Sensex Trades Flat; PSU Stocks Lead Losses

After opening the day in green, share markets in India witnessed choppy trading activity and are presently trading flat. Sectoral indices are trading mixed with stocks in the banking sector and stocks in the PSU sector trading in red. While stocks in the FMCG sector are trading in green.

The BSE Sensex is down by 45 points (down 0.1%) and the NSE Nifty is trading down by 20 points (down 0.2%). Meanwhile, the BSE Mid Cap index is trading down by 0.2%, while the BSE Small Cap index is trading down by 0.1%. The rupee is trading at 64.89 to the US$.

In news from stocks in the FMCG sector. Fast-moving consumer goods major Hindustan Unilever (HUL) said that it will the government another tranche of goods and services tax (GST) benefits that it could not pass on to consumers.

HUL had by itself handed over to the government Rs 1.19 billion in two tranches of Rs 600 million and Rs 590 million for November and December, which is yet to be deposited in the Consumer Welfare Fund.

However, The Directorate General of Safeguards (DGS) has sought clarifications from HUL% on the methodology used to arrive at Rs 1.19 billion that the company offered to the government after it could not pass the entire benefits of GST.

Since the past two months, DGS, the investigation arm of the revenue department, has been checking to make sure companies are passing on the benefits of lower levies under the goods and services tax (GST) regime to consumers. In November, the GST Council dropped tax rates on 200 products, including chocolates, toothpaste, shampoo, washing powder and shaving creams, to 18% from 28%.

The Union Cabinet approved the setting up of the anti-profiteering authority under the GST regime in a bid to ensure that the benefit of lower rates is passed on to consumers.

Anti-profiteering measures will provide an institutional framework to ensure that the full benefits of input tax credits and reduced GST rates on goods or services flow to consumers. This institutional framework comprises the National Anti-Profiteering Authority (NAA), a Standing Committee, a Screening Committee in every state and the Directorate General of Safeguards under the Central Board of Excise and Customs (CBEC).

Crucially, the authority has been granted wide-ranging powers, including to cancel the registration of offending firms in extreme cases.

According to the rules, if the NAA confirms that there is a need to apply anti-profiteering measures, then it has the authority to order the supplier to reduce its prices or return the undue benefit availed by it along with interest to the recipient of the goods or services. If this can’t be done, then the company can be ordered to deposit the amount in the Consumer Welfare Fund.

India’s Tax Revenues to Get a GST Boost

The current GST regime has created a lot of uncertainties, at least for the time being. On the corporate earnings front, the GST implementation may impact near term earnings of the companies however, over a long run, the market expectations are that earnings would normalize. In addition, it is expected to be a big support to the depressed earnings of the organised listed Indian companies.

As we have saying, GST is a much-needed economic reform, and measures such as setting up of the NAA in order to ensure its efficacy are a step in the right direction. It should eventually expand India’s narrow tax base and increase government revenues.

That said, every coin has two sides. GST is no exception. It has had its fair share of chaos in the months immediately post its implementation from 1 July 2017. Many businesses reported depressed earnings due to the transition to GST.

Our colleague Vivek Kaul has studied the finer aspects of the GST and predicted what could go right and wrong.

Download his special report — The Good, the Sad and the Terrible (GST).

In news from the banking sector. Airtel Payments bank, run by the country’s largest telecom operator, Bharti Airtel, slashed its interest rates 175 basis points (bps) to 5.5% per annum, effective 1 March 2018.

The payments bank, first such to launch in 2017, said the management was trying to keep rates competitive and was keeping it higher than or at par with competition.

Notably, the payments bank had begun with an introductory interest rate offering of 7.25% per annum, which it now says was only an introductory offer.

Last year, the Unique Identification Authority of India (UIDAI) had temporarily barred Bharti Airtel and Airtel Payments Bank from conducting Aadhaar-based SIM verification of mobile customers using eKYC process, as well as e-KYC of payments bank clients.

Bharti Airtel was allegedly using the Aadhaar e-KYC-based SIM verification process to open payments bank accounts of its subscribers without their ‘consent’. The UIDAI also took strong objection to allegations that such payments bank accounts were being linked to receive a cooking gas subsidy.

