From Urjit Patel to Shaktikanta Das; What Lies Ahead?
Podcast

The week gone by saw Sensex plunge from 700 points to rise by over 600 points. With a volatile and eventful week, it was a challenge keeping up with the news every day.

In this week's podcast, we talk about all that brought wild swings in the market. Urjit Patel's departure, the impact of his resignation on the markets, and all you need to know about the new appointee Shaktikanta Das, will be the topics of discussion.

That apart, we will also be talking on lots of other topics including Vijay Mallya's extradition, India's current account deficit, India's retail inflation among others.

What's more? Research Analyst, Girish Shetty shares his insights on such events. He talks about the dinosaurs in stock markets. Now what are these dinosaurs?

Tune in to find out...


Sensex Ends Marginally Higher; Telecom and Oil & Gas Stocks Witness Buying
Closing

Indian share markets continued to trade near the dotted line during closing hours and ended the day marginally higher. Gains were largely seen in the telecom sector and oil & gas sector, while healthcare stocks witnessed selling pressure.

At the closing bell, the BSE Sensex stood higher by 33 points (up 0.1%) and the NSE Nifty closed higher by 14 points (up 0.1%). The BSE Mid Cap index ended the day up by 0.1%, while the BSE Small Cap index ended the day flat.

Asian stock markets finished on a negative note as of the most recent closing prices. The Hang Seng stood down by 1.6% and the Nikkei was trading down by 2%. The Shanghai Composite stood lower by 1.5%.

European markets were also trading on a negative note. The FTSE 100 was down by 0.9%. The DAX was down by 1.1% while the CAC 40 was down by 1%.

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The rupee was trading at 71.81 to the US$ at the time of writing.

From the energy space, Indian Oil Corporation share price was in focus today. Shares of the company witnessed buying interest after the company announced a buyback of 3.06% equity share at a price of Rs 149 per stock for a consideration not exceeding Rs 44 billion.

The buyback decision was taken by the company's board in its meeting held yesterday.

The company's board also recommended an interim dividend of 67.5% (i.e. Rs 6.75 per share) for FY19.

Speaking of buybacks, the number of buyback offers in 2017-18 were at an all-time high. Never, in the last two decades, had Indian markets seen fifty-nine companies announcing buyback plans.

But what is truly surprising is that unlike in the past, the buybacks this time seem skewed in favour of short term investors rather than long term ones.

Who Benefits from Such Buybacks?

Here's what Tanushree Banerjee, co-head of Research, wrote about it in one of the editions of The 5 Minute WrapUp...

  • Look at the history of buybacks since 2002. Logically promoters should offer to buyback shares at a premium when the stock is undervalued. And this logic held true until recently. The number of buybacks peaked when market valuations were low. And in times of peak valuations (like 2007 and 2011), promoters refrained from doing so.

    But not this time. The trend of rising buybacks in the last two years, resembles the sentiment of a momentum investor. The appetite to buy shares kept rising with the rising markets. And the latest buybacks of stocks like TCS and MOIL, came at a time, when neither the broader index (Sensex) nor the stocks themselves, are undervalued.

At Equitymaster, we believe, as a shareholder in cash rich companies, you should not only be wary of expensive buybacks. But if possible use it to your advantage to rake in some cash.

As per Rahul Shah, co-head of Research, investors should not assume buybacks are always good. Here's an excerpt of what he wrote in one of the editions of The 5 Minute Wrapup:

  • The reason behind the buyback must be investigated. At the end of the day, an increase in earnings should be more a function of the inherent robustness of the business, as that's what will help it continue to grow at a healthy pace.

The topic also brings up the question: Do buy-backs offer an arbitrage opportunity for retail investors? Ankit Shah has answered this question in one of the editions of Equitymaster Insider. You can access the issue here (requires subscription).

In the news from the macroeconomic space, according to the government data released today, Inflation based on wholesale prices (WPI) fell to a three-month low of 4.64% in November. This was seen as prices of food articles, especially vegetables, softened.

