Sensex Ends 173 Points Higher; Capital Goods Outperform

Tue, 10 Jan Closing

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The Indian share markets finished the day on positive note amid buying interest supported by auto, infrastructure and oil stocks. At the closing bell, the BSE Sensex closed higher by 173 points, whereas the NSE Nifty finished higher by 53 points. The S&P BSE Midcap ended up by 0.8% while the S&P BSE Small Cap finished up by 0.7%. Barring realty stocks, all sectoral indices ended the day on a positive note. Auto, capital goods & metal stocks led the pack of gainers.

Asian markets finished mixed as of the most recent closing prices. The Hang Seng gained 0.83%, while the Nikkei 225 led the Shanghai Composite lower. They fell 0.79% and 0.30% respectively. European markets are mixed. The FTSE 100 is higher by 0.13%, while France's CAC 40 is off 0.10%. Shares in Germany are unchanged with the DAX at 11,564. The rupee was trading at Rs 68.18 against the US$ in the afternoon session.

Engineering stocks ended the day on a mixed note with Bharat Electronics and Bharat Bijlee leading the gainers. According to an article in the Livemint, Bharat Heavy Electricals (BHEL) has bagged order from Power Grid corporation for the augmentation of three Extra High Voltage (EHV) substations in the state of Karnataka, on turnkey basis.

Reportedly, the order is valued at Rs 960 million. The substations to be augmented include 400/220kV substation at Tumkur (Pavagada), 400kV at Mysore and 400/220kV at Turnkur (Vasantnarsapur). The augmentation of 400/220kV substation facilities is linked with the transmission system being set up for evacuation of solar power. This shall play a key role for transfer of renewable energy power from India's largest Ultra Mega Solar Power Park (2000 MW) Phase-II (Part-A) to be set-up in Tumkur.

BHEL will supply the key EHV equipment for these substations, like 125 MVAr and 80 MVAr Reactors including other substation equipment.

One must note that BHEL is also currently executing key 765kV substation orders from Power Grid of mega capacities in Gujarat and Rajasthan under the Green Energy Corridor Scheme. Significantly, this is yet another landmark order for BHEL, further establishing its leadership presence in the domain of Green Energy linked Transmission Corridor.

Considering engineering stocks, 2016 has been a mixed year. Despite these near-term headwinds, companies from this sector are expected to start doing well once the recovery in the Indian economy becomes more meaningful. In our recent edition of The 5 Minute WrapUp, we have spoken about the performance of the stocks in this space. We have also highlighted the difficulties faced by BHEL (Subscription Required) and cited probable reasons for the same. Here's an excerpt:

• "BHEL has lost around 25% so far in 2016. The reason is the subdued set of numbers the company has been announcing for the past several quarters now. For instance, in FY16, the company saw its revenues fall by 15% YoY and reported a net loss of Rs 9 billion. A lot of BHEL's current problems are to do with state of the power sector today."

BHEL's share price ended the day up by 0.4%.

Moving on to the news from stocks in power sector. Tata Power Delhi Distribution (TPDDL), a joint venture (JV) of Tata Power and the Government of Delhi, has commissioned a 66/11 kV AIS grid substation at Dheerpur, Delhi.

The newly commissioned substation which was inaugurated by ABB India and Tata Power, has an installed capacity of 50 MVA due to the two 25 MVA transformers installed with the new station. The addition to the electricity grid will boost reliability and secure power supply to over 50,000 existing and new customers in Dheerpur, Indravihar, Burari, Jahangirpuri, and the surrounding areas.

Reportedly, the substation will further improve the reliability of power supply and facilitate the load growth in these areas. Moreover, it is an unmanned substation and will be remotely operated from TPDDL's state-of- the-art supervisory controlled and data acquisition centre (SCADA).

In past few years, Tata Power was boosted by a tailwind of dropping coal prices and it is now on a course for clocking double-digit return on equity in fiscal year 2017. In the first nine months of FY2015-16 it had recorded a profit in excess of Rs 5 billion.

Tata Power's consolidated Net profit

The chart above illustrates Tata Power's consolidated net profit (adjusted for minority interest) and estimates.

Tata Power's share price ended the day up by 0.9%.

And here's an update from our friends at Daily Profit Hunter...

Today, let's take a look at BHEL, which technically speaking is in an interesting spot.

In the year gone by, BHEL has underperformed the Nifty-50 index by a huge margin. But when compared with the February (2016) lows, BHEL has actually outperformed the Nifty index.

BHEL bottomed at Rs 90 levels in March and topped out in September at Rs 160 levels. Since then, the stock has been in a consolidation mode. This consolidation can be marked as a 'Wedge pattern' with its break out level near Rs 130. A break above this level could fuel a further rally in the counter. On the flip side, if it does not break, it could trend towards its support levels. Also, there could be other factors at play which could impact the prospects of the stock.

Whether BHEL breaks out of this pattern or no remains to be seen. It will be an interesting thing to watch out for in coming sessions.

BHEL Forming Wedge Pattern

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