Asian stock markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.4% while the Hang Seng is up 0.2%. Meanwhile, the Shanghai Composite is trading down by 0.6%. US stocks rose sharply on Thursday, helped by strong quarterly results from some of the biggest US companies.
In the news from the banking sector. Axis bank reported its first ever quarterly loss on Thursday after a surge in bad loans, capping a troubled year for the country’s third-biggest private sector lender by assets.
While the bulk of India’s 9.5 trillion-rupee soured-loans as of end-2017 were with the country’s dominant state-run banks, among the private sector lenders Axis and its bigger rival ICICI Bank also account for large chunks.
Reportedly, stricter rules enforced by the Reserve Bank of India in February are set to push the industry’s non-performing loans even higher.
Axis’ net loss was 21.9 billion rupees (US$328 million) for the fiscal fourth quarter to 31 March. The results were a reflection of the bank’s desire to accelerate non-performing asset (NPA) recognition.
Axis has seen its non-performing loans jump more than eight times in the past three years to Rs 342.5 billion, or 6.8% of its loan book, at the end of March.
In the March quarter alone, it added Rs 165.4 billion in incremental bad loans, which was driven by the recent central bank rule changes.
For the March quarter, the bank’s loans grew 18%, driven by a 23% rise in loans to retail customers. Its net interest income growth was flat in the quarter, and rose 3% for the full year leading to a net interest margin of 3.4%.
With this, a loan worth over Rs 2.8 trillion, with payments outstanding for 60–90 days, carry the risk of slipping into the category of non-performing assets (NPA). This will result in a surge in NPAs and may put additional pressure on the banks to make provisions.
NPAs Set to Rise Further with New RBI Rules
The new framework specifies that banks must report defaults on a weekly basis in the case of borrowers with more than Rs 50 million in bank debt. Further, for accounts with an exposure of Rs 20 billion or more, banks will have to put a resolution plan in place within 180 days after a default has been noted. If the resolution plan is not implemented within 180 days, the account must be referred to the IBC within 15 days.
The strict timelines could mean that a larger number of accounts will go into insolvency. Haircuts that banks may need to take and the probability of liquidation in some accounts may also rise. Similarly, under the new scenario, corporate lenders, which have already been under pressure due to rising bad loans and increased provisions, could take another hit.
The new framework is expected to help with early recognition and resolution of bad loans. While this may be positive for the banking sector in the long run, in the short run, banks may come under additional pressure.
Moving on to the news from IPO space. As per an article in a leading financial daily, real estate firm Lodha Developers Ltd on Thursday filed for an initial public offering (IPO), expected to be one of the biggest stock market debuts in India this year.
The company will sell new shares worth Rs 37.5 billion (US$561.8 million) in the IPO, while its shareholders will sell up to 18 million shares, the reports noted.
Kotak Mahindra Capital, CLSA India, JM Financial and Morgan Stanley India are the global co-ordinators for the IPO.
Indian firms have raised about US$2.8 billion from IPOs so far this year, following a record of more than US$11 billion in 2017.
Kolkata-based Bandhan Bank, which debuted in the market late March, was the biggest IPO in India this year, raising as much as US$691 million.
Speaking of IPOs, the demand for IPO’s has reached sky-high levels. Avenue Supermarts was seen as the first company last year to cross the 100-time subscription mark swiftly followed by CDSL and Dixon technologies, among others.
This 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.
A merit-based selection primarily including valuation, business, and management quality is the logical way to go about investing in IPOs. 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.
You can also download our FREE report — How to Get Rich with IPOs. This guide will show you how to safely profit from the ongoing IPO rush.
Asian share markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.1% while the Hang Seng is down 0.4%. The Shanghai Composite is trading down by 1%. Wall Street’s three major indices closed lower on Thursday, with tobacco stocks leading a tumble in consumer staples while concerns about smartphone demand hurt the technology sector and rising bond yields and earnings helped financials rebound.
Back home, India share markets opened the day marginally lower. The BSE Sensex is trading down by 41 points while the NSE Nifty is trading down by 12 points. The BSE Mid Cap index and BSE Small Cap index both opened the day down by 0.3% & 0.1% respectively.
