Nifty has to close above 8270 for a short rally
Nifty opened shaprly lower today following a huge fall in the US markets on Friday, but managed to recover and end with a marginal loss. In Friday's closing report we mentioned that Nifty has to close above 8,280 for a short rally. S&P BSE Sensex opened at 27,136 and moved from the low of 27,105 to the high of 27,392 and closed at 27,320 (down 31 points or 0.11%). Nifty, which opened at 8,161, hit a low of 8,153 and moved up to hit a high of 8,242 and closed at 8,220 (down 5 points or 0.05%). NSE recorded a volume of 71.34 crore shares. India VIX rose 1.95% to close at 14.0200.
The government released the data on CPI inflation for November 2014 and industrial production data (IIP) for October 2014 after trading hours on Friday. The annual rate of inflation based on the combined consumer price indices (CPI) for urban and rural India eased to 4.4% in November 2014 from 5.5% in October 2014, driven by a sharp decline in inflation for food articles. The corresponding provisional inflation rates for rural areas were 4.1% and urban area also 4.7%, as against 5.5% and 5.6% for October 2014. IIP declined, at its sharpest pace in three-years, contracting 4.2% in October 2014 compared with 2.8% (revised) increase in September 2014.
Minister of State for Finance Jayant Sinha said in a written reply to a question in the Lok Sabha on Friday that as per the Action Plan of 2014-15 on disinvestment, the government intends to sell 5% stake in SAIL, 5% stake in ONGC, 10% stake in Coal India, 11.36% stake in NHPC, 5% stake in Power Finance Corporation, 5% stake in Rural Electrification Corporation, 5% stake in Container Corporation of India, 10% stake in SJVN, 10% stake in MOIL, 10% stake in Rashtriya Ispat Nigam and 10% stake in Hindustan Aeronautics Ltd during the current fiscal year. In addition, some loss-making central public sector enterprises may also be disinvested in 2014-15, Sinha said.
However, they have not yet been identified, he said.
WPI eased to 0.0% (provisionally) for the month of November, 2014, as compared to 1.77% (provisional) for the previous month and 7.52% during the corresponding month of the previous year.
Sebi might relook at the recently-introduced delisting regulations. A clause in the new delisting framework mandating participation from at least 25% of public shareholders for the success of the delisting bid has drawn criticism from the market.
MMTC (12.41%) was the top gainer in ‘A’ group on the BSE. PMC Fincorp (9.18%) was the top loser in ‘A’ group on the BSE. Jet Airways (7.19%) was among the top two losers in the group. The stock hit its 52-week high last Thursday.
HDFC (4.94%) was the top gainer in the Sensex 30 pack. HDFC Bank has said a merger with parent HDFC makes sense in the long term. There is no proposal on the table and regulatory clarity is required to make such a deal “more beneficial”.
TCS (3.78%) was the top loser among Sensex 30 stocks. In its business update for Q3 December 2014, issued after trading hours on Friday, TCS said that currency fluctuations will have a marginal positive impact on the company's earnings before interest and tax in Q3 December 2014. The target EBIT margin band for Q3 December 2014 remains unchanged. There will be adverse currency impact of 20 basis points (bps) on constant currency revenue in rupee terms in Q3 December 2014. There will be adverse currency impact of 220 bps on constant currency revenue in dollar terms in Q3 December 2014. TCS said that revenue in Q3 December 2014 is expected to be in-line with seasonal trends.
On Friday, US indices closed in the red. The US Senate on Saturday passed a $1.1 trillion spending bill that lifts the threat of a government shutdown as Congress attempts to wrap up a two-year legislative session marked by bitter partisanship and few major accomplishments. The Senate's 56-40 vote sends the measure to President Barack Obama, who is expected to sign it into law before federal spending authority expires at midnight.
A two-day meeting of Federal Open Market Committee (FOMC) to discuss monetary policy review starts tomorrow, 16 December 2014. Except for Shanghai Composite (0.52%) all the other Asian indices closed in the red. Thailand’s SET (2.41%) was the top loser.
Confidence of Japan's large manufacturers declined in the fourth quarter as a recession offset a boost from a weaker yen, underlining the economic challenges facing Prime Minister Shinzo Abe after his election win. The Tankan's big manufacturer index slipped to 12 in December from 13 in September Bank of Japan today.
European indices were trading marginally higher. US Futures were trading in the green.
The Union Cabinet has cleared changes in the Act. Union Power Minister Piyush Goyal earlier this week said the Bill would be tabled in Parliament soon
The government could meet its fiscal deficit targets by selling its Rs61,300 crore stake in ITC, L&T and Axis Bank. But these have turned out to be, by far, the government’s best investments. Shouldn’t it, following the sound investment advice, hold on to its winners and sell its losers first?
The government had planned to raise around Rs5,000 crore this fiscal year by selling stakes in companies including ITC, Larsen & Toubro and Axis Bank through the ETF route. Arvind Mayaram, former finance secretary at the finance ministry, had said that the government was considering floating an ETF to sell these shares held by SUUTI (Specified Undertaking of The Unit Trust of India). However, the government has put its plans on hold. There is a lot of criticism that the government is holding on to these shares while fiscal deficit is running high. Should it?
Well, the fact is that, the government’s accidental holdings in these companies have turned out to be outstanding investments and compared to its planned investments in public sector companies, from where it gets meagre dividends and hardly any price appreciation, except in a few glorious cases.
Smart investors have repeatedly advised traders and investors to follow a simple rule:
hold on to the winners; sell the losers. And ITC, L&T and Axis Bank are the stocks that are the big winners for the government. The big losers are in fact its shareholdings in various public sectors companies that need to be supported from time to time like Air India.
The government holds 11.27% in ITC worth Rs36,078 crore, 8.18% in L&T worth Rs11,700 crore and 11.66% in Axis Bank worth Rs13,510 crore. As on 12 December 2014, its stake in all three companies is worth approximately Rs61,300 crore. All these stakes are held indirectly by SUUTI, created in 2002 after the then UTI was wound up. In five years, the value has gained 157% or 21% annually from Rs23,850 crore as on 12 December 2009. Even over three years, the value is up 48% or 14% annually.
This is not the first time the government has planned to sell its stake in these top performers. The government has been mulling over this for the past few years. In 2011, the government had planned to pledge shareholdings of SUUTI to buy shares of state-owned companies in its attempts to meet the disinvestment target. That never happened. It finally got down selling approximately 9% in Axis Bank in March this year, bringing its holding down to 11.66%. The transaction was the first major divestment of shares held by SUUTI. If it had held on to that stake, the government would have been richer by Rs852 crore now. Then in 2014 it planned to sell its stake via the ETF route, like it did for other PSUs in March 2014. However, this too, seems to have been put off.
Ironically, the government got saddled with the shares of these professionally-run blue-chip firms while it rescued Unit Trust of India in 2002. UTI was split into UTI Mutual Fund and SUUTI, to bail out investors in Unit Scheme 1964. And now, these investments have delivered extraordinary returns.
In his maiden Budget in July, Finance Minister Arun Jaitley set a target of Rs58,425 crore to be raised through selling its stakes in state-run companies and part holdings in private companies. He would do well to sell many of hundreds of losers the in the government’s portfolio than these big winners.