Markets Remain Weak; BSE Ltd Surges on Debut

Fri, 3 Feb 01:30 pm

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After opening the day on a flat note, the Indian share markets have continued to trade on a weak note and are trading marginally below the dotted line. Sectoral indices are trading on a mixed note with stocks in the pharma sector and realty sector witnessing maximum buying interest. Auto stocks are trading in the red.

The BSE Sensex is trading down 68 points (down 0.2%) and the NSE Nifty is trading down 24 points (down 0.3%). Meanwhile, the BSE Mid Cap index is trading up by 0.6%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 67.36 to the US$.

Asia's oldest stock exchange BSE Limited's Initial Public Offering (IPO) opened up for trading in the secondary market today. BSE Limited share price listed at Rs 1085 per share, a 35% premium over the issue price of Rs 806, on its rival National Stock Exchange (NSE).

BSE share price continued its upward move and went on to hit a high of Rs 1200 per share, up 49% over its issue price within a matter of minutes of listing. Around 12 million shares changed hands on the counter on the NSE so far.

The country's first IPO of equity from a stock exchange has generated big demand across categories of investors.BSE Ltd's Rs 12.4 billion issue saw 51 times more demand than the shares on offer. The institutional investor portion was subscribed 49 times, the high net worth individual portion nearly 159 times and the retail investor portion by 6.5 times, the exchange data shows.

The existing shareholders of the exchange sold 15.42 million shares through an offer for sale. The issue represented 28.3% of BSE's pre-share sale capital.The price band was fixed at Rs 805-806. BSE's initial share sale was also the first this year after 26 companies together garnered Rs 260 billion through IPOs in 2016.

During the offer for sale, we had alerted subscribers about our view regarding the BSE Limited IPO in one of the premium editions of the 5 Minute WrapUp. You can read about our view of the BSE IPO here (Subscription Required).

At the time of writing, BSE Limited share price was trading up 2% from its open price.

Moving on to news about the manufacturing sector. The manufacturing sector rebounded from demonetisation downturn in January amid rising orders, production as well as buying levels, according to the Nikkei Purchasing Managers' Index (PMI) survey by Markit.

Having deteriorated in December for the first time in one year, the health of India's manufacturing economy improved in the opening month of 2017. The manufacturing PMI recovered from 49.6 in December 2016, to 50.4 in January 2017.

The Manufacturing Purchasing Managers' Index (PMI) is an indicator of manufacturing activity. A reading above 50 indicates expansion, while any score below the mark denotes contraction.

The indicator suggests an upturn in the manufacturing activity in January, as compared to December. Manufacturing activity in December was hit due to demonetisation induced liquidity crunch, lower orders and muted outputs.

The main factors contributing to the above-50.0 PMI reading were growth of both new orders and output. Rates of expansion were only slight, but reversed the contractions noted in December.

Manufacturers attempted to replenish their input stocks by purchasing greater quantities of raw materials and semi-finished items in January. That said, the overall rate of growth was only slight and well below its long-run average.

Manufacturing Activity Picking up Post Demonetisation

It is evident from the above chart that the manufacturing activity is nowhere near the pre-demonetisation levels noted in October 2016. However, manufacturing is seen to steadily pick up from the demonetisation blues. The PMI has potential to chart a steady rise, especially after the budget announcements favoring the manufacturing sector.

The Finance Minister announced increase in allocations towards schemes like Modified Special Incentive Package Scheme (M-SIPS) and Electronic Development Fund (EDF) to Rs 7.45 billion in 2017-18.

M-SIPS offers subsidy on capital expenditure - 20% for investing in special economic zones (SEZs) and 25% in non-SEZs.

These are positive measures aimed at boosting manufacturing in the country. The long term impact of these policies will be a key factor to watch out for.

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