Sensex Ends 274 Points Lower; IT and Energy Stocks Witness Selling
Closing

Share markets in India continued to witness selling pressure during closing hours and ended their trading session on a negative note. Sectoral indices ended on a negative note with stocks in the IT sector and energy sector witnessing most of the selling pressure.

At the closing bell, the BSE Sensex stood lower by 274 points (down 0.8%) and the NSE Nifty closed down by 56 points (down 0.5%). The BSE Mid Cap index ended the day up 0.6%, while the BSE Small Cap index ended the day up 0.1%.

The rupee was trading at 71.29 against the US$.

Asian stock markets finished on a mixed note. As of the most recent closing prices, the Hang Seng was up by 0.5% and the Shanghai Composite was up by 0.2%. The Nikkei 225 was down 0.4%.

Note that while the markets are witnessing a correction lately, the SIP flows in to Indian stock markets are on the rise. Have a look at the chart below. It plots the month SIP contributions over the 31-month period between April 2016 and October 2018.

SIPs Continue to Rise Despite Market Correction

During the above period, SIP contributions have grown from Rs 3,122 crore in April 2016 to Rs 7,985 crore in October 2018, growing at compounded annual rate of 46%.

Currently, there are about 2.49 crore SIP accounts through which investors regularly invest in various Indian mutual fund schemes. As per AMFI data, the mutual fund industry added an average of about 10.05 lakh SIP accounts each month during the financial year 2018-19, with an average SIP size of about Rs 3,200 per SIP account.

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Here's what Ankit wrote about it in one of the recent editions of The 5 Minute WrapUp...

  • As I've shown you some of my earlier editorials (here, here and here), there's a structural change in the Indian stock markets. Domestic investors have emerged as key players in the Indian markets.

    But there are a few questions that need to be answered...

    Is this flood of domestic liquidity entering the markets a temporary fad? Or is there some element of long-term sustainability to it?

    To answer these questions, the most reliable piece of data is SIP flows.

    First, let me quickly explain what SIP is all about.

    SIP stands for Systematic Investment Plan. It is an investment plan offered by mutual funds wherein one can periodically invest a fixed amount in a mutual fund scheme. It is similar to a recurring deposit wherein you deposit a certain amount every month.

    SIP is a convenient method of investing in mutual funds through standing instructions to debit your bank account every month.

    This not only saves you a lot of hassle, it also helps in averaging your costs and investing in a disciplined manner without worrying about timing the market.

    For these reasons, SIPs have been gaining popularity among Indian mutual fund investors.

    The liquidity pouring into the markets through SIPs is relatively stable, reliable, and long-term money.

If the trend in SIP inflows remains steady, it will provide the much-needed buoyancy to the Indian markets which have been witnessing an exodus of foreign investors.

In the news from the aviation sector, Jet Airways share price was in focus today. The stock of the company witnessed buying interest today on the back of falling crude oil prices and also after the company said it is in talks to secure sustainable financing for its operations and growth.

Note that last month reports stated that Jet Airways is trimming its workforce and operations further as it struggles through its financial crisis.

As per a leading financial daily, at least 15 people at manager or general manager level in departments such as engineering, security and sales have been asked to leave in October. It is also reported that the airline has grounded eight of its planes at the Mumbai and Chennai airports.

The company had also deferred announcing the June quarter numbers to an unspecified late date.

Amid rising concerns over the airline's financial health and proposed salary reductions for employees, Jet Airways chairman said a new committee would be set up to improve public perception.

Later, the company reported a whopping Rs 13.2 billion of net losses for the June quarter due to higher fuel cost, falling rupee and low fares. The company said it will monetize loyalty programme JetPrivilege and wet-lease some of its small aircraft to mobilise urgent working capital.

This was the second straight quarter of losses for the Naresh Goyal-run airline, which had last month publicly admitted to cash-flow issues. The airline had booked net profit of Rs 535 million in the year-ago period, while in the March quarter it had reported net losses of Rs 10.4 billion.

The airline said its fuel cost soared 53% to Rs 23.3 billion in the quarter, while low fares had revenue inching up to Rs 60.7 billion from Rs 59.5 billion.

