The market is likely to remain bullish for the next few days
The economic reforms, which were announced on Thursday, and the strengthening rupee helped the market settle over 2.5% higher and in the green for the second day. The market is likely to remain bullish for the next few days. The National Stock Exchange (NSE) registered a volume of 68.27 crore shares and advance-decline ratio of 1023:382.
The market opened higher on support from the oil & gas sector following the Cabinet Committee on Economic Affairs approving a hike in gas prices with effect from April 2014. Support from the Asian markets which were in the positive in morning trade also boosted investor sentiment.
The Nifty opened 68 points higher at 5,750 and the Sensex started the day at 19,093, a jump of 217 points over its previous close. The opening figures on the Nifty and Sensex were their intraday lows. Gains in oil & gas stocks and the strengthening of the rupee against the dollar pushed the benchmarks higher as trade progressed.
The upmove continued in the noon session on a rally in metal, capital goods, power, PSU, banking, auto and oil & gas stocks. A positive opening of the key European markets also supported the sentiments back here.
Economic reforms announced on Thursday, the lower CAD and the strengthening rupee led the market to its high in the last half hour of trade. The Nifty rose to 5,853 and the Sensex climbed to 19,433 at their respective highs.
The market settled marginally off the highs and in the green for the second day in a row. The Nifty closed 160 points (2.81%) at 5,842 and the Sensex jumped 520 points (2.75%) to 19,396.
In line with the Sensex, the broader indices also ended higher. The BSE Mid-cap index surged 2.26% and the BSE Small-cap index climbed 1.37%.
Today’s rally saw all sectoral gauges settling in the green. The top gainers were BSE Metal (up 4.70%); BSE Power (up 4.15%); BSE Capital Goods (up 4.03%); BSE PSU (up 3.52%) and BSE Oil & Gas (up 3.37%).
Out of the 30 stocks on the Sensex, 29 stocks settled higher. The chief gainers were Jindal Steel & Power (up 7.89%); BHEL (up 6.90%); Tata Power (up 5.71%); Coal India (up 5.58%) and Sterlite Industries (up 5.23%). Hindustan Unilever (down 0.67%) was the lone loser on the index.
The top two A Group gainers on the BSE were—IFCI (up 17.79%) and Piramal Enterprises (up10.81%).
The top two A Group losers on the BSE were—Gitanjali Gems (down 9.99%) and MMTC (down 4.99%).
The top two B Group gainers on the BSE were—Simran Farms (up 20%) and Indo Borax Chemicals (up 20%)
The top two B Group losers on the BSE were—JMD Telefilms (down 19.82%) and Unisys Softwares & Holding Industries (down 19.78%).
Of the 50 stocks on the Nifty, 47 ended in the in the green. The major gainers were JSPL (up 7.40%); BHEL (up 7.33%); Reliance Infrastructure (up 6.53%); BPCL (up 6.32%) and Tata Power (up 6.20%). The losers were HCL Technologies (down 2.81%); Ranbaxy Laboratories (down 2.39%) and Hindustan Unilever (down 0.54%).
Markets across Asia settled firm on positive economic news from Japan and speculations that the US Fed will not take a decision of scaling down its bond buying programme any time soon.
The Shanghai Composite advanced 1.50%; the Hang Seng surged 1.78%; the Jakarta Composite climbed 3.06%; the KLSE Composite advanced 1.25%; the Nikkei 225 jumped 3.51%; the Straits Times gained 1.04%; the Seoul Composite surged 1.56% and the Taiwan Weighted settled 2.26% up.
At the time of writing, the key European indices pared initial gains and were in the red while the US stock futures were trading with small gains.
Back home, foreign institutional investors were net sellers of shares totalling Rs1,043.27 crore on Thursday. On the other hand, domestic institutional investors were net buyers of equities amounting to Rs358.38 crore.
Hyderabad-based Suven Life Sciences has secured two product patents, one from Japan and another from the US, corresponding to its new chemical entities (NCEs) for the treatment of neurodegenerative diseases. The patents are valid through 2028 and 2029. The stock surged 5.36% to Rs24.55 on the NSE.