Sectoral indices have opened the day on a mixed note with IT stocks and energy stocks witnessing buying interest. While, metal stocks & bank stocks have opened the day in red. The rupee is trading at 65.78 to the US$.
In the news from the FMCG sector. As per an article in a leading financial daily, Procter & Gamble Co. (P&G) has agreed to purchase the consumer health business of the German drug maker, Merck.
Reportedly, the US$4.2 billion deal will add about US$1 billion in annual revenue, roughly 3,000 employees and more than 900 new products to P&G’s health care portfolio.
P&G’s health care brands, including Vick’s, Metamucil, Crest and Oral-B, already generate US$7.5 billion in annual sales, about 12% of P&G’s total revenue. The acquisition, expected to close in the next 14 months, will bring to P&G vitamin brands and over-the-counter remedies for muscle, joint and back pain that are now sold in 44 countries.
The acquisition is the biggest in years for P&G, which spent much of the last decade selling off under-performing brands and struggling to restore growth with those it retained.
One shall note that, it was announced hours before P&G disappointed investors with a third-quarter earnings report that declining revenue in two of its biggest categories: Shaving and baby care.
Moving on to the news from IT sector. TCS share price surged 3.4% in the opening trade after it reported a 4.5% year-on-year (yoy) rise in consolidated net profit at Rs 69 billion for the March quarter.
The IT services, consulting and business solutions firm had reported Rs 66.1 billion profit in the same quarter last year. It had reported negative profit growth in the previous three quarters of the financial year.
On a sequential basis, the IT major reported 5.7% growth in profit.
Consolidated net sales for the quarter rose 8.2% to Rs 320.8 billion compared with Rs 296.4 billion in the year-ago quarter. The company had reported a sales growth of 3.9% in October-December and 4.3% in July-September.
The board has approved a bonus issue of equity shares in 1:1 ratio. The outsourcing firm has also announced a final dividend of Rs 29 per share.
The Tata Group company said all industry verticals — with the exception of BFSI — grew above the company average, with three verticals growing in double digits. Growth was led by the energy and utilities vertical (up 33.7%), travel and hospitality (25.4%) and life sciences and healthcare (12.6%).
The software major’s total headcount stood at 3,94,998 at the end of the March quarter on a consolidated basis. The IT Services attrition rate (last 12 months) edged 0.1% lower to 11% while the total attrition rate (including BPS) fell to 11.8%.
Volume growth for the quarter stood at 2%.
The company said its operating cash flow at 121.7% of profit for the fourth quarter was its highest ever. It noted that 23.8% of its revenue came from the digital vertical, which grew 42.8% on an annual basis. Greater adoption of digital technologies by customers resulted in several large, multipractice integrated deal wins.
For the year, the company added three clients in US$100 million plus category, 13 in US$50 million slab, 17 in US$20 million and 40 in US$10 million slots.
Speaking of IT sector, during the financial year 2017–18, the BSE IT index gained over 19% during the same period. While, the BSE Sensex delivered a return of about 11%.
Now, that’s a significant outperformance. If you were holding some solid IT stocks last year, you have most likely fared better than the Sensex. But last year, the markets were not as optimistic on the sector as they are now.
Look at the chart…
How It Paid Off to Bet on the Uncertainties in the IT Sector
During the first half of 2017–18, the IT sector was among the underperformers, and it was lagging way behind the Sensex. In fact, until October 2017, the index was still hovering near levels seen in April 2017.
But once the mood of the market changed, the IT index not only recovered, but went on to outperform the Sensex.
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Stock markets in India are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the FMCG sector and realty sector witnessing maximum buying interest.
The BSE Sensex is trading up 60 points (up 0.2%) and the NSE Nifty is trading up 15 points (up 0.1%). The BSE Mid Cap index is trading up by 0.2%, while the BSE Small Cap index is trading up by 0.1%. The rupee is trading at 65.70 to the US$.
Vedanta share price and Electrosteel Steels share price are in focus today as the National Company Law Tribunal’s (NCLT) Kolkata bench approved a Rs 53 billion resolution plan for Electrosteel Steels.
The development paves the way for acquisition of Electrosteel Steels by the local unit of London-visited Vedanta Resources.
