Stocks
Nifty, Sensex headed higher subject to dips: Weekly Market Report
Nifty has to stay above 7,850 for the rally to continue
 
The S&P BSE Sensex closed the week that ended on 22nd August at 26,420 (up 316 points or 1.21%), while the S&P CNX Nifty ended at 7,913 (up 122 points or 1.56%). Last week we had mentioned that if the Nifty closes below 7,700 then the indices may find it difficult to rise higher.
 
Monday was the fifth day of gain for the Nifty. The trading session after the optimistic speech of the Prime Minister, which emphasised better governance, making India a manufacturing and export powerhouse, coupled with employment generation, helped boost the market sentiment. The positivity of the European indices also helped the domestic indices. European stocks rallied on expectations of easing measures by the European Central Bank (ECB). Nifty closed Monday at 7,874 (up 82.55 points or 1.06%).
Although Nifty managed closing in the positive on Tuesday, it registered lower gains. Nifty closed at 7,898 (up 23 points or 0.30%).  Positive data from the US and UK helped the positive momentum on the benchmark indices to continue.
 
US homebuilders' sentiment improved in August to its highest since January, the National Association of Home Builders said on Monday, marking a third straight monthly gain. UK inflation cooled more than forecast in July, giving the Bank of England room to keep its key interest rates at a record-low. The rate of price growth fell to 1.6% from 1.9% in June.
 
After six days of consecutive positive trading, the market closed in the negative on Wednesday. Nifty closed at 7,875 (down 22 points or 0.28%). The Bank of England, in its minutes from August's policy meeting published in London, said the policy makers were split on rate increases.
 
On Thursday, Nifty edged towards recovering the previous day's loss and managed to close higher at 7,891 (up 16 points or 0.20%). The market move was because of the news that the government was working to tighten up risk management in the banking sector and with the reports mentioning that Oil Secretary Saurabh Chandra said that the under-recoveries of oil companies will come down substantially in the current fiscal.
 
On Friday the Nifty surged near its life time high and closed at 7,913 (up 22 points or 0.28%). Market moved higher with the on-going efforts of the government to strengthen the banking sector and the positive economic data coming from the US. 
 
The draft Cabinet note which proposes to create a holding company structure for state-run banks, aimed towards meeting their long-term capital needs, has been approved by Finance Minister Arun Jaitley.
 
Fewer than expected Americans applied for unemployment benefits last week and the existing home sales rose last month to the most since September. The Markit Economics preliminary index of US manufacturing in August jumped to the highest level since April 2010.
 
For the week, among the other indices on the NSE, the top two performers were PSU Bank (7%) and Pharma (6%) while the only worst performer was FMCG (1%).
 
Out of the 27 main sectors tracked by Moneylife, top five and the bottom five sectors for this week were:
 

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Quarterly Results - June 2014: Mega-cap stocks report a 32% rise in net profits
Mega-caps companies reported a strong top-line and bottom-line growth for the June 2014 quarter and are quoting higher valuations
 
As many as 132 out of 139 mega-cap companies (market-cap above Rs10,000 crore), on Moneylife’s list of 1,294 stocks, declared a profit for the quarter ended June 2014. For the same quarter last year, just 125 companies had declared a profit. The aggregate sales of the 139 companies grew by 12% year-on-year for the quarter ended June 2014. The total operating profit grew by 22%, while the aggregate net profit grew by 32% over the same period. Among the 1,222 companies that have declared results for the June 2014 quarter, mega-caps contributed 70% to the aggregate sales and 91% to the aggregate net profit.
 
While the aggregate market-cap of the 139 mega-caps has grown by as much as 48%, helped by the stupendous rise in profits, valuations too have increased. As many as 111 companies on the list are quoting a higher valuation. The market-cap to operating profit (latest quarter annualised) ratio, of the 139 companies increased by 21% to 12.8 times, as on 18 August 2014, from 10.5 times, as on 16 August 2013.
 
As many as 91 mega-caps have reported an increase in operating profit, while 81 have reported an increase in net profit. There were seven loss making companies. These were Reliance Communications, Adani Power, Jaiprakash Associates, GMR Infrastructure, Ashok Leyland, Mangalore Refinery & Petrochemicals, and L&T Finance Holdings.
 
As many as 9 out of the 14 mega-caps that reported a loss for the June 2013 quarter, reported a profit in the latest quarter. Companies such as Indian Oil Corporation, Adani Enterprises, JSW Steel, Ranbaxy Laboratories, Piramal Enterprises were among these 9 companies. The remaining five companies which reported a loss in the latest June quarter, as well, were Reliance Communications, Adani Power, L&T Finance Holdings, Mangalore Refinery & Petrochemicals and Ashok Leyland.
 
