Sensex Trades in Red; Metals Sector Leads Losses

After opening the day in red, share markets in India have continued the downtrend and are presently trading below the dotted line. Sectoral indices are trading mixed with stocks in the metals sector and stocks in the realty sector trading in red. While stocks in the IT sector are trading in green.

The BSE Sensex is down by 450 points (down 1.4%) and the NSE Nifty is trading down by 143 points (down 1.4%). Meanwhile, the BSE Mid Cap index is trading down by 1.8%, while the BSE Small Cap index is trading down by 2%. The rupee is trading at 65.13 to the US$.

In news from stocks in the IPO space. Bharat Dynamics’ IPO made a dull debut and got listed at Rs 370, a discount of over 15% to the issue price of Rs 428.

The Rs 9.6-billion initial public offering (IPO) of state-run Bharat Dynamics barely sailed through in the subscription phase, with the retail portion subscribed just 1.3 times.

Headquartered in Hyderabad, Bharat Dynamics is the sole manufacturer of Surface to Air Missiles (SAM), Torpedoes and Anti-Tank Guided Missiles (ATGM) in India. It is a public sector undertaking under the Ministry of Defence.

The company has grown its revenues and profits at a compounded annual growth rate of 130% and 5% respectively in the preceding three years. At the upper price band of Rs 428, the company is valued at 16 times it’s FY17 earnings.

It had set a price band of Rs 413 and Rs 428 and planned to raise up to Rs 9.8 billion.

We had analysed the IPO and released a recommendation note for the Bharat Dynamics IPO, you can access it here.

At the time of writing, Bharat Dynamics share price was trading up by 18% from its issue price.

IPO Subscription Times (2017)

One space which tests the investor’s contrarian philosophy is the IPO space. The demand for IPO’s has reached sky-high levels. Avenue Supermarts was the first company this year to cross the 100-time subscription mark swiftly followed by CDSL and Dixon technologies lately, with MAS Financial Services being the newest entrant to the list.

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. 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.

Moving on to news from stocks in the IT space. Infosys share price is in focus today after the IT services major disclosed additional investments.

The IT major said that it has made an additional investment of US$ 1.5 million in Waterline Data Science, a data discovery and data governance software provider firm, through the Infosys Innovation Fund.

Infosys had in 2016, picked up a stake worth US$ 4 million in the US based Waterline Data Science.

With this investment, Infosys has a minority holding not exceeding 20% of the outstanding share capital of the company, said the company in a filing to the stock exchange.

Originally incorporated in December 2013, Waterline provides data scientists and business analysts with a self-service data catalogue to help discover, understand and provision data. It also gives an automated data inventory that enables agile data governance across metadata, data quality and data lineage.

Notably, the investment was made through the Infosys Investment Fund, which is a US$ 500 million worth of fund for investments in startups that work on big data & analytics, machine intelligence and other disruptive technologies. It has so far invested in 11 such firms.

At the time of writing, Infosys share price was trading up by 0.8%.

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 Plunges as Trump Sparks Trade War Fears; Metal & Bank Stocks Fall

Asian stock markets plunged in morning trade tracking losses in the US markets after US President Donald Trump announced tariffs on Chinese goods stoking fears of a trade war. The Nikkei 225 is off 3.54% while the Hang Seng is down 2.97%. The Shanghai Composite is trading down 3.12%.

The US president instructed US Trade Representative to levy tariffs on at least US$50 billion in Chinese imports. Trump also directed Treasury Secretary to propose new investment restrictions on Chinese companies within 60 days to safeguard technologies the US views as strategic.

The US also stated that China engages in a range of violations, including policies that force American companies to transfer technology and the accessing of trade secrets through hacking.

Meanwhile, Indian share markets have opened the day deep in red. BSE Sensex is trading lower by 355 points and NSE Nifty is trading lower by 150 points. S&P BSE Mid Cap is trading lower by 1.7% and S&P BSE Small Cap is trading down by 1.8%.

Losses are largely seen in metal stocks, bank stocks and realty stocks. The rupee is trading at Rs 65.06 against the US$.

The Market cap to GDP ratio for Indian companies is close to dangerously high levels. While this is still some way off the peak of FY-08, when it had once reached close to 150, it’s relatively high.

FY17 saw this ratio reach close to 80. It is also expected to increase further given the moderate growth expectations in India’s GDP for FY18. Warren Buffett once considered this as one of the best valuation metrics to gauge the markets.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

Past history shows some correlation between the ratio and the share market. 2008 saw Sensex decline by 38%, when this ratio crossed the 100 mark. Also, the market has bounced back sharply when this ratio was low.

