The downward move that started on Friday has been arrested for now. A close below 6,280 for the Nifty will again open up the possibility of a decline
The Sensex opened at 21,084 and the Nifty opened at 6,262. The indices soon hit their low at 21,001 and 6,243. After which they moved to green zone and remained in the positive for the entire session. In the last hour of the trading session the benchmark hit the day’s high and closed almost at the same level. The Sensex hit a high of 21,221 and closed at 21,205 (up 141 points or 0.67%) while the Nifty hit a high of 6,307 and closed at 6,304 (up 42 points or 0.68%). The NSE recorded a lower volume of 50.90 core shares.
The Reserve Bank of India said on Friday, 17 January 2014, that the liquidity conditions are undergoing some stress in the recent period, primarily on account of the build-up of cash balances of the Government of India. In order to address the temporary liquidity deficit situation, the Reserve Bank of India has been infusing additional liquidity through 7/14/28 days term repo auctions in addition to the existing overnight repo under liquidity adjustment facility and standing liquidity facilities. The current assessment suggests that the strain on market liquidity is likely to remain enduring in view of the fiscal targets set for the year as well as projections for aggregate credit growth, warranting the need to provide liquidity of a more permanent nature. Accordingly, the Reserve Bank has decided to conduct Open Market Operations by purchasing the following government securities for an aggregate amount of Rs10,000 crore on Wednesday, 22 January 2014, through multi-security auction using the multiple price method.
Investors also cheered Bharatiya Janata Party's (BJP's) prime ministerial candidate Narendra Modi's economic vision for India in his speech on Sunday, 19 January 2014, wherein he said the emphasis will be on urbanisation, infrastructure and inflation control and said his wish list includes setting up 100 new smart cities and introduction of bullet trains to all four corners of the country.
The Congress-led government in Maharashtra has taken a leaf out of the books for Aam Admi Party in Delhi and decided to reduce 15% to 20% cut in power tariff charged to domestic consumers, industries and powerlooms by the state-run Maharashtra State Electricity Distribution Company (MahaVitaran). However the decision is not applicable to Mumbai consumers who get power supply from Tata Power, Reliance Infrastructure and BrihanMumbai Electric Supply & Transport.
US indices closed flat mostly with the negative bias on Friday. The US stock market will remain closed today for the Martin Luther King Jr. holiday.
Asian indices closed mostly in the negative. Seoul Composite was the top gainer which rose 0.48% while Hang Seng was the top loser which fell 0.88%.
European indices were showing mixed performance while US Futures were trading marginally in the negative.
Using a confluence of six different factors, Morgan Stanley India’s latest report is bullish on Tata Motors, Axis Bank, Lupin, ICICI Bank and Maruti Suzuki. However, there is fine print that investors should be aware of
Morgan Stanley’s India (MSI) Equity Strategy report states that it is bullish on Tata Motors, Axis Bank, Lupin, ICICI Bank and Maruti Suzuki. On the other hand, MSI is bearish on State Bank of India (SBI), Ambuja Cements, Hero MotoCorp, Hindustan Unilever (HUL) and Jindal Steel. Their findings are based on six key drivers namely: sell-side consensus opinion, institutional ownership, relative valuations, consensus earnings expectations, long-term relative trailing performance, and finally, trading volumes relative to history.
1. Sell-side consensus opinion
Assessing the bullishness and bearishness, according to MSI, the more bullish, the less likely the stock performs. Does this mean that companies, according to this chart, like BPCL, Power Grid Corporation (PGC), Cairn India, ONGC are unlikely to perform?
2. Institutional ownership
According to MSI research, stocks will find it difficult to move if there is high institutional ownership possibly due to a lower float and thus lower liquidity. But, according to the chart, the stocks that have increased FII ownership are the very same stocks which MSI are bullish. ICICI Bank saw increased FII ownership by 5% relative to MSCI India Index. Similarly, Axis Bank saw a 2% increase in FII ownership as did Tata Motors.
