Sensex, Nifty may make another attempt at all-time high: Tuesday closing report

Only a strong close below 6,500 on the Nifty may pull it down lower

On Monday Indian financial markets were closed on account of Holi. After five consecutive days of negative opening the Sensex today opened in the positive. Both the Sensex and the Nifty immediately hit their all time highs. After a short while of trading near to the day’s high the market started falling as weaknesses in European markets and US futures started. By around the last hour of the trading session the market gave up all the intra day gain and closed almost at the same level as of Friday.


The Sensex opened at 21,850 and soon after hitting a high of 22,041 went to hit a low of 21,785 and closed at 21,833 (up 23 points or 0.10%). The Nifty opened at 6,532 and moved to hit a low of 6,498 after hitting a high of 6,575. Nifty closed at 6,517 (up 12 points or 0.19%). The NSE recorded a higher volume of 62.40 crore shares.


Among the other indices on the NSE, the top five gainers were P S U Bank (2.47%); F M C G (1.93%); M N C (1.80%); Media (1.71%) and Nifty Junior (1.55%) while the only four losers were I T (0.79%); Realty (0.62%); Auto (0.11%) and Service (0.02%).


Of the 50 stocks on the Nifty, 29 ended in the green. The top five gainers were Maruti (7.54%); Power Grid (3.56%); IndusInd Bank (3.00%); State Bank of India (2.83%) and I T C (2.78%). The top five losers were Tata Motors (2.99%); Lupin (1.65%); M & M (1.58%); Infosys (1.48%) and Wipro (1.34%).


Of the 1,549 companies on the NSE, 850 companies ended in the green, 616 companies ended in the red while 83 companies ended flat.


Goldman Sachs upgraded Indian shares to "overweight" from "marketweight" and raised its target on Nifty to 7,600, citing reduced external vulnerabilities, including a narrowing current account deficit, and potential for gains ahead of elections that conclude in May. It also recommended investors to focus on potential election beneficiaries.


US indices closed in the positive on Monday. Factory production in the US rose in February by the most in six months, indicating the industry started to recover from severe winter weather. The 0.8% gain at manufacturers followed a revised 0.9% slump in the prior month that was the biggest since May 2009, figures from the Federal Reserve showed.


Except for Jakarta Composite (down 1.45%) all the other Asian indices closed in the positive. Nikkei 225 (up 0.94%) and NZSE 50 (up 0.94%) were the top gainers.


New-home price growth in China slowed last month, led by the four Chinese cities the government defines as first tier.


European indices were trading in the green. US Futures were trading higher.


German investor confidence fell to the lowest since August as political uncertainty in Ukraine threatens to weigh on a recovery in Europe’s largest economy that may be nearing its peak.


The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, slid to 46.6 from 55.7 in February. This is the third monthly decline.


SEBI bars PG Electroplast, promoters from markets for 10 years

SEBI barred four promoters of the PG Electroplast for diverting funds, manipulative activities and trading in its own shares during IPO in 2011

Market regulator the Securities and Exchange Board of India (SEBI) has barred PG Electroplast and its four promoters from markets for 10 years for manipulation of funds raised from the company’s initial public offering (IPO).

In its probe, SEBI found PG Electroplast and its four promoters, Promod Gupta, Anurag Gupta, Vishal Gupta and Vikas Gupta allegedly diverting funds and indulging in manipulative activities during its IPO in 2011.

SEBI order also reveals that PG Electroplast’s share prices have been fluctuated by diverting funds and indulging in manipulative activities during days of IPO in 2011. It came up with an IPO of 57.45 lakh shares at Rs210 per share, which opened on 7 September 2011 and closed on 12 September 2011.

According to SEBI, PG Electroplast suppressed material facts in its IPO prospectus as well as siphoning off and diverting the proceeds for the purpose of purchasing its own shares. It has failed to disclose information in the prospectus regarding funds raised through Inter corporate Deposits (ICDs). It had also diverted the IPO proceeds to entities who had purchased its shares, among others. SEBI then directed the company promoters to take urgent and effective measures to recover all the money on account of investments in ICDs, contracts for purchase of land which have not fructified till now and report it to SEBI till 10 May 2014.

However SEBI said that, the period of ban already undergone by the company and its promoters pursuant to the interim order on 28 December 2011, wherein the entities were restricted from the capital markets shall be taken into account for the purpose of computing the period of prohibition imposed in this order.

On Tuesday, PG Electroplast closed 10.16% up at Rs172.10 on BSE, while the 30-share Sensex closed marginally up at 21,832.


Private banks are attractive investments now

While loan impairments in the system were going up, the private banks had enough profitability and capital as a buffer. Also, price-earnings multiples were inexpensive, says Morgan Stanley

Big private lenders – HDFC Bank, HDFC, ICICI Bank and Axis Bank – have been attractive investments for the last few months. Morgan Stanley’s view, in a research note, was that while impairments in the system were going up, these lenders had enough profitability and capital to buffer them. Also multiples were inexpensive. At the same time, there have been concerns about the impact of the bad loan cycle on other banks, especially SOE (state-owned enterprises) banks and niche non-bank lenders.


However, now the economy is stabilising and systemic risk from external factors has reduced, finds Morgan Stanley. Also, with LD (loan-deposit) ratios at around 77%, the liquidity situation is better. Against this backdrop banks will do well. “We are thus putting OW (overweight) on almost all private lenders”, says Morgan Stanley. The view on SOE banks remains the same, i.e. profitability is too low to take care of high credit costs. Also, the SOE banks face a substantial capital raising cycle – implying material dilution ahead for minority investors.


Morgan Stanley raises its view on the India Financials industry to Attractive. It believes that the industry is poised to give very strong returns. The stocks have lagged the broad market over 1-year and 3-year periods, driven by concerns of economic slowdown and consequently the bad loan cycle. As they recede, multiples for private lenders with strong capital should expand.


The performance of banks in the stock market is shown in the chart below:


The key forecasts with respect to private lenders is summarised in the table below:


In conclusion, the Morgan Stanley research note recommends profitable private lenders in the stock market to long term investors.


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