Today's Market
By Equitymaster

Sensex Plummets 390 Points; Infosys Continues to Fall

18 August 2017 (01:30 pm)

After opening the day on a negative note, the share markets in India continued to witness selling pressure as Infosys cracked after Vishal Sikka's resignation as MD & CEO. Barring energy stocks, all sectoral indices are trading in red, with stocks in the information technology sector & healthcare sector leading the losses.

The fall in Infosys share price has led to a steep fall in the market capitalization of the company.

As of closing price on Thursday, Infosys had a market cap at Rs 2345.5 billion. Meanwhile, this figure came down to Rs 2179.5 billion.

The BSE Sensex is trading lower by 343 points (down 1.1%) while the NSE Nifty is trading lower by 91 points (down 0.9%). The BSE Mid Cap index is trading down by 0.6%, while BSE Small Cap index is trading up by 0.5%. Gold prices, per 10 grams, are trading at Rs 29,286 levels. Silver price, per kilogram is trading at Rs 39,281 levels. Crude oil is trading at Rs 3,024 per barrel. The rupee is trading at 64.24 to the US$.

Telecom stocks are trading on a mixed note with GTL and MTNL leading the losses. As per an article in a leading financial daily, the Indian telecom sector could generate 3 million jobs by 2018 on the back of rapid 4G technology deployments, rising data consumption, use of digital wallets and smartphone adoption.

Further, emerging technologies such as 5G, M2M and the evolution of information and communications technology are expected to create employment avenues for almost 0.9 million individuals by 2021.

The optimistic job assessment comes at a time when telecom companies are battling financial stress and competition has led to a free fall in tariffs, putting pressure on revenue and profitability of operators.

Meanwhile, the whole telecom business has been an underwhelming story so far. While the telecom subscriber base has increased from 300 million in 2008 to 1.2 billion in 2017, investors have little to cheer. The BSE Sensex has gone up 3.25 times in nine years, but the BSE Telecom Index has not moved an inch from its levels of 2008.

Telecom Sector: A decade of Underperformance

Telecom companies are straddled with high debt, intense competition, and lack of pricing power. High spectrum costs and regulatory issues have hampered the sector.

While consumers have benefited from low costs and new players fighting for their share, investors have suffered.

Going forward, whether the situation will change in the future will be the key thing to watch out for. In such a scenario, 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...

In another development, as per Moody's Investor Service, earnings of Indian steel companies will rise in the next 12 months riding on rising domestic demand and protectionist measures.

Reportedly, healthy GDP rate of growth of 7.5% to 7.8% in 2017 and 2018, coupled with government's fiscal stimulus and rising infrastructure spends will underpin the demand.

One must note that, this expectation comes despite an increase in raw material prices and higher production volumes arising from new capacity additions.

Out of the two rated Indian steel companies, earnings of JSW Steel are expected to remain steady, while that of Tata Steel is set to increase significantly in the coming 12 months.

However, speaking of steel sector, as per our research analyst Sarvajeet Bodas, the bigger concern is weak consumption growth. Here's an excerpt of what he wrote:

"The consumption data over the past few months clearly show that there are no takers for domestic steel. So steel makers have been forced to export more, with overseas shipments up by 78% YoY in the fiscal till February.

We do not think the trend is sustainable. And unless domestic consumption picks up, steel producers may have to take price cuts to utilize their capacities".

Sensex Trades on a Negative Note; IT Sector Down 2.4%

18 August 2017 (11:30 am)

After opening the day on a negative note, share markets in India continued to witness losses. Sectoral indices are trading on a mixed note with stocks in the IT sector and healthcare sector witnessing maximum selling pressure. Telecom stocks are trading in the green.

The BSE Sensex is trading down 237 points (down 0.8%) and the NSE Nifty is trading down by 58 points (down 0.6%). The BSE Mid Cap index is trading flat, while the BSE Small Cap index is trading down by 0.4%. The rupee is trading at 64.09 to the US$.

Infosys share price is witnessing selling pressure today as the company's CEO and MD Vishal Sikka announced his resignation with immediate effect.

With the above development, U B Pravin Rao has been appointed Interim Chief Executive Officer and Managing Director reporting to Sikka under the overall supervision and control of the company's board.

The board of directors of Infosys have accepted the resignation and said that Sikka would continue as Executive Vice-chairman.

Has Vishal Sikka's Leadership Transformed Infy's Fate?

One shall note that Infy's fate has gone through a transformation after Vishal Sikka took over as CEO and Managing Director in August 2014.

As we wrote in one of our editions of The 5 Minute WrapUp...

When Sikka took over on 1st August 2014, there was a lot of uncertainty around the business. Many people in senior management roles did not know what the long-term strategy was. Many project managers felt stuck in their jobs. The company had lost the vibrant culture of its past. This was reflected in the deal momentum to an extent. There was a very real concern that Infosys was not able to communicate the value that it could deliver to its clients.

Things have changed significantly since then. The company has a clear (but ambitious) plan for 2020. The rough targets are: Revenues of US$ 20 billion, operating (i.e. EBIT) margin of 30% and revenue/employee of US$ 80,000.