The Wholesale Price Index (WPI)-based inflation stood was 5.28% in October and 4.02% in November last year.

As per the data, food articles witnessed softening of prices with deflation at 3.31% in November, against 1.49% in October. Vegetables also became cheaper with deflation at 26.98% in November, compared to 18.65% in October.

Inflation for the fuel and power basket however continued to rule high at 16.28% on account of lowering of prices of petrol and diesel. But this was lower than 18.44% in October.

How this 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 banking space, Yes Bank share price was in focus today after a report suggested that Brahm Dutt could be a part-time Non-Executive Chairman of the lender.

Currently Brahm Dutt is serving as Independent Director of the bank since July 24, 2013.

The lender yesterday said it is on track to name new Managing Director and Chief Executive Officer within the deadline given by the Reserve Bank of India (RBI).

The bank said its nomination and remuneration Committee (N&RC) and Board of Directors have finalised the recommendation for non-executive part-time chairman position and shall be promptly seeking requisite approvals from the RBI.

It further added that the 'Search & Selection Committee' (SSE) has discussed and deliberated on the final shortlisted external and internal candidates presented by Korn Ferry post their comprehensive interviews and assessment.

The final recommendation will be submitted to the RBI by the board of directors post their next meeting scheduled on January 9, 2019.

The development comes as the lender was hit by a series of resignations lately.

The stock of the bank plunged to its lowest levels in over two years earlier this month after credit rating agencies ICRA and CARE ratings downgraded the bank's debt instruments.

ICRA downgraded domestic long-term ratings of the bank's senior debt instruments to 'ICRA AA' from 'ICRA AA+' and its subordinate debt instruments to 'ICRA AA-' from 'ICRA AA'.

Meanwhile, CARE Ratings cut domestic ratings of Yes Bank's senior debt instruments to 'CARE AA+' from 'CARE AAA' and subordinate debt instruments to 'CARE AA' from 'CARE AA+'.

Earlier last week, Moody's also downgraded the bank's foreign currency issuer rating and changed the outlook on the bank to 'negative' from 'stable'.

To know more about the company, you can access to Yes bank Q2FY19 result analysis and Yes bank Stock 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 Flat; Bharti Airtel & Yes Bank Top Gainers
12:30 pm

Share markets in India are presently trading on a flat note. Sectoral indices are trading mixed with stocks in the oil & gas sector and realty sector witnessing maximum buying interest while healthcare stocks and capital goods stocks are witnessing selling pressure.

The BSE Sensex is trading up by 35 points (up 0.1%), while the NSE Nifty is trading up by 5 points (up 0.1%). The BSE Mid Cap index is trading up by 0.4% and the BSE Small Cap index is trading up by 0.1%.

The rupee is trading at Rs 71.75 against the US$.

The central board meeting of the Reserve Bank is underway to discuss contentious issues including a new economic capital framework (ECF) for the central bank and relaxation in the prompt corrective action norms for at least some of 12 state-run banks.

This is the first board meet chaired by the newly-appointed Shaktikanta Das, who took over as the 25th governor on Wednesday.

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

In the news from the telecom sector, Bharti Airtel and Vodafone Idea are in focus today after Telecom Disputes Settlement and Appellate Tribunal (TDSAT) rejected Telecom Regulatory Authority of India's (TRAI) predatory pricing rule.

Telecom Disputes Settlement and Appellate Tribunal (TDSAT) on Thursday set aside sector regulator TRAI's rule on predatory pricing for lack of transparency in the guidelines over determining market share and rates of services.

The shares of both scripts gained up to 10% on the back of the above news.

The move came as a major relief to Bharti Airtel and Vodafone Idea which had in March challenged the amendment made by TRAI in the Telecommunication Tariff order.

In another news, Reliance communication is also in focus today after Supreme Court directed Department of Telecommunications (DoT) to issue NOC to allow company the spectrum sale within 2 days.

