Sensex Ends Day in Green as BJP Seen to Win Gujarat and HP Elections
Closing

After opening the day deep in red, share markets in India made a smart recovery and witnessed buying activity throughout the day to end on a positive note. Gains were seen across most sectors with stocks in the metals sector and stocks in the auto sector, leading the gains.

At the closing bell, the BSE Sensex stood higher by 139 points (up 0.4%) and the NSE Nifty closed up by 55 points (up 0.5%). The BSE Mid Cap index ended the day up by 0.8%, while the BSE Small Cap index ended the day up by 0.5%.

Asian stock markets finished in green. As of the most recent closing prices, the Hang Seng was up by 0.7% and the Shanghai Composite was flat. The Nikkei 225 was up by 1.5%. European markets too, were trading on a positive note. The FTSE 100 was up by 0.4%. The DAX was higher by 1.2% while the CAC 40 was up by 1.1%.

The rupee was trading at Rs 64.21 against the US$ in the afternoon session. Oil prices were trading at US$ 57.7 at the time of writing.

Market sentiment today was driven by the Gujarat and Himachal Pradesh (HP) elections.

At the time of writing, final voting trends showed BJP leading Gujarat polls with over 100 seats. The same is the case in HP, where BJP is leading polls with 44 seats.

This was not the case earlier today when the opposition Congress was leading the vote count, with 85 seats. At that point in time, BJP was ahead only in 79 seats.

BJP needs a total of 92 seats to retain power in Gujarat and 35 seats to retain power in HP.

There are high stakes involved as the outcome of this election would determine the direction of the country's reforms and policies in the runup to the 2019 elections.

The outcome is also important for the Indian stock markets. As Ankit writes in one his editions of Equitymaster Insider..."stock market valuations in India seem to reflect what I call the 'Modi market premium'". You can read his entire note on this topic here (requires subscription).

Moving on to news from stocks in the pharma sector. Dr Reddys lab share price closed the day up by 1% after clarifying that news reports mergers & acquisitions (M&A) activities of the company are purely speculative and it has not made any official statements related to the said matter of the company vying to buy out bankrupt Orchid Pharma.

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Dr Reddy's lab share price opened the day lower by over 1.5% amid news that the company was a Frontrunner to buy out bankrupt Orchid Pharma Ltd. as it seeks to expand their capacities.

One shall note that, a key player in injectibles and active pharmaceutical ingredients (API) in its heyday, Orchid has received interest from 7-8 companies including international private equity funds and stressed asset buyout firms.

Lakshmi Vilas Bank referred Chennai-based Orchid Pharma to the National Company Law Tribunal for defaulting on repayments to the tune of Rs 500 million.

Further, the company owes more than Rs 35 billion to a group of lenders led by the State Bank of India. It was on the Reserve Bank of India's second list of 28 defaulters that had to be referred to the NCLT before 31 December if no resolution was found by 13 December.

However, the assets of the company are good. Orchid Pharma has two API manufacturing facilities in India and three formulation manufacturing sites in India. These are all approved by the US Food & Drug Administration, the UK's Medicines and Healthcare Products Regulatory Agency and other regulators and agencies. All these demonstrate the potential of these plants, the reports noted.

The Indian pharmaceutical industry has come under a lot of regulatory pressure in the past few years.

'Safe Haven' Pharma Sector in Decline Since 2 Years

The sector has faced great volatility over the years.

We had written about the current predicament of Indian pharma companies in one of the premium editions of the 5 Minute WrapUp:

  • Over the past few years, risk in the US markets has increased. The US Food and Drug Administration has become stricter on products entering US borders. Surprise inspections have increased and companies are being issued warning letters. This has impacted the business and earnings of Indian pharma players, causing major volatility for the sector.

The list of pharma sector woes is long. So, is there light at the end of the tunnel? Girish Shetty, our research analyst thinks there is.

As per him, it doesn't make sense to paint all pharma stocks with the same brush. The leaders of the industry will certainly survive this phase. There are interesting, niche pharma stocks that are worth your attention.

Facing pricing pressures in the domestic and export markets, currency fluctuations, as well as manufacturing issues related to their plant, there is a transformation happening in the overall sector as to how business is done and will be done in the future.

And here's a note from Profit Hunter

The Nifty 50 Index traded on a volatile note on back of Gujarat and Himachal Pradesh election results. The index opened 70 points gap down and plunged to hit a low of 10,075 (-258 points) in its very first minute. But the bulls took over the charge from there and index recovered sharply to trade in the positive territory. It finally ended today's session 55 points up at 10,389.