In terms of profitability, the aggregate operating profit margin for the mega-caps increased to 15.03% for the quarter ended June 2014, up from 13.85% in the same quarter last year. Net profit margin expanded to 9.6% from 8.1% over the same period. As many as 69 mega-caps reported an increase in their operating profit margin, while 67 of these reported an increase in net profit margins.
 
As mentioned earlier, over a hundred companies or 80% of the mega-caps in the sample are quoting a higher MC-to-OP ratio. In term of price-to-earnings multiple (PE), the aggregate PE of the sample has increased to 20 times, up 11.83% as on 18 August 2014, compared to a PE of 17.9 times on 16 August 2013. Companies such as Tata Consultancy Services, Oil & Natural Gas Corporation, Reliance Industries and Infosys are all quoting a 10% higher valuation, over the same period. 

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Nifty, Sensex in overbought zone – Friday closing report
The indices may dip in the early part of the week but the trend is up
 
Yesterday we mentioned that the current upmove on the indices seems to have matured, but we still see the upmove continuing for a few more sessions. Today the market opened much higher and moved further up. After hitting the intra-day high, the indices started giving up gains, however managed to stay above yesterday's close. The positive economic data from the US helped the positive momentum on the bourses.
 
S&P BSE Sensex opened at 26,420, while CNX Nifty opened at 7,905. Sensex hit a low of 26,383 after reaching a high of 26,508 and closed at 26,420 (up 59 points or 0.23%) while Nifty moved from 7,929 to 7,900 and closed at 7,913 (up 22 points or 0.28%). The NSE recorded a volume of 80.51 crore shares. India VIX fell 0.81% to close at 13.6200.
The Reserve Bank of India (RBI) in its Annual Report for the year ended 30 June 2014, released after trading hours on Thursday, 21 August 2014, said that the acceleration in consumer price inflation (CPI) in July 2014 driven by a vegetable price spike which indicated that the upside risks to the RBI's disinflationary glide path of taking CPI inflation to 8% by January 2015, are still prevalent. To secure a sustainable growth of at least 7% over the medium term, microeconomic policies that improve activity levels and productivity will be needed so that they can work in tandem with a supportive macroeconomic regime with a reasonably positive real interest rate, low inflation, moderate CAD and low fiscal deficit, the RBI said.
 
There was also news that the Finance Minister Arun Jaitley approved a draft Cabinet note, which proposes to create a holding company structure for state-run banks towards meeting their long-term capital needs.
 
Bank stocks were in focus today with the notification from the RBI, which has tightened norms related to lending against shares. In a notification issued on Thursday, 21 August 2014, the RBI said that non-banking finance companies (NBFCs) with asset size of Rs 100 crore and above, shall maintain loan to value (LTV) ratio of 50% with regard to lending against shares. RBI further said that lending against shares by NBFCs will be restricted to Group 1 securities as collateral for loans of value more than Rs 5 lakh. The RBI also said that all NBFCs with asset size of Rs100 crore and above shall report on-line to stock exchanges, information on the shares pledged in their favour by borrowers for availing loans. Union Bank (3.71%) was among the top four gainers in the ‘A’ group on the BSE while SBI (2.26%), HDFC Bank (1.80%), Axis Bank (0.92%) were among the top six gainers in the Sensex 30 pack. HDFC (1.91%) was among the top two losers among the Sensex 30 stocks. 
 
Suzlon Energy (4.49%) was among the top two gainers in the ‘A’ group on the BSE. It was in the news for its German unit Senvion SE, supplier of offshore turbines, for being in talks with Japanese companies about forming a potential joint venture.
 
Bhushan Steel (4.97%), hit its new 52-week low, and was the top loser in the ‘A’ group on the BSE.
 
US indices closed in the positive on Thursday.
 
A report in the US yesterday showed fewer Americans than expected applied for unemployment benefits last week. Data yesterday also showed existing home sales rose last month, to the most since September, while the Conference Board's gauge of the economic outlook for the next three to six months increased 0.9%. Separately, the Markit Economics preliminary index of US manufacturing in August jumped to the highest level since April 2010.
 
Except for the Jakarta Composite (0.14%), KLSE Composite (0.20%) and Nikkei 225 (0.30%), all the other Asian indices closed in the positive. Taiwan Weighted (1.37%) was the top gainer.
 
European indices were trading in the negative while US Futures were trading marginally in the red.

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