Earlier, Supreme Court allowed spectrum sale from Reliance Communications to Jio and directed company to furnish corporate guarantee of Rs 14 billion to DoT.

Reliance communication share price is presently trading up by 3.5%

Moving on to the news form the automobiles sector, Motherson Sumi is witnessing buying interest today as media reports suggested that the company is in talks to acquire or merge with Germany-based Leoni, the largest maker of special automotive cables globally.

Motherson Sumi, which is a joint venture (JV) between India's Samvardhana Motherson Group and Japan's Sumitomo Wiring Systems, acquired several companies in recent years, adding to its range of automotive interior products including rearview mirrors, wiring harnesses and rubber and plastic components.

The company has been scouting for a sizeable acquisition target in Europe with the help of an investment bank. Any deal with Leoni could be worth more than 1 billion euros.

The auto company most recently acquired Reydel Automotive, which manufactures door panels and cockpit modules, for about Rs $200 million to help meet its target of not having any component, customer or country contribute more than 15% to its business by 2020.

At the time of writing, Motherson Sumi share price was trading up by 4%.

To know more about the company you can read Motherson Sumi Q2FY19 result analysis and Motherson Sumi Annual Report analysis on our website.

Speaking of auto companies, 2018 hasn't been good for stalwart auto and auto ancillary companies. No wonder the BSE Auto index is down 23% this year.

Have a look at the chart below that shows how India's big auto companies have fared this year.

Are Auto Companies Running Out of Gas?

Here's what Sarvajeet wrote about the auto stocks in one of the editions of The 5 Minute WrapUp...

The biggest losers are Tata Motors (down 57%) and Motherson Sumi (down 34%).

Others like Maruti Suzuki, Hero Motocorp, Bajaj Auto have fallen between more than 20%.

So, is this a good time to buy select auto stocks?

Kunal and I at Smart Money Secrets certainly think so.

Richa Agarwal, editor of Hidden Treasure, agrees with us.

With the recent correction in the entire auto space, she initiated a coverage on engine manufacturer this month. This company enjoys the benefits of a strong brand and a supportive parent.

Also, one of Richa's earlier 'buy at lower level' recommendations has now become a 'Buy' recommendation.

As per her forecast, there is an upside potential of more than 50%.

She sent a special update in this regard. Hidden Treasure subscribers can access it here.

If you haven't signed up for Hidden Treasure, you can do so here.


Sensex Opens Flat; Consumer Durables & Metal Stocks Drag
09:30 am

Asian stock markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 1.7% while the Hang Seng is down 1.4%. The Shanghai Composite is trading down by 0.6%. Meanwhile, the S&P 500 finished little changed after a volatile session on Thursday, as investors continued to be spooked by uncertainty on both domestic and international issues.

Back home, India share markets opened on a flat note with a negative bias. The BSE Sensex is trading down by 53 points while the NSE Nifty is trading down by 10 points. The BSE Mid Cap index opened the day up by 0.2% while BSE Small Cap index opened flat.

Sectoral indices have opened the day on a mixed note with energy stocks and realty stocks witnessing maximum buying interest. While, metal stocks and consumer durables stocks have opened the day in red.

The rupee is currently trading at Rs 71.81 against the US$.

In the news from the economy. The government is considering additional capital infusion of up to Rs 300 billion in public sector banks (PSBs) as they have been unable to raise required funds from the markets.

As part of the capital infusion plan announced by the Finance Ministry in October 2017, the government envisaged that PSBs would raise Rs 580 billion from the stock markets by March 2019 to meet Basel III norms.

However, due to subdued market conditions, banks have been unable to raise enough funds from the markets so far.

In addition, non-performing assets of many banks have seen a spurt in the first two quarters of this fiscal, putting stress on their bottomlines.

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

However, the banks have got a breather in respect of Capital Conservation Buffer (CCB), a part of Basel III norms. The RBI, at its last board meeting, deferred the requirement to meet the CCB target by one year, leaving about Rs 370 billion in the hands of banks.