As per the news, the deal requires formal clearance from the Competition Commission of India and the Securities and Exchange Board of India, which is likely in the next couple of months.
Note the Electrosteel Steels was the first of the big defaulters to emerge from bankruptcy proceedings.
At the time of writing, Vedanta share price was trading up by 1.5%, while Electrosteel Steels share price was trading down by 5%.
In the news from currency markets, the rupee is witnessing selling pressure today and has hit a fresh 7-month low against the dollar. The rupee depreciation is seen on the back of worsening trade scenario and a fresh ripple of geopolitical tensions.
Who will feel the pain of the falling rupee?
A depreciation in rupee means importers buying goods and services at a higher rate that earlier. This doesn’t bode well for a developing economy that relies heavily on imports.
Also, India imports most of its oil requirements. A rise in the dollar leads to a consequent rise in the import bill.
On the corporate side, companies who have taken foreign loans from abroad will be impacted. The repayment obligations in terms of principal and interest will rise, leading to a dent in the cash flows and financials.
Further, companies who import a majority of their raw material requirements will get impacted provided they have not hedged their foreign currency exposure.
Looking at the brighter side, rupee depreciation brings a cheer on the exports front.
A depreciating rupee will provide a much-needed cushion to falling exports. However, a falling rupee will not be the only factor to boost exports. There are certain structural issues too; the government needs to address to get the exports back on track.
Going forward, we won’t be surprised if the rupee breaches the 70 levels. Provided the depreciation comes at a measured pace, long-term investors should not fret about the same. The RBI has enough foreign exchange reserves as a buffer to stabilize the rupee in case of a freefall.
In the news from commodity markets, crude oil is witnessing buying interest today. Gains are seen on the back of a reported fall in US crude inventories and the ongoing risk of supply disruptions.
Last week too, the commodity was headed for its biggest weekly advance in more than eight months on speculation that tensions in the Middle East may lead to supply disruptions, reinforcing a buy call on commodities by Goldman Sachs Group Inc.
The risk of conflict in Syria, as well as ongoing tensions between Saudi Arabia and Iranian-backed rebels in Yemen, has raised concerns over supply security in the energy-rich region.
While OPEC said its output last month fell to the lowest in a year, with worldwide inventories set to decline significantly later this year, the International Energy Agency (IEA) sees a second wave of shale revolution in the US.
How this pans out remains to be seen. We will keep you updated on all the developments from this space.
Note that crude oil prices have been witnessing a rising trend of late. It hit its 28-month high level in November, as can be seen from the chart below, and is trading at similar levels presently.
Fiscal revenues are at risk. Particularly if the government is forced to consider a cut in fuel excise duties due to a rally in oil prices. In recent times, a sharp jump in excise collections has helped indirect tax collections. Any risk to revenues and subsequent threat to the fiscal deficit target at 3.2% of GDP would require tighter spending cuts.
Lastly, low crude prices were a positive growth impetus through higher discretionary incomes for households and lower input costs for manufacturers and farmers. Part of this benefit is likely to be eroded as retail fuel costs rise. As for corporations, expansion in gross margins caused by falling commodity prices is also likely to wane, pressurising profitability.
Asian stock markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 1.3% while the Hang Seng is up 0.2%. However, the Shanghai Composite is trading down by 0.5%. Overnight strong corporate earnings helped US stocks closed with gains.
In news from pharma sector, the race for Fortis Healthcare Limited has intensified with the company receiving an unsolicited non-binding expression of interest from Fosun Health Holdings Limited, a wholly-owned subsidiary of Fosun International Limited.
It is a company listed on the Hong Kong Stock Exchange.
The offer comes with a proposal of primary infusion at a price up to Rs 156 a share, subject to due diligence to be completed within three weeks, up to a total investment of US$350 million (including a preliminary investment of up to Rs 1 billion).
Interestingly enough, the Fosun offer comes just a couple of day before the board of Fortis meets to decide on the bids. The board is scheduled to convene on April 19.
Reportedly, Fosun had stated in its offer letter it could immediately provide Rs 1 billion to Fortis to take care of its immediate cash needs within the next 45 days, including the option of immediately subscribing to a debt instrument.
