Indian Indices Continue Downtrend; Sensex Ends 48 Points Lower

Tue, 23 Jul Closing

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After opening the day on a flat note, share markets in India witnessed selling pressure during closing hours and ended marginally lower.

Sectoral indices ended on a mixed note with finance stocks and automobile stocks witnessing maximum selling pressure, while FMCG stocks and power stocks witnessed buying interest.

At the closing bell, the BSE Sensex stood lower by 48 points and the NSE Nifty closed down by 15 points. The BSE Mid Cap index ended the day down 0.6%, while the BSE Small Cap index ended the day up by 0.4%.

Asian stock markets finished on a positive note. As of the most recent closing prices, the Hang Seng was up 0.3% and the Shanghai Composite was up by 0.5%. The Nikkei 225 was up 1%.

Speaking of share markets in general, there's been a heavy sell-off in the Indian stock markets following the Union Budget 2019. Since the Budget announcement, investor wealth worth Rs 8.8 lakh crore has been wiped out.

The biggest sellers in the ongoing correction are foreign investors.

Why are foreign investors dumping Indian stocks?

Ankit Shah answers this question in one of the latest edition of The 5 Minute WrapUp. Here's an excerpt of what he wrote...

• One of the main reasons is the higher tax burden on the super-rich in the form of additional surcharge.
  
  All individuals and association of persons (AOPs) come under the purvey of this additional surcharge.
  
  Why does this bother foreign investors?
  
  Here's the thing - several foreign portfolio investors (FPIs) are structured as AOPs, limited liability partnerships and trusts.
  
  As such, if they earn over Rs 2 crore a year, they will be subjected to the higher tax surcharge.
  
  So, for a foreign investor earning between Rs 2 crore and Rs 5 crore, the effective tax rate goes up from 35.88% to 39%. And those earning more than Rs 5 crore income in India, the tax rate goes up from 35.88% to 42.74%.
  
  FPI were hoping that the Finance Minister would relax the tax burden for them. But Nirmala Sitharaman stayed her ground and rejected the pleas. Here's what she suggested them to do instead: 'FPIs should consider the option of structuring themselves as companies rather than trusts to avoid paying the increased surcharge announced in Budget 2019.'

FPIs have been on a selling spree in the latest month. Have a look at the chart below that shows the net monthly flows of foreign investors in the Indian stock markets:

Foreign Investors Turn Net Sellers After Five Months of Buying

In the month of July, foreign investors have so far sold off equities worth Rs 7,143 crore.

It's certainly not a small amount. But one must also see the sell-off in the larger context - foreign investors have been net buyers of Indian equities in 2019.

Since the start of the year, their net investment in Indian equities is worth Rs 71,937 crore. They have been net buyers in five out of seven months.

So, the ongoing sell-off should not be seen as foreign investors exiting India for good. They will come back when the valuations get more attractive to compensate for the higher tax burden.

So, look out for the stocks that will rise fast when the tide of the market turns up.

In news from the banking sector, market participants were tracking Yes Bank share price. Shares of the private lender declined over 3% in early trade today after promoter Rana Kapoor pledged 100 million shares, accounting for 4.31% of the total share capital.

As per an article in The Economic Times, the shares were pledged as security to the holders of debentures issued by Morgan Credits (MCPL), a promoter group entity. Morgan Credits itself pledged 70.2 million shares of Yes Bank.

The two promoters pledged a total of 7.34% holdings in favour of Milestone Trustship Services, the debenture trustee, for the benefit of the holders of debentures issued by MCPL.

As of June 30, 2019, Rana Kapoor held 4.31% stake, while Madhu Kapoor held 7.56%. Morgan Credits, Yes Capital (India) and Mags Finvest - all promoter group entities - held 3.03%, 3.26% and 1.61% stake, respectively.

Reportedly, Rana Kapoor pledged his shares as a security for his daughters' ventures. Kapoor said his daughters' firm had unsecured borrowings and he offered his own shares as security.

Note that last week, the lender reported a 91% drop in Q1FY20 on account of higher provisioning and lower other income.

Asset quality deteriorated, with gross non-performing assets (NPAs) as a percentage of total loans rising to 5% as against 3.2% in the previous quarter.

The bank saw an addition of fresh bad loans worth Rs 62.3 billion in the quarter, even as it upgraded or recovered Rs 16.8 billion and wrote off bad loans worth Rs 3.4 billion.

To know more, you can read Yes Bank's Q1FY20 Result analysis on our website.

Moving on to news from the IT sector, Mastek share price slipped 10% intra-day after the company reported 7.8% increase in its consolidated net profit at Rs 242.2 million for the June 2019 quarter from Rs 224.6 million in the year-ago period.

Revenue from operations during the quarter grew 1.4% to Rs 2475.4 million as compared to Rs 2440.4 million in June 2018 quarter.

Company's management said the reported quarter numbers were lower than expected, due to Brexit uncertainty. The company's core UK market generates around 75% of global revenue.

The company added 9 new clients in June quarter and its total client count was at 154.

To know more, you can read Mastek's latest result analysis on our website.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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