The basic assumption in this ratio is that whenever the GDP of the country grows, the market performance will reflect it. Also, when stocks do well, it can be extrapolated to assume the Indian economy is doing well.

In news from automobile sector, as per an article in The Livemint, Mahindra and Mahindra Ltd and Ford India Pvt. Ltd on Thursday said they have agreed to jointly develop connected vehicles, electric cars, drivetrains, compact SUVs and mid-sized SUVs.

Specifically, the two automakers will co-develop a small electric car. Reportedly, Mahindra would share its affordable EV technologies with Ford, which the American company plans to use in its small entry-level cars such as Figo and Aspire.

The report also said Mahindra was in early talks with Ford to procure a vehicle platform Ka on which the M&M aims to build an all-new electric sedan.

Aiming to leverage the benefits of Ford’s global reach and Mahindra’s scale in India, M&M will try to assess the possibility of increasing its support in global emerging markets via Ford’s manufacturing and distribution network, in addition to evaluating future mobility needs.

M&M share price opened the trading day down by 0.5%.

In another development, as per a leading financial daily, Hero MotoCorp Ltd has raised its stake in its joint venture in Colombia from the existing 51% to 68%.

Hero MotoCorp opened its fifth overseas manufacturing capacity-its first in Columbia-to cater to demand from the neighbouring Latin American countries and to set up a base for exports outside India.

The Colombia facility was the first step by the firm to expand its footprints, especially in the South and North American markets.

Reportedly, the manufacturing capacity was built over a project cost of US$70 million, of which US$38million was used in capital expenditure and the rest as working capital.

Hero Motocorp share price opened down 0.8% on the BSE.

Moving on to news from banking sector. The Central Bureau of Investigation (CBI) registered a Rs 13.94 billion bank fraud case against Hyderabad-based Totem Infrastructure Ltd on a complaint by state-run Union Bank of India.

The number of bank fraud cases has been piling up after the Reserve Bank of India (RBI) directed banks to file complaints against erring companies. The latest case comes just a day after the investigating agency filed a case of loan fraud against Kanishk Gold Pvt. Ltd on a complaint by State Bank of India (SBI).

It was alleged in the complaint by Union Bank that the company had diverted funds by opening accounts outside the consortium and through payments of wages by showing excess expenditure and inflated stocks. The entire sale proceeds were not allegedly routed through the dealing branches of consortium banks.

Meanwhile, this comes after reports of about Rs 127 billion fraud at the country’s second largest state-run lender Punjab National Bank.

Union Bank of India share price opened the trading day down by 7%.

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 Higher; ONGC & Sun Pharma Top Gainers

Asian stocks are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.38% while the Hang Seng is down 0.77%. The Shanghai Composite is trading down by 0.81%. US stocks ended slightly lower on Wednesday, with major indices giving up gains in choppy trade after the Federal Reserve raised US interest rates, while a strong gain in the energy space helped limit losses.
Back home, India share markets opened the day on a positive note. The BSE Sensex is trading higher by 75 points while the NSE Nifty is trading higher by 25 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 0.2% & 0.3% respectively.

Barring bank stocks, all sectoral indices have opened the day in green with energy stocks and consumer durables stocks witnessing maximum buying interest. The rupee is trading at 65.22 to the US$.

In the news from the pharma sector. Sun Pharmaceutical Industries Ltd. has announced its first US approval for an innovative medicine, marking a milestone in the company’s bid to diversify out of generic drugs by building a portfolio of novel ones protected by patents.

Reportedly, Sun’s drug Ilumya was approved by the US Food and Drug Administration (USFDA) to treat adults with moderate to severe cases of the skin condition plaque psoriasis, who are also candidates for systemic therapy or phototherapy.

The approval comes as Sun’s core business making copies of other companies’ medicines has been squeezed by a wave of competition in the US, putting pressure on prices for these generic drugs.
Sun has been particularly exposed because its ability to offset the price declines with new revenue has been hampered by a US sanction preventing new product launches from a key plant in India, the reports noted.
The roll out of innovative medicines has been seen not only as a new revenue stream, but one that will deteriorate less quickly because other generic firms won’t be able to copy them until the patents expire.
Sun licensed Ilumya from Merck & Co. in 2014, agreeing to fund Merck’s efforts to complete the Phase 3 trials and get it approved, and then take over the commercialization and regulatory upkeep after. Merck is eligible for milestone payments and royalties on the drug.