After so much of volatility, the Nifty did not go below the 10,000 mark. The level which acted as a strong resistance on the way up is now acting as a strong support. We have mentioned this several times in the past that the 10,000 level remains a strong support for the index as per the change of polarity principle. Our rollover report published at the profit hunter pro (subscription required) also suggested that it would be difficult for the bear to push the index below the 10,000 mark.

Now the index is 100 points away from its life high. So with political event back of us, can we now see a new life-time high in the sessions to come?

Nifty 50 Index Trades Volatile
Nifty 50 Index Trades Volatile 

Sensex Nears All Time High; Metal & Auto Stocks Rise
01:30 pm

Indian share markets continue to trade on a strong note after plummeting 850 points in opening trade as the BJP headed for a victory in Gujarat to retain its nearly two-decade stranglehold over power, and also stayed on course to oust the Congress in Himachal Pradesh. Sensex inched closer to the all-time intra-day high of 33,865.95.

The BSE Sensex is trading higher by 290 points and the NSE Nifty is trading higher by 93 points. Meanwhile, the BSE Mid Cap index is trading up by 1.4% & the BSE Small Cap index is up by 0.9%. Gains are largely seen in metal stocks, auto stocks and pharma stocks. The rupee is trading at 64.09 to the US$.

In news from IPO segment, ICICI Securities, a subsidiary of private sector lender ICICI Bank, has filed draft red herring prospectus (DRHP) with the market regulator to raise an estimated Rs 30-40 billion through an Initial Public Offering (IPO).

The public offer will comprise sale of 64,428,280 equity shares, amounting to 20 percent stake, by ICICI Bank.

The company intends to use a portion of the net proceeds to achieve the benefit of listing the equity shares on the stock exchanges.

Reportedly, ICICI Bank will be diluting its stake in ICICI Securities. ICICI bank share price was trading up by 2.3% on the BSE.

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In another development, Future Supply Chain solutions share price was trading up by 3.8% from its issue price of Rs 664 per share.

The offering, which was open for subscription between December 6 and December 8, was subscribed 7.56 times. The issue price was fixed at Rs 664 per share i.e. at upper end of price band of Rs 660 - 664 apiece.

2017 will undoubtedly be considered as the year of IPOs. The IPO activity is headed for a record. They have garnered more than Rs 650 billion, surpassing the previous record of Rs 375 billion in 2010. This year, the demand has exceeded expectations.

According to an article in Business Standard, an investor who bet on the 33 IPOs of 2017 (on a weighted average basis) has seen the value of investment rise by 17%. However, compared to broad market indices, the underperformance is a bitter disappointment.

Below chart clearly shows the underperformance of IPOs.

IPOs Underperform Broad Market Indices

Interestingly, if you take the Avenue Supermarts (D-mart) and HDFC Life out of the equation from the IPOs above, the gains drop to a meager 6%. Compared to this, the Sensex has gained 27%, while the small-cap index surged more than 50%.

Moving on to news from software sector. As per a leading financial daily, Wipro has entered into a partnership with Headspin, a San Francisco-based powerful, easy-to-use mobile experience platform, to offer next-generation mobility quality engineering and testing solutions on global mobile networks.

Wipro Ventures, the strategic investment arm of Wipro that is focused on investing in early- to mid-stage startups, made an investment in Headspin in October 2017.

This partnership will leverage Headspin's network of 22,000 mobile devices deployed in carrier networks across 150 locations and Wipro's industry quality assurance capabilities to bring significant value to customers.

Wipro share price was trading up by 0.6% at the time of writing.

In news from the economy, Reserve Bank of India (RBI) Governor Urjit Patel has said that with growth picking up in the second quarter of the current financial year, the economic slowdown may have bottomed out.

He stated that the recent growth numbers may have disappointed some in the first quarter of this fiscal year, but the second quarter has recorded an uptick and the slowdown may well be bottoming out.

The RBI governor in a speech at a conference said, while structural changes, such as the introduction of the Goods and Services Tax (GST), may result in temporary disruptions, they were "efficiency augmenting" in the medium to long term. He said the current account deficit "remains within sustainable levels", and other indicators of external viability also reflected a healthy improvement.

He further said that to add one more important reform to the list, there has been substantial liberalisation of Foreign Direct Investment (FDI) policy, embraced by FDI investors with record inflows to India. He added that domestic financial markets have shown resilience and stability in spite of escalation of global geopolitical uncertainty and heightened volatility in financial markets.