On a consolidated basis, the net loss stood at Rs 13.3 billion, against a net profit of Rs 580 million a year ago.

The second back-to-back quarterly loss forced Jet Airways, which delayed the result announcement on August 9 indefinitely, to announce a turnaround plan which includes a capital infusion by selling a stake in JetPrivilege, and a massive cost-cutting to save around Rs 20-billion over the next two years.

To know more about the company, you can access to Jet Airways' latest result analysis and Jet Airways' 2017-18 Annual Report Analysis on our website.

From the pharma space, Dr Reddy's share price was also in focus today as a court ruling allowed the company to sell a generic of Indivior Plc's opioid treatment drug Suboxone in the US.

The US court appeals for the Federal Circuit which were set aside yesterday blocked Dr. Reddy's from selling the generic in the country. The market comprising drugs that treat opioid abuse in the US during the past 12 months is worth US$ 2.8 billion.

To know more about the company, you can check Dr Reddy's Q2FY19 result and Dr Reddy's annual report on our website.


Sensex Trades Over 260 Points Down; TCS & Infosys Top Losers
12:30 pm

Stock markets in India are presently trading lower, tracking weakness in their global peers. Among the sectoral indices, IT stocks and metal stocks are witnessing maximum selling pressure. While, healthcare stocks and PSU stocks are trading in green.

The BSE Sensex is trading lower by 261 points (down 0.2%), and the NSE Nifty is trading lower by 63 points (down 0.3%). Meanwhile, the BSE Mid Cap index is trading up by 0.3% while the BSE Small Cap index is trading down by 0.1%. The rupee is trading at 71.30 to the US$.

Speaking of stocks, if you wondering whether the boring stocks will do well against smallcaps as well as asset classes like gold and fixed income over the long term, take a look at this chart.

Boring Bluechips are Necessary for Risk Hedged Returns

The BSE 500 which represents a mix of bluechip and midcap stocks, underperformed the BSE smallcap index only over the 5-year period. And even in a year of sharp market correction (like 2018), the correction in the index is much lesser than that of the smallcap index.

In the news from the economy. As per the latest report by Employment Provident Fund Organisation (EPFO), India reported over 2-fold jump at 9.7 lakh new job creations in the month of September 2018 as compared to 4.1 lakh jobs in the corresponding month last year.

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The data also showed that around 79.5 lakh new subscribers were added to social security schemes of the EPFO from September 2017 to September 2018. This indicates that these many jobs were created in the last 13 months.

As per the report, the maximum jobs were created in the age bracket of 18-21 and in this bracket the top 10 sectors which have created more fresh jobs include Expert Services, Trading in Commercial Establishments, Electric Engineering Products, Construction Industry, Engineering, Marketing Servicing, Textiles, Garments making, Cleaning and Sweeping Services and Hospitals.

In the similar age bracket, Maharashtra was the first among the States to create maximum payroll, followed by Tamil Nadu, Karnataka, Gujarat, and Haryana.

Note that, a critical factor in the upcoming elections could be the jobless population of India. Governments, past and present, have continued to face challenges on the employment front.

The upheaval in the unorganised sector has a lot to do with the increase in unemployment. Here's an excerpt of what Tanushree Banerjee, Co-head of Research at Equitymaster wrote about unemployment in The 5 Minute WrapUp:

  • "Post GST and Notebandi, there has been a gradual shift from the unorganised to the organised sector. However, a majority of India's workforce is employed in the unorganised sector and they have been badly hit.

    The movement of this workforce in the organised sector has been slow. A big reason has been the lack of skilled employees.

    India faces a severe shortage of skilled workers who are in high demand in the organised sector. The challenge for the government will be to improve quality and quantity of the skilled workforce in the country.

    With the general elections due in May next year, this is easier said than done."

Moving on to the news from the pharma sector. Lupin share price is in focus today after it was reported that the company launched Tetrabenazine Tablets, 12.5 mg and 25 mg. It received an approval from the United States Food and Drug Administration (USFDA) earlier.