State-run power producer NTPC has tied up with German entity KfW for a fixed interest term loan facility of Euro 95 million (about Rs 738 crore). The loan facility would be utilised to part-finance the capital expenditure on renovation and retrofitting of electro static precipitators at various generation stations of NTPC to reduce the fly ash emissions. The stock gained 2.67% to close at Rs144.05 on the NSE.
McNally Bharat Engineering on Friday said that it received an order worth Rs265 crore from National Buildings Construction Corporation for the construction of housing units at NTPC’s Pakri project in Hazaribag district of Jharkhand. McNally Bharat surged 5.41% to close at Rs45.75 on the NSE.
Bajaj Auto expects the Indian automotive industry to go through turbulent times in the coming year while Nomura’s outlook on the company is ‘neutral’ and believes that the stock is worth Rs1,966
Bajaj Auto, even though fundamentally strong, expects the two-wheeler industry to remain under pressure, according to Nomura Equity Research (Nomura), in its annual report analysis to clients. Even its exports have been flat, with increased sales to Africa offset by lower sales in Asia, especially in Indonesia, and the Middle-East. According to the Nomura report, “The company is not so optimistic on India’s economic growth in FY14F and believes that though growth has possibly bottomed out, incremental growth will be very modest.” The brokerage is currently ‘neutral’ on the company’s prospects in the next 12 months and believes Bajaj Auto is worth Rs1,966 per share.
Bajaj Auto’s year-on-year (y-o-y) net sales have been weak in the last three quarters, growing by a mere 2% average. According to the annual report, Bajaj Auto sold 4.24 million units versus 4.35 million units in the previous year. Yet, according to Nomura, the company expects 8%-10% volume growth in FY14. Bajaj Auto’s operating profit dipped by 2% in the latest quarter, while its three-quarter y-o-y average growth rate is just 1%. Indeed, it is a difficult environment. However, its return on net worth and return on capital employed continue to remain very high, at 39% and 43% respectively. Nomura has stated: “We note that RoEs are suppressed by increasing cash balances—core RoEs are much higher. FY13 EBITDA margin dipped by around 70 basis points (bps) due to negative operating leverage.” According to Moneylife research, Bajaj Auto’s valuation is pricey, with its market capitalisation quoting at over 15.46 times operating profit.
With a deteriorating rupee, Bajaj Auto will expect some incremental revenue from exports but also has to protect its downside. It has hedged foreign exchange contracts worth $900 million as on 31 March 2013, which translates to 60% of its revenues, according to Nomura. Nomura expects that exports to Africa will be the key to Bajaj Auto’s performance in FY14, given that much of the Western world and Asian markets are already under pressure. Africa accounts for nearly half of Bajaj Auto’s total export volumes, surprisingly with a volatile Nigeria being a key market. The report also stated: “Volumes in Asia and the Middle East region declined by 22% y-o-y in FY13 led by a sharp decline in the Sri Lanka market due to increase in import duties. Meanwhile, volumes in the Latin American market (largely Columbia) increased by 9% y-o-y helped by the launch of Pulsar 200NS and Discover 125ST.”
However, a worrying point is Bajaj Auto’s performance in Indonesia, which has taken a hit as sales volumes declined 50% to 11,000 units in FY13. The report said, “Consequently, PBT (profit before tax) loss of the subsidiary increased to Rs24 crore in FY13 from Rs12 crore in FY12.
Nomura also finds that the company’s cash flow has become a little tighter, but not anywhere near unmanageable levels. Its analysis of the company’s annual report yielded the following observations:
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Politicians and media have played a huge part in this feeling of desperation through spreading bad news and harping on it. Positive news are being shunned as it is not sexy and gets no TRPs or ads
The mood in our country is such today that most people have decided that they should be unhappy. They have been driven to this situation by politicians and the media. They have hyped bad news and have made it look like a demon. Most governments in most times work the same way that this government has worked. All governments make good, bad and terrible decisions as this government has. This does not mean that nothing good has happened or is happening.