One shall note that, Indian pharma companies catering to the US markets are breathing a sigh of relief. After being adversely affected by import bans and the suspension of new drug approvals from manufacturing facilities in the past, there was a sharp pick-up in new drug approvals in FY17.

Generic Drug Approvals Hit The Roof

With an aim to lower the overall healthcare costs in the country, USFDA approved a record 763 generic drugs for the financial year ending 30th September.

As per Mint Analysis, Indian pharma companies received 295 approvals accounting for 40% of the overall approvals during the year. Even the total filings of abbreviated new drug applications (ANDAs) for generic drugs rose to 1,292 in FY17 from 852 in the previous year.

In such an environment, it makes sense for investors to be selective while buying stocks. Focus on value and the underlying fundamentals of the business. Then, they need not worry about the market.

So, what is key to identifying potential multibagger stocks? How does one pick them at the right time and ride them to their full potential? How many multibaggers do you really need to achieve the big riches that you desire?

Most importantly, are there any stocks right now that could turn out to be multibaggers? Click here to know everything that you need to know right now about mutlibagger stocks…

Moving on to the news from the . As per an article in a leading financial daily, JSW Steel Ltd may bid in Essar Steel auction after lenders to the bankrupt steel maker rejected the two bids that had been received and invited fresh bids for the distressed asset.

On shall note that, the committee of creditors (CoC) to Essar Steel at its meeting rejected the resolution plans submitted by steel major ArcelorMittal India and Numetal Mauritius.

Further, five firms had submitted resolution plans for Essar Steel. Apart from ArcelorMittal and Numetal, the other firms which participated in the first round of bidding were Nippon Steel, Tata Steel and Vedanta Group.

If JSW Steel enters the new round of bidding for Essar Steel, it will be the fourth distressed steel asset that the Sajjan Jindal-led company has set its eyes on since the debt resolution process under the insolvency and bankruptcy code began.

JSW Steel has partnered with at least two private equity funds, Aion Capital and Bain-Piramal fund, to bid for distressed steel assets.

Notably, JSW Steel is looking to set up a platform for acquiring distressed assets and is open to various options, including partnering with financial sponsors as it looks for inorganic growth and opportunities in the distressed assets space where a number of large steel companies are facing bankruptcy.

JSW Steel share price opened the day up by 0.2%.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!
Originally published at www.equitymaster.com.

Sensex Opens Flat; Metal & Realty Stocks Lose

Asian stocks are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.99% while the Hang Seng is down 0.84%. The Shanghai Composite is trading down by 0.32%. Overnight, the US markets closed lower as market participants positioned to US Federal Reserve policy.

Back home, India share markets opened the day on a flat note with negative bias. The BSE Sensex is trading lower by 31 points while the NSE Nifty is trading lower by 23 points. The BSE Mid Cap index and BSE Small Cap index both opened the day down by 0.6%.

Barring information technology stocks, all sectoral indices have opened the day on a negative note with metal stocks and realty stocks witnessing maximum selling pressure. The rupee is trading at 64.04 to the US$.

In the news from the IPO space. The initial public offer (IPO) of Bandhan Bank has been oversubscribed 14.6 times so far on the final day of bidding Monday.

The Rs 44.73-billion IPO has received bids for 1218.1 million equity shares against the total offer size of 83.5 million shares.

The IPO also consists of an offer for sale of up to 140.5 equity shares by IFC and up to 7.6 million equity shares by IFC FIG. The bank is aimed to raise Rs 44.13 billion — Rs 44.73 billion at a price of Rs 370–375 per share, respectively.

Meanwhile, state-owned Hindustan Aeronautics’ initial public offer was subscribed 45% on the second day of bidding on Monday.

The IPO, through which the Bengaluru-based firm aims to raise Rs 42.3 billion, received bids for 15.4 shares against the total issue size of 34.1 million shares.

The IPO is of 34.1 million shares and is scheduled to close today. The price band for the issue has been fixed at Rs 1215–1240. SBI Capital Markets and Axis Capital are managing the issue.

To know our view on the above IPOs, you can read our IPO note here.

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.

IPO Subscription Times (2017)

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.

To know more, you can download our FREE report — How to Get Rich with IPOs. This guide will show you how to safely profit from the ongoing IPO rush.