Despite this relaxation, PSBs need more funds to meet global capital norms called Basel III as the RBI has retained the capital to risk weighted assets ratio (CRAR) at 9%, and the shortfall could be around Rs 300 billion, the reports noted.

The government had decided to take a massive step to capitalise PSBs in a front-loaded manner, with a view to support credit growth. This entailed mobilisation of capital to the tune of about Rs 2,110 billion over the next two years, through budgetary provisions of Rs 181.4 billion, recapitalisation bonds of Rs 1,350 billion, and the balance through raising of capital by banks from the market while diluting government equity estimated at Rs 580 billion.

As per this plan, the remaining capital infusion is about Rs 420 billion.

Earlier this year, the government pumped in Rs 113.4 billion into five PSBs, including PNB, Allahabad Bank, Indian Overseas Bank, Andhra Bank and Corporation Bank to improve their financial health.

However, using recapitalisation bonds can only act as a short-term measure to the crisis afflicting Indian public sector banks today. Such a measure will not address the structural issue in the banking system, i.e. the poor standard of lending and poor governance system.

Recapitalisation of PSBs Over the Years

Our big picture editor, Vivek Kaul, talks about moral hazard risk arising out of recapitalization. He writes:

  • "If the government bails them around this time around, the banks know that they can count on the government bailing them out the next time around as well. And this means that they can follow fairly loose standards of lending, in order to lend money quickly."

My colleague, Ankit Shah, editor of Equitymaster Insider presents an interesting analysis of recapitalisation plan.

Here's a snippet of what he wrote:

  • "The Indian stock markets are at an all-time high. The BSE Sensex has crossed the 33,000 mark.

    Stock prices of public sector banks are up anywhere between 10% and 40%.

    I did some quick math and found that the 21 listed public sector banks have gained approximately Rs 1.1 trillion of market capitalisation in just one day.

    In other words, 50% of the recapitalisation amount of Rs 2.11 trillion has been captured by the stock market in a single trading session".

Ankit is deeply intrigued by the interplay of politics and economics, and how it impacts the stock markets. His aim is to connect the dots and offer deeper insights into the workings of the market.

I would recommend you read his entire article here. (subscription required)

Moving on to the news from pharma sector. In the latest development, Lupin announced that it has received tentative approval for its Dimethyl Fumarate Delayed Release Capsules, 120 mg and 240 mg from the United States Food and Drug Administration (FDA).

Reportedly, Lupin's Capsules, 120 mg and 240 mg is the generic version of Biogen, Inc's Tecfidera Capsules, 120 mg and 240 mg.

It is indicated for the treatment of patients with re lapsing forms of multiple sclerosis.

Tecfidera Capsules, 120 mg and 240 mg had annual sales of approximately US$3,545.4 million in the US (IQVIA MAT September 2018).

To know more about the company, you can access to Lupin's Q2FY19 result analysis and Lupin's 2017-18 Annual Report Analysis on our website.

Lupin share price opened the day down by 0.1%.

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


Meeting of PSB Chiefs with RBI Governor; Easing Trade Tensions & Top Stocks in Action Today
Pre-Open

On Thursday, Indian share markets ended higher led by gains in public sector banks and automobile stocks.

At the closing bell, the BSE Sensex ended at 35,930, up 151 points, while the Nifty index settled at 10,792, up 54 points. In the broader market, the midcap and small-cap indices outperformed their benchmark peers.

Top Stocks in Focus

Unichem Laboratories share price will be in focus today as the General Court of European Union rejected the company's appeal on court decision on breach of EU competition law, and also confirmed a fine of 14 million euros.

YES Bank share price will hog limelight today as the private lender failed to finalise the name of MD & CEO.

Tata Motors will hike prices of its passenger vehicles across models by up to Rs 40,000 from 1 January 2019, to offset the impact of rising input costs and increase in fuel prices.

Max India will reportedly sell entire 51% stake in Max Bupa Health Insurance Company to True North Managers. With this, the company will exit the health insurance business after it entered as a promoter. The stock will be in focus.