Indian Indices Stage Recovery as BJP Seen Securing Fifth Term in Gujarat; Sensex Up 230 Pts
11:30 am

After witnessing a sharp correction in early trade, Indian share markets have staged a recovery and are presently trading on a positive note.

Sectoral indices are trading on a positive note with stocks in the metal sector and auto sector witnessing maximum buying interest.

The BSE Sensex is trading up 230 points (up 0.7%) and the NSE Nifty is trading up 67 points (up 0.7%). The BSE Mid Cap index is trading up by 0.9%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 64.13 to the US dollar.

Market participants are closely tracking the vote count for Gujarat and Himachal Pradesh (HP) elections.

At the time of writing, data showed BJP leading Gujarat polls with over 100 seats. The same is the case in HP, where BJP is leading polls with 44 seats.

This was not the case earlier today when the opposition Congress was leading the vote count, with 85 seats. At that point in time, BJP was ahead only in 79 seats.

BJP needs a total of 92 seats to retain power in Gujarat and 35 seats to retain power in HP.

There are high stakes involved as the outcome of this election would determine the direction of the country's reforms and policies in the runup to the 2019 elections.

The outcome is also important for the Indian stock markets. As Ankit writes in one his editions of Equitymaster Insider..."stock market valuations in India seem to reflect what I call the 'Modi market premium'". You can read his entire note on this topic here (requires subscription).

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The final vote count will be known within a few hours. We'll keep a close watch on the developments in this space and keep you updated. Stay tuned.

In the news from the macroeconomic front, India's exports rose at a faster clip in November.

As per the data released by the commerce department, exports grew 30.6% in November from a year ago.

Rising trend was also seen for imports, which rose 19.6% during the same period.

The above trend reversed the contraction in the previous month and allayed lingering concerns that the goods and services tax (GST) will dent shipments.

Note that India's goods export growth declined by -1.1% YoY in October this year to US$23 billion, the lowest pace of growth since - 6.86% in July 2016, as can be seen from the chart below:

Trade Deficit Widens, Exports Fall in October

The above decline was seen because exporters struggled with a liquidity crunch on the back of delayed refunds under the goods and services tax (GST) regime.

The fall was seen on the back of the impact of the GST on the export segment. Particularly micro, small and medium enterprises (MSMEs), were facing liquidity problems after paying GST for four months in a row without getting any refund.

While the rise in exports in November come as a welcome breather, it would be interesting to see how this trend unfolds in upcoming months.

In the news from the pharma space, as per an article in the Economic Times, audits of Indian drug manufacturing facilities by the US Food and Drug Administration (USFDA) are set to rise sharply after October's Mutual Recognition Agreement between the US regulator and eight European Union member states.

The above pact includes Sweden, Austria, Croatia, France, Italy, Malta and Spain. The agreement allows for recognition of each other's inspection outcomes and better use of expertise and resources by eliminating duplication.

Relying on inspections by EU regulators will allow USFDA to shift resources to other locations. However, the decision may benefit units with a consistently better track record with EU.

The above development adds to the existing regulations and price pressures the pharma industry has been facing from the US lately. Note that USFDA alerts on Indian pharma companies have increased over the past few years. Earlier, regulators used to visit the plants every two years. Now they come every eight months.

Increasing inspections have led to a total of 41 import alerts in the past eight years - 33 of them (80%) in just the last four years (2013-16). This clearly signifies increased USFDA scrutiny on Indian pharma firms. If that wasn't enough, increasing pricing pressure in the generics segment has dented realisations.

While short-term pain is expected, pharma companies with strong R&D capabilities and compliant plants will do well over the long term. The uncertainties make it important to be stock specific in the sector. It is important to look for companies that have the competence and staying power to overcome the challenges.


Indian Share Markets Tank; Realty & Metal Stocks Fall
09:30 am

Asian equities are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.11% while the Hang Seng is up 0.39%. The Nikkei 225 is trading up by 1.19%. Wall Street's three major indices climbed to record closing highs on Friday with broad-based gains as a long-awaited bill to cut corporate tax rates looked like it would win enough support from lawmakers to pass.

Back home, Indian share markets have opened sharply lower with the Nifty slipping below its crucial 10,150 level after the early trends from the counting of votes in Gujarat and Himachal Pradesh started pouring in. The BSE Sensex is trading lower by 649 points while the NSE Nifty is trading lower by 206 points. The BSE Mid Cap Index and BSE Small Cap index both opened the day on a flat note.

