Stocks
Nifty, Sensex in a sideways mode – Thursday closing report
We had mentioned in Wednesday’s closing report that Nifty, Sensex were turning weak. The major indices of the Indian stock markets rallied on Thursday and closed 0.50%-0.60% lower than Wednesday’s close. The trends of the major indices in the course of Thursday’s trading are given in the table below:
 
 
Broadly positive global indices and value buying, lifted the Indian equities markets on Thursday. The key domestic indices closed with gains of more than half a per cent each, as buying was witnessed in healthcare, automobile, and metal stocks. The BSE market breadth was in favour of the bulls -- with 1,807 advances and 992 declines.  On the NSE, there were 1,154 advances, 480 declines and 86 unchanged.
 
With the Union Cabinet granting approval to the merger into the State Bank of India (SBI) of its five associate banks, the public lender on Thursday said the combined entity would have lower management costs resulting in savings on operating costs. "Once merger is complete, we will be in a position to save costs of these associate banks, because the structure of the five head offices will fold into one corporate office of the SBI. The zonal offices will also get integrated into our operations," SBI Managing Director DK Khara told BTVi in an interview. "Lesser management costs of these offices will get reflected in saving operating costs of banks. CASA (Current Account, Savings Account) will go up. Lots of cost efficiency and capital efficiency will come into play. It will save costs for banks, which will save resource cost and prove advantageous," Khara said. He said that though there are no plans to shut down branches, rationalisation of branches would take place -- meaning dedicated branches for small and medium entreprise (SME) lending, servicing high net worth individuals (HNIs), among others. "It will create much more value for customers," he added. The merged entity with the one-fourth of the market share would have a balance sheet of about Rs40 lakh crore, 23,000 physical branches and 22,000 ATMs, Khara said. Post-merger, a shareholder will get 28 shares of SBI for every 10 shares of State Bank of Bikaner and Jaipur (SBBJ). The legal entity of the associate banks will cease to exist from the effective date of merger. State Bank of India shares closed at Rs270.40, up 0.65% on the BSE.
 
Automobile major Maruti Suzuki India on Wednesday launched its multi-purpose vehicle (MPV) Ertiga Limited Edition priced between Rs7.85 lakh and Rs8.10 lakh (ex-showroom, New Delhi). "The all-new features of Ertiga Limited Edition highlight the company's focus on building a customer connect through product differentiation while creating delight," RS Kalsi, Executive Director Marketing and Sales, Maruti Suzuki India, was quoted as saying in a statement. The company has sold over three lakh Ertiga MPV since its launch in 2012. Maruti Suzuki India shares closed at Rs6,027.05, up 2.84% on the BSE.
 
Continuing with the revival in exports for the fifth month in a row, Indian merchandise shipments overseas at $22.12 billion in January 2017 registered an uptick of 4.32% over the $21.20 billion exported in January 2015, official data showed on Wednesday. Imports during the month in consideration at $31.96 billion also marked an increase of 10.70% over the $28.87 billion worth of imports in January last year. Consequently, the trade deficit in January was higher at $9.84 billion, as compared to the deficit of $7.67 billion during same month of 2016. "The growth in exports is positive for USA (2.63%), EU (5.47%) and Japan (13.43%), but China has exhibited negative growth of (-1.51%) for November 2016 over the corresponding period of previous year as per latest WTO statistics," a Commerce Ministry release here said.  Cumulatively for the April-January period, exports rose marginally by 1.09% in dollar terms at $220.9 billion, as against exports of $218.5 billion over the same period last year. "Non-petroleum exports in January 2017 were valued at $19.42 billion against $19.11 billion in January 2016, an increase of 1.6%," a statement here said. Cumulative imports for April-January were worth more than $307.3 billion, which was a 5.81 per cent fall from the over $326.3 billion worth imports recorded for the same period of the previous fiscal. With global oil prices climbing back to nearly $55 a barrel, India's oil imports during January were valued at $8.14 billion, which was a massive 61.07% jump over oil imports valued at $5.05 billion in the corresponding month of 2016. Non-oil imports in January were static, increasing by 0.01% to $23.82 billion, from $23.81 billion in the same month of last year. The merchandise trade deficit cumulatively for April-January, however, declined by 19.82% to $86.39 billion, as against $107.7 billion in the same period of 2015-16. As per Reserve Bank of India data on Wednesday, services exports during December 2016 were valued at $13.80 billion, while imports stood at 8.29 billion, resulting in a positive trade balance of $5.5 billion. Export oriented companies are likely to maintain their bullish trend on the stock exchange.
 
Tata Steel workers in the UK on Wednesday voted robustly in favour of accepting steel producer's proposal on pensions, jobs, investment and production. As many as 72.1% of the members who turned out for votes from Community and 75.6% from Unite and 74% of the third union, GMB, voted for the rescue plan. "This result provides a mandate from our members to move forward in our discussions with Tata and find a sustainable solution for the British Steel Pension Scheme (BSPS)," said Roy Rickhuss, General Secretary of Community. "Steel workers have taken a tough decision and have shown they are determined to safeguard jobs and secure the long-term future of steelmaking. Nobody wanted to be in this situation, but as we have always said, it is vital that we now work together to protect the benefits already accrued and prevent the BSPS from free-falling into the PPF," he added. Tata Steel shares closed at Rs469.80, up 2.11% on the BSE.
 