We had seen unprecedented growth of our economy from 2004 to 2008. The setback of 2008 we thought was a blip as growth rebounded in 2009. The international situation worsened again and we have paid the price for it and have seen our growth plunge again. The government went overboard in 2008 with its stimulus package which was largely pocketed by the industry without passing on the benefits to the customers. No opposition party took to streets and protested about this. Having done this the government was slow in withdrawing this mess. The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) was unleashed and no political party really opposed it. Now the Food Security Bill also will not be seriously opposed. If it is opposed it will be for the fact that it may bring votes to the Congress! BJP has said that it would repeal FDI in retail when it comes to power. Has it said the same thing about MGNREGA and food security? Has it said that it will auction all resources? We will have to wait and see what they do if they come to power. Most likely we will hear that the circumstances have now changed and so the policies will stay. Even if the third front comes to power we are likely to hear the same thing.
The Comptroller and Auditor General of India (CAG) came out with two reports giving us potential loss figures that are frightening. But the same CAG for reasons best known to him and his team did not comment on what would be the price to the end consumer if these amounts were paid by companies to acquire these resources. Why has the CAG not commented on the potential loss to the government due to huge price difference of gas between domestic and international prices? Is the difference not a loss to the exchequer? Even in his exit interviews conducted by all channels separately no one asked him this question. The opposition parties played up the highest potential loss figures as projected by scam hungry media! The judiciary played its own part in canceling allocations and we are still nowhere near the truth about who made how much money and how. And that is the most important question really. Corruption by certain individuals is still to be proved in all scams—CWG, Adarsh, telecom, and coal and of course Railways. Attention has to be on the conviction of the culprits quickly. The media has lost interest and has moved on. The Uttarakhand tragedy is being treated as a great opportunity by the media for the past 15 days.
The government also bungled along. It took a long time to call the bluff of the TMC. It should have accepted the JPC on telecom, actually they should have initiated it. The bravado of some ministers in taking on opposition for nothing cost it dearly as parliament came to a grinding halt time and again and important legislations got relegated. This led to the feeling of policy paralysis which was caused by not only the ruling coalition but by all political parties.
The government made a spectacle of itself by having Pranabda in the finance ministry. He is no reformer. Shinde in home is another major comedy. Ashwini Kumar and Bansal fumbled. Robert Vadra harassed his own mother-in-law against the script. Mothers-in-laws are the harassers normally but I guess it does not apply to sons-in-law who are pampered even if they are as useless as Vadra.
Most Indians have to truthfully accept that their lives, in spite of all that has happened or has not happened as it should have, are today living better than they were 10 years back! This is especially true of the middle class—a class that is never satisfied and its appetite only grows as it hogs more and more.
Farmers who are willing to learn new ways are immensely better off. Minimum support price (MSP) has risen 100% and huge amount of loans are written off for them. The problem of lack of irrigation persists but the sufferers who have shown the grit have found alternatives as some stories illustrate. If the state has failed, it is because we have let it fail.
Yes things are bad. But remember we are all paying the price of what we as a nation have done wrong in the past and this price we will have to pay. The question is; are we ready to learn from these mistakes and take corrective actions? Or are we as usual going to wait for some ‘Avatar’ to descend and set things right for us?
Media has played a huge part in this feeling of desperation by mainly reporting bad news and harping on it. Calling the same idiots for discussions on prime time every day is hardly a way of finding solutions tour myriad problems. Media seems to be shunning every positive news because it is not sexy and gets no TRPs or advertising.
We as a nation have to say that yes we are going through bad times and all of us in some way or other are contributors to this. Let’s all now resolve to get out of this rut by doing sincerely and honestly what our individual jobs are before we point fingers at others.
We owe it to ourselves and this country to be positive. Our armed forces have just demonstrated this attitude. Let’s learn from them. And say, yes things are bad but we will make them better come what may!
Let’s shun prophets of doom represented by politicians of all colors and the prime-time media!
(Prof Anil Agashe teaches at Symbiosis and other management schools in Pune).