At the time of writing, Bharti Airtel share price was trading up by 1.1%.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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Originally published at www.equitymaster.com.

Sensex Opens Firm; PNB Plunges 6% as Fraud Gets Bigger

Asian stocks are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 1.39% while the Hang Seng is down 0.10%. The Shanghai Composite is trading up by 1.13%. US stocks ended sharply higher Monday, regaining roughly half of their correction-level losses amid stabilization in Treasury rates.

Back home, India share markets opened the day on a positive note. The BSE Sensex is trading higher by 128 points while the NSE Nifty is trading higher by 32 points. The BSE Mid Cap index and BSE Small Cap index both opened the day up by 0.2% & 0.4% respectively.

Barring realty stocks & bank stocks, all sectoral indices have opened the day in green with capital goods stocks and automobile stocks witnessing maximum buying interest. The rupee is trading at 64.66 to the US$.

In the news from the IPO space. The Rs 4.6 billion initial public offering (IPO) of Jodhpur-based HG Infra Engineering Ltd witnessed an overall subscription of 11% on Monday, the first day of the share sale.

Reportedly, the portion of shares reserved for institutional investors in the HG Infra IPO had seen no subscription at all, while the portions reserved for retail investors and high net-worth individuals (HNIs) were subscribed 21% and 4%, respectively.

HG Infra's shares have been priced in a band of Rs 263-270 per share. The IPO will close on 28 February.

The initial share sale of HG Infra comprises a fresh issue of shares of Rs 3 billion and an offer for sale of 6 million shares by the promoters of the company.

At the upper end of the price band, the share sale will fetch the promoters about Rs 1.6 billion. Proceeds from the fresh issue will be used for buying equipment, repayment of debt and meeting general corporate expenses.

Meanwhile, Aster DM Healthcare Ltd. listed at a discount of 4.2% at Rs 182.1 per share on the BSE Ltd. yesterday, compared to its issue price of Rs 190 apiece. The stock fell as much as 7.1% to Rs 176.5 thereafter.

The healthcare services provider's Rs 9.8-billion initial public offering was subscribed 1.3 times on the final day of bidding. The portion reserved for qualified institutional buyers was subscribed 2.1 times the number of shares on offer, while the retail investors' portion was subscribed 1.1 times. The non-institutional portion received bids for 0.6 times the number of shares allotted.

Aster DM has 323 operating facilities in nine nations, including 19 hospitals with 4,754 beds, of which 3,584 were operational as of 30 September 2017. It's building or expanding 10 hospitals to add about 727 beds.

Speaking of IPOs, the demand for IPO's had reached sky-high levels last year.

One shall note that, 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.

To know more, download this FREE report now and discover How to Get Rich with IPOs. This guide will show you how to safely profit from the IPO rush.

Moving on to the news from banking sector. In the latest development, Punjab National Bank has revealed additional unauthorised transactions related to the scam by billionaire diamantaire Nirav Modi and his uncle and business partner, Mehul Choksi, increasing the estimated size of the fraud by US$204 million (Rs 13.22 billion).

This increase means that the total fraud now amounts to nearly US$2 billion (Rs 126.2 billion) as against the original estimated US$1,772 million (over Rs 113 billion).

Notably, the value of the additional unauthorised transactions is almost equal to PNB's entire net income of Rs 13.2 billion for fiscal year 2017.

The fresh letters of undertaking (LoUs) were understood to have been discovered after being reported by overseas bank branches, which checked their portfolio in light of the recent fraud.

In addition to the LoUs, PNB is understood to have a line of credit of close to Rs 10 billion to the Mehul Choksi/Nirav Modi groups. The total exposure of the banking sector is expected to be well in excess of Rs 200 billion.

Speaking of scandals, here's a look at the kind of price correction we have seen in the stocks of these three companies - all of them making headlines for the wrong reasons! It's quite a fall from their 52-week highs.

Scandals Have Hit This Terrible Trio Hard

PNB share price opened the day down by 6.3%.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.