The top gainers and top losers of the major indices are given in the table below:
 
 
The closing values of the major Asian indices are given in the table below:
 

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Buyback beckons Infosys to boost shareholder value: ex-CFO
With the Tata Consultancy Services board slated to consider buyback of equity at a meeting on Monday, a former chief financial officer (CFO) of Infosys has said that the Bengaluru-headquartered IT giant too needs to consider the buyback option for "enhancing shareholder value".
 
"It (buyback) is the right thing to do because the IT services industry is transforming from a growth stock to a value stock," former Infosys CFO V. Bala told BTVi in an interview.
 
He pointed out that as per industry body Nasscom figures released on Wednesday, the IT sector is poised to grow at 8.6 per cent in the current fiscal, which is the "lowest ever we have seen". 
 
"Any sensible board will look at and understand the transition to value stock and return more money to shareholders," he said. 
 
Indian IT companies in recent years have seen only single-digit growth, leading to low shareholder returns, which has provoked firms to look at the buyback option as another means of rewarding shareholders.
 
"Lots of things have changed for the industry... earlier we were growing at 40-50 per cent. When you are a growth stock, you require cash for further growth. Also, cash as a percentage of market capitalisation was very low at that point of time," the Infosys ex-CFO said. 
 
Among other IT companies, Cognizant recently announced a $3.4 million buyback, while Wipro and Accenture have conducted their own. 
 
Bala elaborated on the mechanics of this major transformation being witnessed in the IT sector.
 
"Infosys is sitting on $6 million of cash, with a market capitalisation of $32 billion, which is 20 per cent, and growth has come down to single-digit. When 25 per cent of other incomes comes from financial income, you are no longer a software stock but a financial services stock " he said.
 
"When things change, when the context changes you have to understand the transition and look to return more money to shareholders," he added. 
 
He said that both in the near- and medium-term, there is no need to keep large cash for acquisitions or strategic objectives, because the purchase of new technology is very costly. 
 
"All companies have clearly said they don't want yesterday's technology, while new technology comes at a very high price, where your ability to generate returns on top of the purchase price, your IRR (internal return of return), is very limited," Bala said.
 
According to Bala, for companies and boards, whose primay task is to increase shareholder value, buyback would be the sensible course in the current scenario.
 
"I think if you have large cash, you should return money to shareholders. It'll improve returns, improve EPS (earning per share) and generate shareholder value," he said.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
  

 

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Recent Rally May Not Be Sustainable: Report
The recent run-up in the Indian market seems very pleasing to investors. But is it sustainable? According to a report by Kotak Securites, ‘growth’ stocks continue to trade at rich multiples based on the market’s views of continued low global yields, while ‘value’ stocks have seen a large expansion in their earnings (and corresponding increase in stock prices) due to improved fundamentals over the past two years.
 
However, the Indian market’s rich multiples may not find much support from global or domestic interest rates, according to the report. The recent rally in emerging markets may have largely been driven by the weakness in the US dollar, but global economic data suggests continued economic recovery, which may result in higher global bond yields and monetary tightening by global central banks -- higher short-term policy rates and lower bond buybacks. “Global bond yields have already moved up but uncertainty about the strength of economic recovery in the US and fiscal and trade policies of the US have resulted in broadly stable rates,” says the report. 
 
The Kotak report also argues that “valuations of the Indian market appear quite full at current levels and earnings upgrades look difficult. Domestic macro factors might not see further meaningful improvement given the sharp improvement in the same over the past two years. Interest rates may have scope to fall 25-50 bps on the back of an expected decline in inflation, after declining 175 bps from a peak of 8% in early 2015 when the RBI started cutting rates in the current economic cycle. But the RBI may have limited room to cut rates as core CPI inflation continues to be fairly sticky and it would be quite difficult to bring down CPI inflation to below 4% on a sustained basis. However, an improvement in NPL cycle, finalization of GST rates and favorable monsoon forecasts may be potential positive triggers for the market.”
 
Kotak also believes that the market seems too complacent about the impact of demonetisation and the forthcoming Goods & Services Tax on discretionary consumption demand. There might be some upside risks to inflation from the conversion of large parts of the informal economy to the formal economy due to demonetisation and GST, says the report. The informal sector players may have to raise prices of their products to offset the impact of higher taxes (GST and corporate/income tax) on their overall costs, if and when they become part of the formal economy and start reporting their true incomes and paying full taxes. 
 
“The continued strong inflows into domestic equities by insurance and mutual funds and passive FPI inflows may support the market’s high valuations, even if fundamentals may be less supportive. Liquidity conditions and expectations can only result in temporary ‘mismatch’ between valuations and fundamentals,” the report forecasts. This has led to a rally in emerging markets, which might not sustain.
 
Talking of the banking sector, the report mentions that banks have largely recognised the bulk of the bad assets in the large corporate book and thus, Non-performing Loans (NPLs) may be peaking. “However, the resolution may take time given the magnitude of the problem and limited options.” Kotak believes that there are large risks to the profitability of the cement sector, given large supply-demand imbalance and the impact of demonetisation. “The larger companies continue to lose market share to their smaller but more aggressive peers, which might bring about consolidation in the industry.”
 
Finally, as regards consumer staples, “input prices have increased sharply over the past few quarters and companies have not taken commensurate price increases as yet due to weak demand conditions. A few consumer companies may get some benefits from lower taxes under GST if the GST Council classifies their products in the 18% rate category rather than the 28% one.”

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COMMENTS

Ramesh Bajaj

3 days ago

I had hoped that there would have been a uniform GST, but as events are panning out, it seems inevitable that there will be differential rates if GST. I be

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