Lupin's Tetrabenazine Tablets are the generic equivalent of Valeant Pharmaceuticals North America, LLC's Xenazine tablets. It is indicated for the treatment of chorea associated with Huntington's disease.

Reportedly, Xenazine tablets had annual sales of US$153 million in the US (IQVIA MAT September 2018).

To know more about the company, you can access to Lupin's Q1FY19 result analysis and Lupin's 2017-18 Annual Report Analysis on our website.

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


Sensex Trades in Red; IT & Metal Stocks Drag
09:30 am

Asian stock markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.7% while the Hang Seng is down 0.2%. The Shanghai Composite is trading down by 0.1%. US stocks dropped, and the Nasdaq fell 1.7% on Tuesday.

Back home, India share markets have opened the day on a negative note. The BSE Sensex is trading down by 101 points while the NSE Nifty is trading down by 20 points. The BSE Mid Cap index opened up by 0.5% while BSE Small Cap index opened up by 0.3%.

Sectoral indices have opened the day on a mixed note with oil & gas stocks and healthcare stocks witnessing maximum buying interest. While metal stocks and IT stocks have opened the day in red.

The rupee is currently trading at Rs 71.40 against the US$.

In the news from the pharma space, Dr Reddy's share price is witnessing buying interest today.

Reportedly, a court ruling allowed the company to sell a generic of Indivior Plc's opioid treatment drug Suboxone in the US.

The US court appeals for the Federal Circuit which were set aside yesterday blocked Dr. Reddy's from selling the generic in the country. The market comprising drugs that treat opioid abuse in the US during the past 12 months is worth $2.8 billion.

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Dr Reddy's share price is trading up by 7.5%.

You can also read Dr Reddy's Q2FY19 result and Dr Reddy's annual report on our website.

Moving on to the news from the commodity space, oil prices tumbled more than 6% on Tuesday in heavy trading volume, with US crude diving to its lowest level in more than a year, caught in a broader Wall Street selloff fed by mounting concerns about a slowdown in global economic growth.

Speaking of crude oil, India's crude oil production was lower by 4.2% in September 2018 as compared to last year, as can be seen from the chart below.

The worrying factor is this was the lowest production this year.

Here's what Tanushree Banerjee wrote about it in one of the recent editions of The 5 Minute WrapUp...

  • Comparing domestic production with the crude oil processed by refineries gives an idea of the demand supply gap. Low domestic production as compared to the demand for crude oil places a huge burden on India's import bill.

    Rising crude oil prices could have severe implications. Rising inflation. Rising interest rates. Pressure on the government to cut excise duty, thereby impacting its revenues.

    We have seen some of this play out. With elections around the corner, expect a lot of subsidies on fuel prices. This is bound to worsen India's fiscal deficit further.

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

Sarvajeet offers an interesting insight on an infinite return business.

Here's what he wrote in a recent edition of The 5 Minute Wrap Up...

  • Talking about moat businesses, I believe the moat should be reflected in the financials.

    Keeping things simple, a business with competitive advantage, should earn above average margins. It should have an asset and working capital light business model.

    The low investment in assets and working capital should be reflected in strong cash flows. The balance sheet should be strong with minimum or no debt.

    Growth in profits should surpass the growth in sales.

    The below chart shows the last five-year performance of the company we are about to recommend in Smart Money Secrets in the coming week.


    Financials Like These Are Seen Only in Duopoly Markets

    A company operating in a duopoly market with limited competition fares very well on key financial metrics.

    As we can see in the chart, this company has grown its profits faster than its sales.

    It earns margins in north of 50% (a very rare feat to achieve), and pays a dividend that's more than 35% of its profits.

    It's asset light with no big capex requirements to grow. In fact, it barely invests any money at all in working capital (see the cash conversion cycle in the chart).

    The big question is - are these financials sustainable?

    If yes, at what price should you consider buying the stock?

    Find out soon...


Sensex Ends Day in Red, Oil Prices, and Top Stocks in Action Today
Pre-Open

Share markets in India witnessed most of the selling pressure during closing hours yesterday and ended their trading session on a negative note. Sectoral indices ended on a negative note with stocks in the metal sector and IT sector witnessing most of the selling pressure.