Sensex Opens Marginally Down; Tata Steel Top Loser

Asian stocks rose in morning trade on Monday, after the US's S&P 500 extended its winning streak on Friday to six days. Markets in the Greater China region remain closed for the Lunar New Year holiday. Japan's Nikkei 225 rose 1.13% in early trade, while the Topix index was up 1.2%. South Korea's Kospi index gained 0.87%. US stocks too rose over the weekend.

Back home, India share markets opened the day marginally down. The BSE Sensex is trading lower by 37 points while the NSE Nifty is trading lower by 47 points. The BSE Mid Cap index and BSE Small Cap index opened the day down by 1.6% & 0.4% respectively.

All sectoral indices have opened the day in red with metal stocks and PSU stocks witnessing maximum selling pressure. The rupee is trading at 63.91 to the US$.

In the news from the steel sector. As per an article in a leading financial daily, Tata Steel has emerged a frontrunner to acquire debt-laden Bhushan Power and Steel after lenders to the company decided that they would only consider Tata Steel's offer of Rs 245 billion for further negotiations on Wednesday.

Reportedly, Tata and JSW steel were the only two bidders for the company.

Tata Steel's offer includes an upfront payment to lenders of Rs 170 billion, a cash infusion in the company of Rs 70 billion to meet working capital requirements and a payout to operational creditors as well as employees.

Further, Bhushan Power and Steel was admitted to bankruptcy court in June last year.

The unlisted Bhushan Power and Steel has a capacity to produce 3.2 million tonnes per anum of steel and also owns a 700-megawatt captive power plant.

Reportedly, Tata Steel will have to approach the anti-trust regulator Competition Commission of India (CCI) for approval post its offer being accepted by the bankruptcy court. An acquisition of both Bhushan Steel and Bhushan Power and Steel could give the company an almost 50% share of the market for flat-steel products in India.

A consortium comprising over two dozen banks are owed Rs 485.2 billion by the debt-laden Bhushan Power and Steel. Punjab National Bank leads the lenders consortium though state Bank of India has disbursed the largest proportion of loans to the company.

Meanwhile, the Reserve Bank of India (RBI) has tightened the bad debt resolution framework by scrapping numerous loan restructuring programmes. This includes the likes of strategic debt restructuring scheme (SDR), Joint Lenders' Forum (JLF), Corporate Debt Restructuring Scheme, and Scheme for Sustainable Structuring of Stressed Assets (S4A) that's prevalent among banks to restructure defaulted loans. The RBI replaced all these schemes by the Insolvency & Bankruptcy Code (IBC).

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 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.

Tata steel share price opened the day down by 2.5%.

Moving on to the news from pharma sector. As per an article in a leading financial daily, the government has ordered a Serious Fraud Investigation Office (SFIO) probe against Fortis Healthcare and Religare Enterprises. Both the companies are at the centre of a controversy involving accusations of misconduct against their promoters Malvinder and Shivinder Singh.

Reportedly, the market regulator had ordered an inquiry against it and had asked it to furnish information and documents.

One shall note that, the Singh brothers had recently quit the boards of the two companies. The move came days after the Delhi high court ruled that the Rs 35 billion arbitration award that Daiichi Sankyo won against the billionaire brothers for concealing facts about erstwhile Ranbaxy Laboratories was enforceable in India.

Nearly a decade ago, the Singhs had sold their stake in Ranbaxy to the Japanese company, which subsequently exited from the venture.

The move came amid reports that the promoters had diverted funds from Fortis, a charge that has been denied. Fortis, which runs a chain of hospitals, has not declared results as auditor Deloitte has refused to sign them amid differences over accounting issues.

Fortis Healthcare share price & Religare Enterprises share price opened the day down by 1.8% & 1.2% respectively.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.

Sensex Opens 200 Points Up; Realty & Metal Stocks Top Gainers

Asian stocks finished broadly higher today with shares in Hong Kong leading the region. The Hang Seng is up 1.97% while Japan's Nikkei 225 is up 1.09% and China's Shanghai Composite is up 0.45%. Wall Street surged on Thursday to notch its fifth straight session of gains, led by Apple and other technology stocks as investors shrugged off recent inflation worries that sent the market into a sell-off at the start of the month.