To make this a reality, Sikka has appointed the right people in the right positions. He himself decided to reside in Palo Alto instead of Bengaluru, to be closer to Silicon Valley clients. He also decided to be personally involved in all deals of value US$ 50 million and above, as well as in all acquisitions.

At the time of writing, the stock of Infosys was trading down by 7%. Market participants are keeping tabs on the company's board meeting scheduled tomorrow to consider a share buyback.

In the news from global financial markets, the International Monetary Fund (IMF) again warned China over its ballooning debt crisis. The IMF said that China's massive debt is on a dangerous path, raising the risk of a sharp slowdown in growth.

The report by IMF stated that while China's near-term growth outlook has firmed up, it is at the cost of further large and continuous increases in private and public debt, and thus increasing downside risks in the medium term. It also warned that the country's debt load could soar from around 235% of gross domestic product (GDP) last year to more than 290% in 2022.

Note that, while the Fed's balance sheet expanded rapidly during the financial crisis, from less than US$900 billion before 2007 to US$4.5 trillion in 2014, the PBOC's balance sheet less than doubled in size during that period.

China is staring at rapid domestic credit growth. Also, as per ratings agency Moody's, China's structural reforms are not enough to arrest its rising debt.

Moody's Investors Service has downgraded China's sovereign ratings by one notch to A1. The agency expects the financial strength of the world's second-largest economy to erode in coming years as growth falters and debt continues to rise.

Many economists are also of the view that central bank stimulus measures are masking the deeper problems of industrial overcapacity and high levels of corporate debt in China.

So there remain many concerns for China.

A recent issue of Vivek Kaul's Inner Circle (requires subscription) takes a closer look at the Chinese economy and explores how America and China are on the verge of swapping their economic ideologies.

Sensex Opens in Red; Infosys Tanks as CEO Vishal Sikka Resigns

18 August 2017 (09:30 am)

Asian indices are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.2%, while the Hang Seng is down 0.7%. The Nikkei 225 is trading lower by 0.9%. US stocks closed lower over disappointing earnings from major companies. The S&P 500 closed down by 1.5%.

Back home, share markets in India have opened the day on a weak note. The BSE Sensex is trading lower by 228 points, while the NSE Nifty is trading lower by 63 points. The BSE Mid Cap and BSE Small Cap index both opened the day down by 0.6% & 0.7% respectively.

Majority of the sectoral indices have opened the day in the red with bank stocks and software stocks leading the losses. The rupee is trading at 64.12 to the US$.

Infosys share price opened the day 5.9% lower as the company's CEO and MD Vishal Sikka announced his resignation with immediate effect.

In news from the IPO space. According to a leading financial daily, HDFC Standard Life Insurance Company, or HDFC Life, is likely offload 15% of existing shares through its proposed initial public offering (IPO) in the coming months. The company is expected to file the draft red herring prospectus (DRHP) with the regulator on within the next few days. This follows soon after General Insurance Corp (GIC) and New India Assurance Co. (NIA) also filed their DHRP with the regulator last week.

HDFC Life, plans a total stake dilution of 15%. HDFC will sell 9.6% holding in the insurance firm while its partner Standard Life will sell 5.4%.

HDFC currently holds 61.5% of the issued and paid-up share capital of HDFC Life, Standard Life owns 35%, while the remaining is with employees and PremjiInvest.

HDFC Life could attract a significant valuation. Last month, HDFC Life board had approved selling up to 20% of its equity in a public offering. The insurer had earlier sought the approval of the insurance regulator IRDAI for the IPO.

Another private sector insurer, SBI Life, has already filed prospectus for an IPO.

HDFC Life is the third largest private life insurance company in the country. It has a market share of 6.8%.

By combining and compounding underwriting profits and stock returns year after year, insurance companies can produce very high returns. This is why Equitymaster Insider Ankit has been watching some of the largest insurance companies in India, particularly SBI Life and New India Assurance, which will both be listing on the exchanges soon.

IPO Market Buzzing

The IPO market has been on a firm uptrend since FY15. In FY17, the amount of money raised through 25 IPOs nearly doubled to Rs 282 billion.

IPOs are all the rage in the share markets these days. With new companies listing by the day, all with promises of superior returns.

However, we don't need thousands of IPOs to get rich. That's not how super investors make their fortunes. But a few good IPOs could certainly become the multibaggers in your portfolio in a few years.

We have reviewed each of them and have released their recommendation notes. You can check the same on their IPO page.

Download this FREE report now and discover How to Get Rich with IPOs. This guide will show you how to safely profit from the 2017 IPO rush.

Moving on to news from the pharma sector. The government has proposed to dilute the powers of the National Pharmaceutical Pricing Authority (NPPA), the body that regulates drug prices.

The government proposes to revamp the country's drug pricing regulator, allowing it to set prices of only essential medicines.

The draft pharmaceutical policy, prepared by the department of pharmaceuticals has proposed that an advisory body, members of which will include industry representatives nominated by the government, will assist the NPPA in fixing prices. And prices once fixed by the NPPA can't be revised unless directed by the government or by courts, the draft policy proposed.