All sectoral indices fell in the opening trade with metal stocks and realty stocks witnessing maximum selling pressure. The rupee is trading at 64.09 to the US$.

Pharma stocks opened the day on a mixed note with Aarti Drugs & Divi's Lab leading the losses. As per an article in a leading financial daily, Aurobindo Pharma Ltd. and Dr Reddy's Laboratories Ltd. are emerging as the frontrunners to buy out bankrupt Orchid Pharma Ltd. as they seek to expand their capacities.

One shall note that, a key player in injectibles and active pharmaceutical ingredients (API) in its heyday, Orchid has received interest from 7-8 companies including international private equity funds and stressed asset buyout firms.

Lakshmi Vilas Bank referred Chennai-based Orchid Pharma to the National Company Law Tribunal for defaulting on repayments to the tune of Rs 500 million.

Further, the company owes more than Rs 35 billion to a group of lenders led by the State Bank of India. It was on the Reserve Bank of India's second list of 28 defaulters that had to be referred to the NCLT before 31 December if no resolution was found by 13 December.

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However, the assets of the company are good. Orchid Pharma has two API manufacturing facilities in India and three formulation manufacturing sites in India. These are all approved by the US Food & Drug Administration, the UK's Medicines and Healthcare Products Regulatory Agency and other regulators and agencies. All these demonstrate the potential of these plants, the reports noted.

Aurobindo Pharma share price & Dr. Reddy's share price opened down by 2% & 1.4% respectively.

Moving on to the news from the economy. Foreign investors are flocking to the Indian capital markets in a big way with a net inflow of more than US$ 30 billion (more than Rs 2 trillion), with equities alone getting over US$8 billion. This amount is bigger than the cumulative investment of the previous two years.

As the year draws to a close, the Indian stock market seems to have regained its status as one of the most favoured destinations for foreign portfolio investors (FPIs), as they have taken their net investment position in equities so far in 2017 to Rs 550 billion- the highest in three years after Rs 205 billion in 2016 and Rs 178 billion in 2015.

A sharper turnaround was seen in 2017 in terms of FPI inflows into debt markets where the net investments have soared to a staggering Rs 1.5 trillion, (US$ 23 billion) after a net outflow of about Rs 436 billion in 2016.

The higher inflow in 2017 compared to the previous two years could be attributed to expectation of a pickup in the domestic economic growth.

Besides, euphoric sentiment among corporates on account of improvement in 'ease of doing business' ranking coupled with government showing commitment in speeding up development and economic reforms before going for elections in 2019 bode well for foreign investors' confidence.

This year's inflow has pushed FPIs' cumulative net investment in the Indian equity market, since being allowed over two decades ago in November 1992, to Rs 8.8 trillion.

The cumulative figure for debt securities has also grown to Rs 4.2 trillion - taking the total for both debt and equities to Rs 13 trillion (US$ 252 billion).

With regard to the debt market, FPIs started the year on a negative note, but infused money in February and their bullish stance has largely continued since then.

Interestingly, Sensex has been making new highs every day. Back in March 2016, we had predicted Sensex to touch 40,000 within a 3 to 4 year timeframe. At this pace, it seems like Sensex might get there sooner rather than later.

Interestingly, among all major indices, the Indian stock markets have given the best returns in 2017.

Global Index Returns in 2017

The current run seems to extrapolate all good news into the future and expects the ride to be smooth and consistent. But, history has shown that markets rarely work that way. While valuation has reached dizzy heights, investors are hoping that earnings will eventually catch up with valuations.

With money from retail investors coming into the market at a steady pace, the general assumption amongst investors is that growth will eventually come and justify the premium valuations they've given to the markets. Perhaps investors are getting ahead of themselves.

So, should you stay away from the market? Or swim with the tide?

Here's an excerpt of what Rahul Shah, Co-head of Research, wrote in one of the edition of The 5Minute WrapUp:

  • "Indian retail investors should not blindly follow FPIs in and out of stocks. It is far better to take advantage of the volatility caused by their selling to enter good quality stocks for the long-term."

Gujarat Election Results; BHEL, Bank Stocks & Other Top Cues to Sway the Market Today
Pre-Open

Indian share markets witnessed buying momentum in today's session after exit polls predicted a BJP victory in Gujarat and Himachal Pradesh.