Moving on to the news from the FMCG sector. As per an article in a leading financial daily, Godrej Agrovet Ltd is planning to bid for Ruchi Soya Industries Ltd, which is undergoing bankruptcy resolution, with an eye on its palm oil business.

A bid would mark Godrej joining the race for Ruchi Soya, in which companies such as Patanjali Ayurved Ltd, ITC Ltd and Emami Ltd have evinced interest.

According to the report, the company, which is currently undergoing bankruptcy proceedings, has received as many as 26 applications from Indian and foreign conglomerates to acquire a 51% stake.
In December 2017, NCLT’s Mumbai bench admitted Ruchi Soya’s insolvency resolution process under the Insolvency and Bankruptcy Code, 2016, following petitions by Standard Chartered Bank and DBS Bank.

Ruchi Soya is among the 26 companies on the second list of bad loan accounts that the Reserve Bank of India sent to banks last year asking them to conclude a debt resolution.

Godrej Agrovet share price opened the day down by 0.6%.

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


Originally published at www.equitymaster.com.

Sensex Continues Momentum; Auto Stocks Gain

After opening the day firm, share markets in India have continued the momentum and are trading comfortably above the dotted line. Sectoral indices are trading on a mixed note with stocks in the auto sector and stocks in the IT sector leading the gains, while stocks in the metal sector are trading in red.

The BSE Sensex is trading up by 151 points (up 0.5%), and the NSE Nifty is trading, up by 40 points (up 0.4%). Meanwhile, the BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading down by 0.1%. The rupee is trading at 64.96 to the US$.

In news from the IPO space. Bandhan Bank is set to come out with its own initial public offering (IPO) by next week. The bank plans to raise over Rs 44.7 billion from its share offering beginning on 15 March 2018.

The Kolkata-based bank and its shareholders will be selling up to 119.3 million shares, or about 10% of the post-issue share capital of the bank, in a price range of Rs 370–375 each in the IPO.

The bank will sell up to 97.7 million new shares in the IPO. International Finance Corp, part of the World Bank Group, and IFC FIG will sell 21.6 million shares.

Bandhan Bank’s IPO will the largest by a local bank.

The bank is majority controlled by its holding company Bandhan Financial Holdings Ltd (BFHL) which owns 89.7% of the stake. IFC and IFC FIG together hold 4.9% stake while Caladium Investment an affiliate of Singapore’s sovereign wealth fun GIC owns 4.99% stake. The IPO will ensure that BFHL’s stake falls to 40%. RBI timeline also stipulates that the holding company’s shareholding is cut further to 20% and 15% within 10 years and 12 years respectively.

The Kolkata based Bandhan Bank along with IDFC Bank received the final nod to start banking operations by RBI in 2015. One of the conditions of the license was public listing within three year which the bank will fulfil now. It started operations on August 23, 2015 and converted its microfinance business into a bank. As of September 2017, it had 864 branches in 33 states across the country.

Poor IPO Returns Post Listing

If you’ve been tracking the demand for IPOs, you would certainly think that 2017 was 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 five recent high-profile IPOs which listed on the stock market, four have given negative returns soon after listing.

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.

But it doesn’t make sense to completely ignore this space. The IPO space has also given us names like Maruti, TCS, and Jubilant Foodworks Ltd (with returns over 4,000%, 1,000% and 500% respectively) that have created immense wealth for shareholders.

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.

That’s Ankit Shah’s approach at Equitymaster Insider. He keeps an eagle-eye on the developments in the IPO space and updates his readers on the big-ticket IPOs.

Ankit and his team of researchers constantly reference this handbook on investing in IPOs. You can download a copy for yourself. It is free. Just click here.

In news from the GST space. The Goods and Service Tax (GST) Council, is set to meet on Saturday to consider proposals to further delay rolling out the e-way bill system by about 5–6 months and levy GST on a concentrated form of alcohol.

The 26th GST Council meeting will also try to reach a consensus on simplifying tax returns.

E-way bills will automate the paperwork for goods transportation, check instances of inflating or under-reporting the value of consignments aimed at tax evasion, create an electronic trail of goods movement and generate valuable data about goods consumption pattern across the country.

The scheme, earlier proposed to be enforced from 1 February was deferred on the same day due to technical glitches. Policymakers now do not want premature roll out of the scheme risking a trade disruption.

Once implemented, e-way bill is needed for all movement of goods valued at more than Rs 50,000. within or outside a stat.

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).

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.

