Sensex Closes on a Flat Note; Software Stocks Rise

Wed, 3 May Closing

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Indian share markets continued to trade range bound in the afternoon session and finished marginally lower due to selling in healthcare stocks, capital goods stocks, and energy stocks amid negative global cues.

At the closing bell, the BSE Sensex stood lower by 26 points, while the NSE Nifty finished down 2 points. Meanwhile, the S&P BSE Mid Cap and the S&P BSE Small Cap finished up by 0.1% respectively.

The BSE Sensex recently closed comfortably above the magic figure of 30,000 for the first time. The midcap and small-cap indices are trading at quite high valuations.

Here's what Tanushree wrote about valuations and returns:

The current valuation of the index - more than 22x - is rare. Over the past two decades, the NSE Nifty has traded above 22x only nine times. And when it does, buying even the biggest blue chips has come with a huge downside for long-term investors. On five out of the nine occasions, the index lost money over a two-year period. So the historical data suggests there is currently a 60% chance of losing money in bluechip stocks.

But it's better to forget the indices and use a bottom-up (a stock-specific) approach.

This is the StockSelect team's approach. They focus on the underlying business. Its earning power, the business model, growth opportunities, and valuations.

Asian markets were mixed on Wednesday, as gains on Wall Street overnight were offset by disappointment with Apple earnings, with traders looking ahead to the U.S. Federal Reserve meeting results. The Nikkei 225 gained 0.70% and the Hang Seng rose 0.33%. The Shanghai Composite lost 0.27%. European markets are lower today with shares in France off the most. The CAC 40 is down 0.31% while London's FTSE 100 is off 0.29% and Germany's DAX is lower by 0.21%.

The rupee was trading at Rs 64.14 against the US$ in the afternoon session. Oil prices were trading at US$ 47.99 at the time of writing.

Global ratings agency Fitch Ratings has retained 'BBB-' ratings - the lowest investment grade - with a stable outlook for India citing weak fiscal position and difficult business environment. The agency forecast real gross domestic product (GDP) growth to accelerate to 7.7% in both 2016-17 and 2017-18, compared with 7.1% in 2015-16. It also expects India's current-account balance to narrow to -0.9% in FY17, and foreign reserves to build up to 8.4 months of current external payments.

The ratings agency indicated that its India's sovereign ratings balance a strong medium-term growth outlook and favorable external balances with a weak fiscal position and difficult business environment. However, the business environment is likely to gradually improve with the implementation and continued broadening of the structural reform agenda.

It also noted that it's "not likely" that the Indian government's budgeted Rs 700 billion capital injection into public-sector banks, struggling with huge stressed assets, in the four years through 2018-19 will be sufficient. "India is not immune to external shocks, but the country's strong external finances make it less vulnerable than many of its peers, but weak public finances continue to constrain India's ratings.

Fitch expects structural reforms to increase growth, along with higher real disposable income supported by implementation of the seventh pay commission recommendations and an average monsoon.

In news from banking sector, Indian Bank share price continued to rise on the exchange and finished trading up by 4.9% in today's trade after it was reported that the bank is planning to issue long term bonds for financing of Infrastructure and Affordable Housing up to an amount of Rs 50 billion.

The Bank has posted over 3-fold jump in its net profit at Rs 3.19 billion for the quarter ended March 31, 2017 as compared to Rs 936.2 million for the same quarter in the previous year. Total income of the Bank has increased marginally by 1.75% at Rs 46.01 billion for quarter under review as compared to Rs 45.22 billion for the quarter ended March 31, 2016.

Providing affordable housing is one of the ambitious projects of the government, 'Housing for All by 2022'. Boosting infrastructure is another key area that has been accorded key priority.

Meanwhile, banks have sold Rs 2.44 trillions of bad loans to 23 asset reconstruction companies (ARCs). As per an article in The Economic Times, there was a slowdown in transactions in recent months despite a surge in stressed assets to around 15%.

One of the reasons for the slowdown is the price mismatch between the expectation of ARCs and the banks under the 15:85 structure, where banks are paid 15% of the agreed amount on an asset in cash and the rest is paid later through security receipt. High incidence of stressed assets, which includes 9.84% gross NPAs and 4.2% in restructured assets is a matter of concern for the economy, the report noted.

PSU banks stocks finished on a firm note with Indian Bank and Andhra Bank share price leading the gains.

Moving on to news from software stocks. TCS share price finished the trading day on an encouraging note (up 2%) after the company was selected by one of Europe's largest utilities companies - Vattenfall - to provide IT services across multiple European operations including Sweden, Germany and the Netherlands.

The managed services agreement is a multi-year partnership in which TCS will be responsible for the development and maintenance of many applications.

In another development, Infosys share price continued to rise and finished up by 1.6%. The company will reportedly hire about 10,000 locals in the US over the next two years and set up four technology and innovation hubs there, as part of its efforts to tide over visa-related issues.

As per a Times of India report, Infosys will also focus on enhancing its play in new technology areas like artificial intelligence (AI), machine learning, user experience, cloud and big data through these new hires and centres.

The plan includes an US$8.7 million investment to lease and equip office space in the Indianapolis area to accommodate 2,000 new workers by the end of 2021.

The Indiana center will be the first of four facilities the company plans to open in the US and will be focus on developing emerging technologies like artificial intelligence and cloud computing.

Over the past few weeks, there has been a growing sentiment of protectionism across various markets, including the US, that are seeking to safeguard jobs for locals and raising the bar for foreign workers.

In news from automobile stocks, TVS Motor Company has posted a sales growth of 8% during the month of April 2017, with total sales increasing from 227,096 units recorded in the month of April 2016 to 246,310 units in the month of April 2017. Total two-wheeler sales increased by 8.4% from 222,350 units recorded in April 2016 to 241,007 units in April 2017.

Domestic two-wheeler sales grew by 4.0% increasing from 197,692 units in April 2016 to 205,522 units in April 2017. The Company's total exports grew by 41.9% from 28,354 units registered in the month of April 2016 to 40,221 units in April 2017.

TVS Motors Company share price finished the day up by 1.3% on the BSE.

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