to ATC Telecom Infrastructure Pvt. Ltd for about $1.2 billion.

The two operators have about 20,000 towers. Vodafone and Idea are in the process of merging operations to create the largest mobile operator in the country. While Idea Cellular would get Rs 40 billion, Vodafone would get Rs 38.5 billion if the tower deal goes through prior to their merger.

Coal India share price is likely to be in focus today after the company reported close to 40% fall in its consolidated net profit to Rs 3.7 billion in the quarter ended September 30, 2017 as compared to Rs 6.1 billion in the corresponding quarter last fiscal. A key factor that drove the miss was that CIL made a provision of Rs 23 billion towards wage settlement in its employee costs. What also adversely affected profitability was that other income dropped sharply by 56% YoY.

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India to be Third Largest Economy by 2028

According to a recent Bank of America Merrill Lynch report, India is likely to become world's third largest economy by 2028 and overtake Japan in nominal gross domestic product (GDP).

According to the report, India is also well on track to cross France and the United Kingdom (UK) to emerge as the world's fifth largest economy after Germany by 2019.

The report assumes the Indian economy will grow at 10% (in nominal US GDP) in the next 10 years, well ahead of Japan's 1.6%, and will be driven by the services sector. At the same time, various structural factors will likely weigh on growth in China, Brazil and Russia

The report sees three strong growth drivers over the next 10 years that will help India achieve this. First, falling dependency ratios should raise saving and investment rates. Second, financial maturity, due to financial liberalisation and inclusion, should continue to lower lending rates structurally. Finally, increasing incomes and affordability will likely underpin the emergence of mass markets, supporting an expected 7% real GDP growth.

Growth will be driven by services, as India cannot replicate the export-led strategy of Asian tigers that was possible in a different world environment during the Cold War.

Global Markets Turn Cautious

Global stock markets were cautious, as market participants showed increasing concerns about the US tax overhaul plan. Market participants in Europe will be closely watching speeches by central bank leaders, with European Central Bank President Mario Draghi and Federal Reserve Chairwoman Janet Yellen both set to speak Tuesday. In the U.S., investors will keep a close eye on the October Consumer Price Index, due Wednesday, as a proxy for inflation. While the Federal Reserve is widely expected to increase rates in December, a soft inflation reading could fuel the debate around the flattening of the U.S. yield curve.

IPO Buzz

In news from stocks in the IPO space, shares of The New India Assurance Co. Ltd (NIA) IPO debuted 10% lower on the bourses, after the general insurer saw its Rs 96 billion initial public offer (IPO) get subscribed 1.19 times earlier this month.

The New India Assurance share price ended the day lower by 9.4% on the BSE compared to the issue price of Rs 800, which was the upper end of the price band.

One space which tests the investor's contrarian philosophy is the IPO space. The demand for IPO's has reached sky-high levels. Avenue Supermarts was the first company this year to cross the 100-time subscription mark swiftly followed by CDSL and Dixon technologies lately, with MAS Financial Services being the newest entrant to the list.

With so many new IPOs set to hit the market, it is prudent to be ready with a strategy to take advantage of the frenzy.

It's good to be very selective when investing in IPOs. Carefully analyse each company for its own merits and don't give in to the hype surrounding the public offering.

That's Ankit Shah's approach at Equitymaster Insider. He keeps a sharp eye on developments in the IPO space and keeps his readers up to date on the big-ticket IPOs.

Ankit and his team of researchers constantly reference this handbook on investing in IPOs. You can download a copy for yourself. It's free. Just click here.