Indian Indices Pare Earlier Gains; Telecom and IT Stocks Witness Buying Interest

After opening the day on a positive note, stock markets in India witnessed selling pressure and are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the telecom sector and IT sector witnessing maximum buying interest.

The BSE Sensex is trading up 80 points (up 0.2%) and the NSE Nifty is trading up 25 points (up 0.3%). The BSE Mid Cap index is trading down by 0.3%, while the BSE Small Cap index is trading down by 0.6%. The rupee is trading at 64.92 to the US dollar.

Gitanjali Gems share price has continued its downtrend and is witnessing selling pressure today. Most of the losses are seen as the CBI has registered a fresh FIR against Nirav Modi in the Punjab National Bank (PNB) fraud case.

The CBI has also noted that the violation of norms for issuance of Letters of Undertaking (LoUs) to benefit Nirav Modi and his uncle Mehul Choksi had been going on since 2010.

Note that the stock of Gitanjali Gems has nosedived on several occasions since 2013, eroding market capitalisation by over 80%. Its promoter’s role in aiding Nirav Modi carry out one of the biggest frauds in the banking history has damaged the stock’s position and credibility. Reportedly, Gitanjali Gems and its two subsidiaries fraudulently acquired letters of undertaking and letters of credit worth Rs 48.9 billion issued through Punjab National Bank.

Gitanjali Gems, the Fall Guy

It has emerged that Gitanjali Gems’ receivables position has been outstanding far longer than that allowed by the RBI. Auditors have pointed out the overdue loans/debentures and overdrawn working capital limits by the company in the latest annual report. In fact, the company has said that it does not even have funds to honour debenture redemption liability of as low as Rs 14.8 m.

We had stuck our necks out, warning investors that Gitanjali Gems’ shiny exterior is a sham. Being in a working capital business of importing gold and exporting jewellery, regulatory restrictions on gold imports in FY13 pushed the company in deeper debt. But the company’s weak management, integrity, and ethics were completely unacceptable to us. Therefore, despite Gitanjali Gems attracting institutional interest during the gold rally, we had clearly asked investors to steer clear of this value-trap.

Connecting the dots in the aftermath of the fraud undoubtedly confirms that the dubious management is responsible for the company’s downfall, something we had seen coming long back. Clearly, management integrity is one aspect that shareholders cannot afford to compromise in their frenzy to ride the bull run.

In other news, as per an article in the Economic Times, the head of the International Monetary Fund (IMF) head Christine Lagarde on Wednesday warned that a trade war US President Donald Trump apparently intends to provoke with tariffs on steel and aluminium would snuff out global growth.

She noted that if international trade is called into question by these types of measures, it will be a transmission channel for a drop in growth, a drop in trade and it will be fearsome. She further added that in a trade war that will be fed by reciprocal increases of customs tariffs, no one wins.

The comments follow Donald Trump’s plan to impose across-the-board tariffs on steel and aluminum imports to which the European Union (EU) proposed to apply a retaliatory tariff of 25% on a range of goods imported from the US.

Trump proposes to slap a 25% tariff on imports of steel and a 10% tariff on imports of aluminum. The formal announcement is expected to be made this week.

As for domestic markets, the above announcement by Trump also sent Indian metal stocks in the red, with SAIL share price, NMDC share price, JSW Steel share price, and Tata Steel share price witnessing most of the selling pressure.

Note that India’s steel industry was just coming out of a rough patch. Demand was picking up. Steel prices were on the rise. Buyers were lining up to pick up stressed assets. With the expected pick up in the investment cycle, the sector was on the upswing. And steel exports were on a roll.

However, Donald Trump has now spoiled the party with his plans to impose the above tariffs. India produces a lot of both commodities but internationally, we are not a big player. The US imports only 2.4% of steel and 2% aluminium from India.

But it’s not that simple.

With the new US tariffs, major exporters like South Korea will look to sell in other countries. This would lead to a glut and as a result, lower prices across the industry.

This would mean lower revenue and profitability for Indian metal companies as well and threaten the nascent recovery in the industry. As Ankit wrote in a recent edition of the Equitymaster Insider…

If metal producers are deterred from selling their goods in the US, they will come looking for other markets to sell their produce. This is likely to create an ‘excess-supply’ situation in those markets.

What happens when there’s too much supply? Basic economics says that when supply increases more than the growth in demand, prices decline. So, Indian metal producers are likely to be faced with the possibility of lower metal prices. This will impact their revenues and profitability.

How exactly this trade war will unfold is something to watch out for. We’ll keep you updated on all the developments from this space.