Strides Pharma Science's subsidiary, Strides Pharma Global Pte., Singapore, has received approval for Lidocaine Ointment from the United States Food & Drug Administration (USFDA). It is a generic version of Xylocaine Ointment of AstraZeneca Pharmaceuticals LP.

Meanwhile, Sun Pharmaceutical will be in focus after markets regulator said it is examining the whistleblower complaint against the company.

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

By the way, you can read our recently released Q2FY19 result analysis of the following companies: Asian Paints, TVS Motors, Wipro, Ambuja Cement, HDFC Bank, Infosys and more.

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Don't Order This from Amazon! (Last Day to Claim a Virtually Free Copy)

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Over 20,000 of our readers have had the opportunity to benefit from the secrets it reveals… lessons and strategies we've learnt from over 20 years of successful stock-picking.

And even though you can easily order a copy on Amazon (it costs Rs 1,450)… we'd rather you didn't.

Instead, we'll have a virtually free copy of the latest edition delivered to you (anywhere in India), if you want…

Just let us know you're in.

Important: We end this offer at 11:59 PM, tonight. Make sure you claim your book before that.
------------------------------

RBI Governor Meets PSB Chiefs

Shares of public sector undertaking (PSU) banks were trading higher for the third straight session on Thursday, with the Nifty PSU Bank index gaining nearly 3% ahead of Reserve Bank of India (RBI) governor Shaktikanta Das's meeting with the heads of the state-owned banks later in the day.

State Bank of India (SBI), Indian Bank, Central Bank of India, Union Bank of India, Punjab National Bank (PNB), Andhra Bank, Oriental Bank of Commerce, Bank of India, Bank of Baroda and Canara Bank were up in the range of 1% to 5%.

Hours after assuming charge as governor of the RBI on Wednesday, Shaktikanta Das spelt out his priorities, asserting that he would uphold the autonomy, credibility and integrity of the institution.

Das was named the 25th governor of the Reserve Bank of India to succeed Urjit Patel. As we all know, Urjit Patel quit abruptly on Monday amid a bitter dispute over the regulator's autonomy.

So, the big question here is, does the RBI woes end with new leader?

As per an article in The Economic Times, India can burn through as many central bankers as it wishes, but unless politicians let the Reserve Bank of India do its job, the economic setup will fall short of the nation's aspirations.

The article compares RBI with China's Central Bank. Here's an excerpt from the article:

  • Perhaps the central bank with which the RBI should be compared is the People's Bank of China. As an established democracy, India ought to have a much easier time giving its central bank independence from politics. China isn't a democracy, and yet the PBOC has developed some degree of independence on operational issues, if not on policy. The disparity is illuminating.

    Despite serious shortcomings, China's central bank is moving generally in the right direction. Can the same be said of India's?

How this pans out for the Indian economy remains to be seen.

Global Stock Market Drivers

On Thursday, Asian equity markets rallied on signs of easing Sino-US trade tensions and expectations that China will step up efforts soon to support its cooling economy.

In the currency market, sterling gave up some ground after rallying from a 20-month low after Theresa May survived a party no-confidence vote. It was last trading at US$1.2626

Market Participants expect gains in the pound will be fleeting, as May appeared no closer to getting her EU divorce agreement through parliament, raising the risk of a chaotic exit from the bloc in March.

Here are key events to watch out today:

  • The European Central Bank is expected to end asset purchases at its final policy meeting of 2018.
  • China industrial production, retail sales data for November is due today.

Oil Prices Fall

Oil prices rose on Thursday, buoyed by a draw down in US crude stockpiles and indications that China is taking concrete steps to put a trade war truce with Washington into action.

Crude oil prices have also been supported by OPEC-led supply curbs announced last week. Although gains were capped after the producer group lowered its 2019 demand forecast.

International Brent crude oil futures were at US$60.5 per barrel, up 0.5%, from their last close. US West Texas Intermediate (WTI) crude futures were at US$51.4 per barrel, up 0.4%.