3. Relative valuations
According to MSI research, if a company is valued highly, then it is an “impediment” for share price movement. Therefore, stocks having a higher trailing price-to-book ratio are unlikely to move up further. According to their chart, Hindustan Unilever, Asian Paints, ITC, TCS and Hero MotoCorp are highly valued, having price-to-book ration of 13.7x, 4.9x, 4.1x, 3.5x and 3.2x respectively. Concurrently, MSI is bearish on Hero MotoCorp and Hindustan Unilever.
4. Consensus earnings expectations
According to MSI research, it is not wise to fight against consensus expectations. The report said, “We point out that sometimes the consensus is right, so taking a counter-consensus view does not work.” Thus, according to their chart below stocks like Tata Steel, Ranbaxy Labs, Tata Motors, HCL Technology, Coal India have seen upgraded consensus earnings. Sesa Sterlite, Ambuja Cements, Jayprakash Associates, ACC and DLF had downgraded consensus earnings.
5. Long-term relative trailing performance
This is the most commonly used indicator and simply a rear-view mirror into a stock’s past performance. According to MSI, some of the best performers, in the last five years, in terms of CAGR growth, has been: HCL Technologies, Tata Motors, IndusInd Bank, Bajaj Auto and TCS. The worse have been BHEL, DLF, NTPC, NMDC and Tata Power. As one saying goes, past performance is no guarantee of future success.
6. Trading volumes relative to history
According to MSI research, traded volumes is signifies interests in a stock. The report says, “falling trading volumes that signify waning interest and vice versa.” According to the chart, there is a lot of interest on Power Grid Corporation, Punjab National Bank, Bank of Baroda, Sesa Sterlite and Ranbaxy Laboratories. MSI research seems to have taken a contrarian view by picking Tata Motors in this.
Is this is another of those research reports written to align views with business interests. In its disclosure statement, MSI expects to receive compensation, in one way or other, from the some of the very companies it is bullish on. For instance, within the next three months, the disclosure statement read, “In the next 3 months, Morgan Stanley expects to receive or intends to seek compensation for investment banking services from AXIS Bank, BHEL, ICICI Bank, Jindal Steel & Power, Lupin Ltd, State Bank of India, Tata Motors.” Moreover, as of 31 December 2013, it also “beneficially owned 1% or more of a class of common equity securities of the following companies covered in Morgan Stanley Research: AXIS Bank, ICICI Bank, Jindal Steel & Power, Tata Motors.” Jindal Steel & Power is the only stock which MSI is bearish on in which it owned & provided advice.
Asian Paints net profit for the December quarter declined marginally due to higher raw material costs despite 11% increase in net sales
Asian Paints Ltd, India’s largest paint manufacturing company for decorative and industrial uses, reported a 1.5% decline in its third quarter net profit at Rs307.5 crore from Rs312 crore a year ago. However, the paint maker said its total sales during the quarter to end-December increased 11% to Rs2,807.66 crore from Rs2520.64 crore same period last year.
During the quarter, Asian Paints said its cost of material increased 21% to Rs1,525.11 crore from Rs1,265.49 crore, while total expenditure, including costs of materials, increased 13% at Rs2,365.29 crore from Rs2,085.74 crore, a year ago period.
In a statement, KBS Anand, managing director and chief executive, Asian Paints, said, “The decorative paints business in India did well considering the challenging and uncertain macro environment. Raw material prices were marginally higher in the third quarter. Industrial paints segment continued to be impacted by sluggish manufacturing environment in the economy, with no major capex activity. Automotive coatings growth was affected due to the subdued demand in the automotive sector.”
Asian Paints has declared an interim dividend of Rs1.10 per share. On 20 December 2013 operations at the Asian Paints’ Tamil Nadu plant has been affected due to strike called by its employees and workmen union.
On 25 November 2013, Asian Paints closed down Himachal Pradesh situated coatings plant of its wholly owned subsidiary-Asian Paints Industrial Coatings Ltd.
Asian Paints closed Monday marginally down at Rs490 on the BSE, while the S&P BSE Sensex closed 141 points up at 21,205.
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