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.

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Originally published at www.equitymaster.com.

Sensex Opens 250 Points Higher; Telecom Stocks Rally

Asian stock markets are in positive territory in morning trade as concerns about a global trade war eased after the White House indicated that some countries could be exempt from President Donald Trump’s planned tariffs on steel and aluminum imports. The Nikkei 225 is up 0.75% while the Hang Seng is up 1.47%. The Shanghai Composite is trading up 0.20%. Overnight, US markets closed mixed.

Meanwhile, Indian share markets have opened the day on a strong note. BSE Sensex is trading higher by 250 points and NSE Nifty is trading higher by 75 points. S&P BSE Mid Cap is trading higher by 0.7% and S&P BSE Small Cap is trading up by 0.9%.

Gains are largely seen in realty stocks, metal stocks and software stocks. The rupee is trading at Rs 64.96 against the US$.

The Market cap to GDP ratio for Indian companies is close to dangerously high levels. While this is still some way off the peak of FY-08, when it had once reached close to 150, it’s relatively high.

FY17 saw this ratio reach close to 80. It is also expected to increase further given the moderate growth expectations in India’s GDP for FY18. Warren Buffett once considered this as one of the best valuation metrics to gauge the markets.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

Past history shows some correlation between the ratio and the share market. 2008 saw Sensex decline by 38%, when this ratio crossed the 100 mark. Also, the market has bounced back sharply when this ratio was low.

The basic assumption in this ratio is that whenever the GDP of the country grows, the market performance will reflect it. Also, when stocks do well, it can be extrapolated to assume the Indian economy is doing well.

In news from steel sector, as per a leading financial daily, Tata Steel Ltd has emerged as the highest bidder to buy a controlling stake in Bhushan Steel Ltd, which is currently undergoing bankruptcy proceedings.

Reportedly, Tata Steel has offered close to Rs 348 billion as upfront payment to banks and an additional Rs 12 billion to operational creditors. In addition, Tata Steel has also offered 12% equity stake to lenders in Bhushan Steel. With this, Tata Steel has outbid rival JSW Steel Ltd.

Bhushan Steel is the largest manufacturer of auto-grade steel in India and owes close to Rs 440 billion in debt to various lenders.

The company is into manufacturing of flat products, hot rolled and cold rolled coils, besides operating a galvanised coil and sheet line. Its clients include General Motors Co., Hyundai Motors Co., Ford Motor Co., Mahindra and Mahindra Ltd and Eicher Tractors Ltd.

Tata steel share price opened the trading day up by 1.3%

Telecom stocks opened the trading day on a strong note with Idea share price and Bharti Airtel share price leading the gains.

As per a leading financial daily, the government approved a relief package for the stressed telecom sector, easing spectrum-holding caps and extending the payment period for spectrum acquired in auctions to 16 years from 10 years.

The Union Cabinet has approved two key measures in the telecom sector to facilitate investments, consolidation in the sector, and enhancing ease of doing business. These include restructuring the deferred payment liabilities of the spectrum auction of telecom service providers and revising the limit of the cap for spectrum holding for telecom service providers.

As per the reports, the government expects to receive more than Rs 744.46 billion from this move by 2034–35. Restructuring the deferred payment liability will increase the cash flow for the telecom service providers in the immediate timeframe, providing them some relief.

The cabinet approved raising the overall spectrum cap per operator in a telecom circle to 35% from the current 25%. It also scrapped a rule that restricted operators from holding more than 50% spectrum in a single band in a circle.

The earnings of telecom operators, grappling with a heavy debt load, have come under further pressure following the entry of Reliance Jio Infocomm Ltd in September 2016.

Moving on to news from airlines stocks. As per an article in The Business Standard, the Competition Commission of India (CCI) has imposed a penalty of over Rs 540 million on Jet Airways, SpiceJet and IndiGo for fixing fuel surcharge.

The penalty levied on Jet Airways is Rs 398.1 million, IndiGo was fined Rs 94.5 million and SpiceJet Rs 51 million. The CCI acted on a cartelisation complaint by Express Industry Council of India against Jet, IndiGo, SpiceJet, Air India and GoAir.

In November 2015, the CCI had imposed a penalty of Rs 1.51 billion on Jet Airways, Rs 637.4 million on IndiGo and Rs 424.8 billion on SpiceJet for cartelization. The fine corresponded to 1% of the annual revenue of the companies. This time, the penalty has been brought down as the commission has considered only the relevant turnover.

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

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