This money could be infused provided Fortis agreed to extend a short one month of exclusivity to undertake due diligence and negotiate the deal, the reports noted.
The race for Fortis took an interesting turn when Malaysia’s IHH Healthcare Berhad offered to buy the company at Rs 160 per share. Earlier last week, Fortis received a sweetened offer from Manipal Hospitals Enterprises Pvt. Ltd. and TPG at Rs 155 per share.
Hero Enterprise Investment Office and the Burman Family Office have also made a binding offer to invest a total of Rs 12.5 billion through a preferential share allotment of at least Rs 156 a share.
Moving on to the news from the economy. As per the International Monetary Fund (IMF), India is expected to grow at 7.4% in 2018 and 7.8% in 2019, leaving its nearest rival China behind respectively at 6.6% and 6.4% in the two years.
As per the report, with growth picking up after falling sharply in the second quarter of 2017 due to “one-off factors”, India, in 2018 and 2019, would re-emerge as one of the fastest growing major economies.
The IMF, in the latest World Economic Outlook (WEO), has projected India to grow at 7.4% in 2018 and 7.8% in 2019. China is expected to grow respectively at 6.6% and 6.4% in the two years.
However, the latest IMF growth rate projection remains unchanged since the last one in October. India’s growth rate in 2016 was 7.1% as against China’s 6.7%.
China, with 6.9% growth, jumped marginally ahead of India in 2017. India’s projected growth provided some offset to China’s gradual slowdown, the IMF said.
According to the IMF, India has made progress on structural reforms in the recent past, including through the implementation of the GST, which will help reduce internal barriers to trade, increase efficiency and improve tax compliance.
While the medium-term growth outlook for India is strong, an important challenge is to enhance inclusiveness, the IMF stated.
India’s high public debt and recent failure to achieve the budget’s deficit target, calls for continued fiscal consolidation into the medium term to further strengthen fiscal policy credibility.
The main priorities for lifting constraints on job creation and ensuring that the demographic dividend is not wasted are to ease labour market rigidities, reduce infrastructure bottlenecks, and improve educational outcomes, the report stated.
Meanwhile, 2017. What a year this has been for equity investors…
The BSE Sensex is trading close to 34,000 mark. The Nifty is trading above 10,500 levels.
Who would have thought the markets would keep climbing higher?
This is despite the sluggishness in corporate earnings thanks to the lingering effects of demonetization and GST implementation. Not to mention, uncertainties from international arena such as tensions between the US and North Korea, Middle-East geopolitics, and three fed hikes in 2017 that kept the market on tenterhooks.
India was among the three emerging markets, which gained more than 35% in dollar terms. The other two are Hungary and South Korea.
India Outperforms Emerging Market Peers in 2017
So, how will 2018 turn out?
In 2018, the market would be more volatile and under pressure. Investors should brace themselves for the increasing volatility. Although, earnings are likely to recover, profit margins could get squeezed as companies face rising input cost pressures. Rising oil prices may prompt the government to abandon fiscal prudence at a time when GST collections have been lower than expected.
2018 will, therefore, be critical for Indian companies to justify their valuations with earnings growth.
If the earnings growth does not materialize, correction could be on the cards.
For information on how to pick stocks that have the potential to deliver big returns, download our special report now!
Among the top gainers in the BSE IT Index today are HEXAWARE TECHNOLOGIES (up 3.31%) and ORACLE FINANCIAL SERVICES (up 0.23%)
TECH MAHINDRA (down 0.45%) and HCL TECH. (down 0.62%) are among the top losers today.
Over the last one year, HEXAWARE TECHNOLOGIES has moved up from Rs 206 to Rs 428, registering a gain of Rs 222 (up 107.53%).
The BSE IT has moved up from 9,685 to 12,669, registering a gain of 2,984 points (up 30.29%) during the last 12 months.
The top gainers among the BSE IT Index stocks during this same period were MPHASIS LTD (up 64.18%), TECH MAHINDRA (up 57.73%) and TCS (up 36.80%).
What About the Benchmark Indices?
