Q1FY20 Results, FPI Surcharge, and Top Stocks in Focus Today

Fri, 9 Aug Pre-Open

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Indian share markets witnessed huge buying interest during closing hours yesterday and ended their trading session in the green. Most of the gains were seen after media reports suggested that the government is likely to roll back recently-imposed higher tax on foreign portfolio investors (FPIs).

At the closing bell yesterday, the BSE Sensex stood higher by 636 points (up 1.7%) and the NSE Nifty closed higher by 176 points (up 1.6%).

On the sectoral front, gains were seen in the auto sector and energy sector.

The BSE Mid Cap index ended up by 0.4%, while the BSE Small Cap index ended up by 0.7%.

Top Stocks in Focus Today

Adani Enterprises share price will be in focus today as the company posted consolidated net profit at Rs 6 billion in June quarter against Rs 1.6 billion during the same quarter last year. Revenue was up 39.7% at Rs 105.6 billion. The profit included one-time gain of Rs 3.3 billion.

From the pharma space, Lupin share price will be in focus today as the company announced the completion of the United States Food and Drug Administration (USFDA) inspection carried out at its Nagpur oral solid manufacturing facility. The inspection closed without any 483 observations.

Market participants will also be tracking Borosil Glass Works as the company has made an additional investment of Rs 5,00,00,089 by way of subscription to the fresh rights issue of partly paid up equity shares of Klass Pack, a subsidiary company. The company's shareholding in Klasspack has increased from 75.73% to 79.52%.

Govt. Likely to Withdraw Higher Surcharge for FPIs

In the news from the macroeconomic space, the Indian government is likely to withdraw higher surcharge for FPIs via notification or ordinance.

In case the government opts for ordinance, Parliament nod will be taken for the amendment in the next session.

The above move comes as the government is looking to address issues such as foreign portfolio investors' (FPI) tax concerns.

The government's proposal to increase taxes on those with annual incomes of more than Rs 20 million has rattled many foreign portfolio investors.

There's been a heavy sell-off in the Indian stock markets following the Union Budget 2019 and 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 editions 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.

Due to the above development, FPIs have been on a selling spree.

So, if the government does withdraw the higher surcharge, we could see FPI money coming back to Indian share markets.

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

We will keep you updated on all the developments from this space. Stay tuned.

June Quarter Results

From the IT sector, HCL Technologies posted double-digit revenue growth numbers in the June quarter, though its profit and margin came below market estimates.

The IT services company also maintained its revenue guidance of 14%-16% in constant currency term and margin guidance of 18.5%-19.5% for this financial year, as it expects revenues flow from the IBM IP (intellectual property) deal from second quarter onwards.

The company posted 8.2% decline in its net profit at Rs 22.3 billion on a year-on-year (YoY) basis. Sequentially, it fell 12.5%. The decline in net profit was attributed to increased cost due to hiring more people in client geographies apart from sales investment towards IBM IP deal.

Revenues rose by 18.4% YoY at Rs 164.3 billion, while revenues grew 2.7% sequentially. Similarly, the revenue growth in constant currency term was 17% YoY.

The company added 5,935 staff on net basis in Q1 to take its total head count to 143,900 at the end of the June quarter. Its attrition also fell 40 basis points to 17.3% during this period.

From the steel sector, Tata Steel reported 33.6% fall in its net profit at Rs 15.4 billion for the first quarter ended June 30 as compared to Rs 23.2 billion for the same quarter in the previous year.

Total income of the company decreased by 3.8% at Rs 162.7 billion for Q1FY20 as compared Rs 169.1 billion for the corresponding quarter previous year.

On the consolidated basis, the company has reported a fall of 63.7% in its net profit at Rs 7 billion for the quarter under review as compared to Rs 19.3 billion for the same quarter in the previous year.

However, total income of the company increased marginally by 1% at Rs 362 billion for Q1FY20 as compared Rs 358.5 billion for the corresponding quarter previous year.

Poor industrial sentiment overseas and with Tata Steel recently announcing its failure to sell its European assets weighed down on earnings.

Maruti Suzuki India Cuts Production for the Sixth Month

In the news from the automobiles sector, as per an article in a leading financial daily, Maruti Suzuki cut its production in July by 25.2%, making it the sixth month in a row that the country's largest carmaker reduced its output.

The company produced a total of 1.3 lakh units in July, compared with 1.8 lakh units in the year-ago month. Passenger vehicles' production last month stood at 1.3 lakh units as against 1.7 lakh units in July 2018, a decline of 25.6%.

Production of mini and compact segment cars, including Alto, New WagonR, Celerio, Ignis, Swift, Baleno, Dzire, stood at 95,733 units as against 1.3 lakh units in July last year, down 25%.

Utility vehicles such as Gypsy, Vitara Brezza, Ertiga and S-Cross saw reduced production at 19,464 units as against 24,718 units in the year-ago month, down 21.3%.

Mid-sized sedan Ciaz saw its production reduced to 3,497 units in July from 7,115 units in the same month last year.

Light commercial vehicle production was also trimmed to 2,724 units last month from 3,077 units in July 2018.

How this development pans out ahead remains to be seen. Meanwhile, we will keep you updated on all the developments from this space.

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