Incidentally, the Indian markets largely ignored the US Fed's decision to increase interest rates by 25 basis points while also increasing the growth estimate to 2.5% from the earlier projected 2.1%. A rise in the interest rates in the US typically affects foreign flows in emerging markets, including India.

At the closing bell last week, the BSE Sensex closed higher by 216 points and the NSE Nifty finished higher by 81 points. The S&P BSE Mid Cap finished up by 1% while S&P BSE Small Cap finished up by 1.4%. Gains were largely seen in metal sector, consumer durables sector and realty sector.

Maintaining its upbeat momentum, the rupee surged by 25 paise to hit a fresh 3-month high of 64.09 against the U.S. dollar.

Top Stocks to Watch Out

BHEL share price should be in limelight today after it was reported that the company has won a Rs 73 billion order for setting up a Supercritical Thermal Power Project (TPP) in Tamil Nadu. BHEL has an 83% share in the state's coal-based generating capacity and has been a major partner in the power development program of Tamil Nadu.

Indusind share price and Yes Bank share price should see some momentum today as the companies are being included in the benchmark with weightage of 2.6% and 1.7%, respectively, taking the weightage of private sector banks to 28.1%, an increase of 3.6%. With the exit of Cipla (0.9% weightage) and Lupin (0.6%), healthcare stands to lose the most from the reshuffle. The weightage of healthcare firms would decline 1.6% to 2.6%, the lowest in seven years.

In news from energy sector, as per an article in The Economic Times, an arbitration tribunal has rejected GAIL's claim of Rs 3.57 billion against Deepak Fertilizers and Petrochemicals Corporation Ltd for supply of domestic natural gas. Deepak Fertilisers said that as per two contracts entered into 2016 and 2010 between the two companies, the purchase of gas was contractually and clearly intended, supplied and utilised for industrial applications.

Eveready Industries share price surged 3.6% in previous trade and is also expected to see action today after the company received orders worth Rs 238.5 million for supply of ceiling fans and smart LED street lighting luminaires from Energy Efficiency Services (EESL) and Kolkata Municipal Corporation.

Jaiprakash Associates share price should see momentum today after it was reported in an economic daily that it plans to sell all its five hospitality assets under the brand Jaypee Hotels and Resorts at an estimated asking rate of Rs 25 billion. The development comes even as the Supreme Court on Friday extended the deadline for Jaiprakash Associates, the parent company of embattled Jaypee Infratech, to deposit Rs 1.25 billion more for safeguarding the interests of stressed homebuyers to January 25, 2018.

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IPO Segment

As per a leading financial daily, ICICI Securities, a subsidiary of private sector lender ICICI Bank, filed draft papers with markets regulator SEBI to raise an estimated Rs 30-40 billion through an initial public offering.

The public issue comprises sale of 64,428,280 equity shares, amounting to 20% stake, by ICICI Bank.

The objects of the offer for the company are to achieve the benefit of listing the equity shares on the stock exchanges. Further, the company expects that the listing of equity shares will enhance its visibility and brand image and provide liquidity to its existing shareholders.

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 Maruti, TCS, 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.

Bitcoin Continues to Rise

Bitcoin marked another all-time high of almost US$18,000 on the Bitstamp exchange, up 9% on the day, as caution warnings grew over the risks of investing in the highly volatile and speculative financial instrument.

The cryptocurrency's recent price rises, 1,700%+ YTD, have stirred worries that the market is a bubble that could burst in spectacular way.

Bitcoin has climbed almost 80% so far in December, putting it on track for its best month in percentage terms since December 2013.

Global Markets Remain Mixed

Asian and European share benchmarks finished on a mixed note last week as investors shrugged off upbeat data from Japan.

US markets climbed to a fresh high as investors bet that a tax-overhaul plan before Congress would pass, likely boosting profits for many U.S. companies.

For the week ahead, the main focus will be on whether the tax reform package will be wrapped up by the year's end and a longer spending package will be agreed to head off a partial government shutdown on 23 December. Investors expect the tax overhaul to add to what many already project to be a strong 2018 for stocks as an expanding economy, strong earnings and low interest rates continue to lift indexes higher.

Further, the key event that investors will be watching out will be South Africa's ruling African National Congress which is set to meet to elect a leader to replace Jacob Zuma as party president.

Oil Prices Rise on Solid Chinese Demand

Oil prices moved in previous trade, lifted by the Forties pipeline outage in the North Sea and ongoing OPEC-led production cuts, although rising output from the United States kept a lid on markets.

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.