At the closing bell, the BSE Sensex stood lower by 300 points (down 0.8%) and the NSE Nifty closed down by 107 points (down 1%). The BSE Mid Cap index ended down 1%, while the BSE Small Cap index ended down by 0.9%

Top Stocks in Action Today

Glenmark Pharma share price will be in focus today as the company's subsidiary, Glenmark Pharmaceuticals Inc., USA has been granted final approval by the United States Food & Drug Administration (USFDA) for Azelaic Acid Gel, 15%, a generic version of Finacea Gel, 15%, of Leo Pharma A/S.

You can read Glenmark pharma Q2FY19 result analysis and Glenmark pharma annual report on our website.

Future Enterprises share price will also be in focus today as the company has acquired 100% equity share capital of Ritvika Trading (RTPL). The entity has been acquired to structure investments of the company.

Market participants will also be tracking HDFC share price.

Reportedly, Housing Development Finance Corporation (HDFC) has issued masala bonds under its medium-term note (MTN) programme and raised Rs 5 billion. The rupee denominated bonds (RDBs), popularly known as masala bonds, are issued under the MTN programme.

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

RBI Meet Outcome

The Reserve Bank of India (RBI) said on Monday its board would support small businesses and has extended the timeline for banks to set aside an additional 0.625% as capital conservation buffer by one year to March 31, 2020.

The RBI also decided to form an expert committee to look into whether RBI reserves are adequate.

But the outcome of the meeting to boost lending failed to impress investors as the implementation of the proposed measures will take time.

The Narendra Modi-led government is concerned that low crop prices and difficulties which small businesses face in borrowing may dent its prospects in numerous state elections over coming weeks, and the general election due next year.

According to Moody's Investors Service, the above decision to allow lenders more time to adhere to additional capital buffer norms under Basel 3 is credit negative for the country's state-run banks. Moody's also raised concerns over RBI considering to give banks a leeway in classifying stressed assets of small borrowers which will ease the credit flow to this sector.

Oil Prices Decline

Oil prices fell on Tuesday amid concerns about rising global supplies as OPEC weighs production cuts.

Growing fears of an economic slowdown, which saw European and Asian stock markets tumble again, added further pressure on crude.

Concerned about an emerging production overhang like the one that led to a price slump in 2014, the Organization of the Petroleum Exporting Countries (OPEC) is pushing for a supply cut of 1 million to 1.4 million bpd.

Speaking of crude oil, India's crude oil production was lower by 4.2% in September 2018 as compared to last year, as can be seen from the chart below.

The worrying factor is this was the lowest production this year.

Here's what Tanushree Banerjee wrote about it in one of the recent editions of The 5 Minute WrapUp...

  • Comparing domestic production with the crude oil processed by refineries gives an idea of the demand supply gap. Low domestic production as compared to the demand for crude oil places a huge burden on India's import bill.

    Rising crude oil prices could have severe implications. Rising inflation. Rising interest rates. Pressure on the government to cut excise duty, thereby impacting its revenues.

    We have seen some of this play out. With elections around the corner, expect a lot of subsidies on fuel prices. This is bound to worsen India's fiscal deficit further.

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

From the IPO Space...

In the latest development from the IPO space, Zircon Technologies, engaged in the business of label printing for packaging of products, has received market regulator approval to float an initial public offer.

Proceeds of the issue will be utilized for repayment of certain borrowings availed by the company, for setting up of new manufacturing facility at Dehradun, funding the working capital requirements of the firm and general corporate purposes.

With this, the total number of companies getting clearance from the markets regulator to launch IPO has reached 70 so far this year.

Proceeds of the IPO will be used to repay borrowings, fund long-term working capital requirements and for general corporate purposes.

With so many IPOs set to hit the markets, we at Equitymaster believe a merit-based selection, primarily including valuation, business, and management quality, is the logical way to go about investing in IPOs.

To know how to safely profit from the ongoing IPO rush, download this FREE report now and discover How to Get Rich with IPOs.