Back home, India share markets opened on a strong note. The BSE Sensex is trading higher by 206 points while the NSE Nifty is trading higher by 48 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 0.7% & 0.2% respectively.

All sectoral indices have opened the day in green with realty stocks and metal stocks witnessing maximum buying interest. The rupee is trading at 63.92 to the US$.

In the news from the economy. Robust growth in shipments of chemicals, engineering goods and petroleum products pushed India's exports by 9% to US$24.4 billion in January.

However, the gain was nullified by an even stronger growth in imports at 26% which widened trade deficit to a three-year high of US$16.3 billion. Imports in January stood at US$40.68 billion.

The last time trade deficit - the difference between imports and exports - was so high was in November 2014 when it touched US$16.9 billion. The deficit in January last year was US$9.9 billion.

Notably, exports have been on a positive trajectory since August 2016 to January 2018 with a dip of 1.1% in the month of October 2017. The cumulative value of exports for April-January 2017-18 grew 11.8% to US$247.9 billion against US$221.8 billion in the year-ago period.

Imports, on the other hand, grew 22% to US$379 billion from US$310 billion.

Moving on to the news from IPO space. The Rs 9.8 billion initial public offering (IPO) of Aster DM Healthcare Ltd witnessed an overall subscription of 1.33 times on Thursday, the last day of its share sale.

The portion of shares reserved for institutional investors in the IPO was subscribed 2.1 times, while that set aside for retail and non-institutional investors was subscribed 1.2 times and 0.6 times, respectively.

Aster DM had set a price band of Rs 180-190 per share for the IPO. The IPO comprises a fresh issue of shares of Rs 7.3 billion and an offer for sale of 13.4 million shares by promoter Union Investments Pvt. Ltd.

At the upper end of the price band, the share sale will fetch the promoters about Rs 2.6 billion. Proceeds from the fresh issue will be utilized to repay debt, purchase medical equipment and meet general corporate expenses.

Aster DM is the latest in a series of healthcare firms, including Shalby Ltd, Alkem Laboratories Ltd, Dr Lal PathLabs Ltd, Narayana Hrudayalaya Ltd, Thyrocare Ltd and Eris Lifesciences Ltd, that have tapped the capital markets.

To know our view on this IPO, you can read our IPO note on Aster DM Healthcare (requires subscription).

Also, if you want to know more about IPOs and whether they are right for you, you can download our free special report - How to Get Rich with IPOs.

If you've been tracking the demand for IPOs, you would certainly think that 2017 is the year of IPOs. For one, IPO subscriptions were at sky high levels. But if the performance of recently listed IPOs are anything to go by, they have flattered to deceive.

Of the 5 recent high profile IPOs which listed on the stock market, four have given negative returns as of yesterday's closing price.

The IPO activity in FY17 is mainly driven by Offer for Sale (OFS) rather than fresh issues. An OFS is a route through which existing promoters and private equity investors offload their stake. Here, the money from the sale goes to the selling shareholder. Whereas, in a fresh issue, the money raised goes to the company who, normally, utilizes this money to repay debt, for capital expenditure, etc.

Also, the number of Private Equity (PE) investors exiting these companies raised a red flag. These PE investors had bought a stake in the IPO recently at a fraction of the listed price. Sensing the frenzy, they were able to offload their stake with multifold returns.

The only person left high-and-dry here was the retail investor. And, this is not a recent occurrence. The IPO euphoria is something similar to what was seen in 2007-08. More than 70% of the IPOs listed in 2007 and 2008 were in the red, even today when the Sensex is at an all-time high.

Poor IPO Returns Post Listing

So, for the retail investor, it is very important to ignore the noise and focus on the fundamental and valuations on the table. And more often than not, this approach works much better than following the herd.

This article was originally published in English at www.equitymaster.com

Read the complete Indian stock market update. For the terms of use, go here.