One must note that the NPPA's recent decisions to cap prices of cardiac stents and knee implants have been criticized by the industry.

The current draft policy if formalized could take away the price fixing ability of the NPAA and could limit it to only essential drugs. While this would seem beneficial for the domestic pharma industry, it could encourage profiteering.

The draft policy also proposes to bring all pharma regulators under a single department.

Global Markets Amid Fed and ECB Minutes, L&T, Power Grid & IOC Among Other Top Stocks to Watch Out Today

18 August 2017 (Pre-Open)

On Thursday, Indian share markets oscillated between green and red in a broad range throughout the day and ended the session with marginal gains, with Nifty holding 9,900 mark. The BSE Sensex ended up by 4 points.

The top gainers on the Sensex were Infosys up by 4.5%, NTPC up by 4.1%, Coal India up by 3.9%, Bharti Airtel up by 1.7% and HDFC up by 0.8%.

Top Stocks in Action Today

Power Grid Corporation share price will be in focus today after it reported that the company will invest Rs 19.3 billion for power transmission related project between Western Region (Raigarh, Chhattisgarh) and Southern Region (Pugalur, Tamil Nadu) - North Trichur (Kerala).

Bharat Petroleum Corporation (BPCL) has signed a Memorandum of Understanding (MoU) with Energy Efficiency Services (EESL), under the Ministry of Power, for distribution of energy efficient appliances under the flagship UJALA scheme.

IOC share price will also hog the limelight today on the reports that it has signed a Memorandum of Understanding (MoU) with Energy Efficiency Services (EESL), under the Ministry of Power, for distribution of energy efficient appliances under the flagship UJALA scheme.

GMR Infrastructure Ltd share price will be in focus following the Supreme Court order which allows the Delhi International Airport Ltd to use the land within the airport area for commercial purposes. The order enables the company to monetise the land estimated to be about 168 acres.

Larsen & Toubro will sell its entire stake in unlisted wholly-owned subsidiary L&T Cutting Tools Ltd to IMC International Metalworking Companies BV for Rs 1.74 billion (around US$27 million). Warren Buffett-led Berkshire Hathaway Inc owns IMC International Metalworking Companies.

Global Stock Market Key Events

Global shares were mixed in narrow trading on Thursday, with European benchmarks falling back after recent gains. Japan's Nikkei 225 index slipped as the yen strengthened against the US dollar, despite the release of upbeat trade data for July.

Meanwhile, the minutes of the Fed's July meeting showed a growing worry among the policymakers about the lack of strong inflationary pressures in recent data releases. This suggests that the central bank may hold off on raising interest rates this year.

The euro dropped against its major counterparts as European shares declined after Fed minutes showed concern among policy makers about weak inflation and investors await the European Central Bank's July meeting accounts for more insights about the future of the stimulus program.

From the IPO Space

After successfully completing its initial public offer (IPO) recently, Cochin Shipyard Ltd (CSL) has lined up expansion projects worth Rs 28 billion. The IPO's proceeds will be utilised to fund these expansions.

The company has raised Rs 14.4 billion from the IPO, which has been a combination of fresh issue and offer for sale in the ratio of 2:1. The IPO was oversubscribed by over 75 times with more than Rs 1.11 trillion being raised against the offer of Rs 14.4 billion.

Meanwhile, as per the reports, SREI Equipment Finance is going to come up with an IPO. SREI Infra holds 100% of SREI Equipment Finance. The company is planning to list SREI Equipment Finance and the intent is to dilute up to 25% of capital via IPO.

IPOs are all the rage in the share markets these days. With new companies listing by the day, all with promises of superior returns.

However, we don't need thousands of IPOs to get rich. That's not how super investors make their fortunes. But a few good IPOs could certainly become the multibaggers in your portfolio in a few years.

We have reviewed each of them and have released their recommendation notes. You can check the same on their IPO page.

Download this FREE report now and discover How to Get Rich with IPOs. This guide will show you how to safely profit from the 2017 IPO rush.

From the Commodities Space
- Oil Prices Wobble

Oil futures struggled for direction on Thursday, a day after heavy selling that came on the back of data showing US oil production has jumped to an over two-year high.

The Energy Information Administration reported a rise of 79,000 barrels a day in total crude-oil production to 9.502 million barrels a day last week. The EIA, however, also said that oil inventories fell by 8.9 million barrels, more than double the decline expected by analysts.
- Gold Rises on Fed Caution

Gold rose for a second consecutive day on Thursday after Federal Reserve officials hinted that the US interest rates could rise more slowly than expected

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.

Mutual Funds Pump in Record Amount Between April-July

Mutual funds managers pumped more than Rs 300 billion in the stock markets during April-July of the current fiscal due to strong participation from retail investors.

In comparison, foreign portfolio investors (FPIs) bought equities worth 210 billion during the period under review.

Reportedly, fund managers invested a net sum of Rs 112.4 billion in stock markets in April, Rs 93.6 billion in May, Rs 91.1 billion in June and Rs 118 billion in July.

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