The BSE Sensex is at 34,505 (up 0.02%). The top gainers among the BSE Sensex stocks today are WIPRO (up 1.35%), GAIL (up 1.06%) and ITC LTD (up 0.92%). Other gainers include ADANI PORTS & SEZ (up 0.78%) and ONGC (up 0.72%). The most traded stocks in the BSE Sensex are SBI and ITC LTD.
In the meantime, NSE Nifty is at 10,579 ( up 0.07%).
Over the last 12 months, the BSE Sensex has moved up from 29,414 to 34,505, registering a gain of 5,091 points (up 16.96%).
After opening the day flat, share markets in India have continued to trade rangebound, and are trading marginally below the dotted line. Sectoral indices are trading on a mixed note with stocks in the capital goods sector and stocks in the IT sector leading the losses.
The BSE Sensex is trading down by 11 points (down 0.1%), and the NSE Nifty is trading down by 12 points (down 0.1%). Meanwhile, the BSE Mid Cap index is trading flat, while the BSE Small Cap index is trading up by 0.1%. The rupee is trading at 65.62 to the US$.
In news about the economy. The World Bank forecast a growth rate of 7.3% for India this year and 7.5% for 2019 and 2020, and noted that the country’s economy has recovered from the effects of demonetisation and the Goods and Services Tax.
The bank said that factors such as sustained recovery in private investment and private consumption will spur growth going forward.
In its report the World Bank said, India should strive to accelerate investments and exports to take advantage of the recovery in global growth.
Teething issues related to implementation of GST, which hampered operations of small and medium sized enterprises and exporters, also contributed to growth moderation.
GDP Growth Getting Back on Track
According to the World Bank, the most substantial medium-term risks are associated with private investment recovery, which continues to face several domestic impediments such as corporate debt overhang, regulatory and policy challenges, along with the risk of an imminent increase in US interest rates.If the internal bottlenecks are not alleviated, subdued private investment would put downside pressures on India’s potential growth
India’s GDP grew by 7.2% in Q3 FY18. Manufacturing grew by 8.1% for the quarter compared to 7.9% in the same quarter last year. Cement, electricity, coal, and steel, the bedrock of the economy, all witnessed robust growth.
India also surpassed China as the world’s fastest growing economy. Rest assured, we’ll keep a close eye on this trend.
Bajaj Electricals share price surged over 7% in morning trade after the company bagged orders worth Rs 35.7 billion from Madhyanchal Vidyut Vitaran Nigam Ltd (MVVNL).
The orders are for over ten rural and urban electrification projects in Uttar Pradesh.
The electrification and related work will be carried out on turnkey basis under the Saubhagya Yojna of Government of India.
Bajaj electricals added that the projects would be completed within 15 months from the date of the issue of letter of intent.
Meanwhile, the BSE FMCG Index is at 10,770 (up 0.3%).
Among the top gainers in the BSE FMCG Index today are HIND. UNILEVER (up 1.28%) and P&G HYGIENE (up 0.18%)
PIDILITE INDUSTRIES (down 0.08%)
Over the last one year, HIND. UNILEVER has moved up from Rs 913 to Rs 1,438, registering a gain of Rs 525 (up 57%).
The BSE FMCG has moved up from 9,273 to 10,770, registering a gain of 1,497 points (up 16.12%) during the last 12 months.
The top gainers among the BSE FMCG Index stocks during this same period were TATA GLOBAL BEV. (up 89.85%), UNITED SPIRITS (up 81.04%) and HIND. UNILEVER (up 57.44%).
What About the Benchmark Indices?
The BSE Sensex is at 34,398 (up 0.16%). The top gainers among the BSE Sensex stocks today are TATA STEEL (up 1.86%), M&M (up 1.53%) and HIND. UNILEVER (up 1.28%). Other gainers include NTPC (up 1.18%) and COAL INDIA (up 0.89%). The most traded stocks in the BSE Sensex are DR. REDDYS LAB and SBI.
In the meantime, NSE Nifty is at 10,558 ( up 0.09%). HINDALCO (up 2.80%) and POWER GRID (up 2.61%).
Over the last 12 months, the BSE Sensex has moved up from 29,414 to 34,398, registering a gain of 4,984 points (up 16.82%).
