Sensex Continues Downtrend; Banking Stocks Witness Selling Pressure

Wed, 26 Oct 11:30 am

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After opening the day weak, the Indian share markets registered further losses and are trading in the red. Sectoral indices are trading on a mixed note with stocks from the banking sector and the FMCG sector witnessing maximum selling pressure. Telecom stocks are trading in the green.

The BSE Sensex is trading down 227 points (down 0.8%) and the NSE Nifty is trading down 58 points (down 0.7%). Meanwhile, the BSE Mid Cap index is trading flat, while the BSE Small Cap index is trading up 0.3%. The rupee is trading at 66.80 to the US$.

Indian share markets are witnessing selling pressure today on the back of dampened September quarter earnings from telecom major Bharti Airtel as well as top domestic lenders Axis Bank, and IDBI Bank.

The downbeat mood stretched from yesterday's trading session as the Tata saga unfolds after the ouster of Cyrus Mistry as the chairman of Tata Sons. Owing to this development, shares of Tata Motors, TCS, and Tata Steel are trading in the red. ValuePro editor, Radhika has written a series about which Tata Group companies are investment worthy and which are not in ValuePro Contenders.

In currency markets, the yuan is bearing most of the brunt this week. Owing to this, China has toughened restrictions on capital flows to prevent a negative feedback loop between a weakening yuan and capital flight.

Reportedly, the Chinese State Administration of Foreign Exchange has introduced new capital measures in areas such as Shanghai and Guangzhou since the beginning of autumn. The Chinese authorities have asked foreign and regional banks to cap the amount of foreign currency they will sell to customers during 2016.

To take a note of the current situation, China's trade has flagged in recent months. Exports for the Chinese economy have dropped 10% YoY in September in dollar terms. Furthermore, the prospect of an interest rate hike in the US, has led to further pressure on the yuan.

While the recent numbers for China's economic growth came in better than expectation, economists are of the view that continuing stimulus measures are masking the deeper problems of industrial overcapacity and high levels of corporate debt in China.

We believe, China needs to do better to come out of the ongoing economic slowdown. While stimulus measures by the Chinese government had provided some aid, sluggish demand and excess capacity are threatening to reverse China's economic engine, which had been moving at a frenzied pace.

Regarding stock markets, many are worried that China and its slowing economy will bring more concerns for Indian markets. However, we believe that a crash can be an ideal time to bet on solid Indian companies that are well-shielded from any adverse developments in China. These companies can turn into bargain buying opportunities.

Taking a note of the latest initial public offer (IPO), PNB Housing Finance received bids for 5.57 million equity shares in yesterday's trading session. With this, the IPO of the company got subscribed 20% in its first day of the offering.

At the closing bell yesterday, the institutional investor category was subscribed around 34.6%, while the non-institutional category comprising high-net-worth individuals was subscribed 7.8%. Retail investors category was subscribed to 16.6%.

The IPO, which will close for subscription on October 27, will be the second largest public issue of shares this year in the domestic market.

As far as IPOs are concerned, listing gains and over subscription of the issues have caught the eye of market participants. With this euphoria, there are many more IPOs lined up in the coming days. This begs the question: What should be one's approach towards IPOs?

As per us, one should not get swayed away by the buoyancy surrounding IPOs. Instead, what one should look for in IPOs is the fundamentals of the business and the attractiveness of valuations.

Giving a doubtful IPO a miss can in no way reduce your chances to create long-term wealth. There are several big IPOs in the pipeline in the last few months of 2016. In case you wish to run them through a handy checklist, we have something for you. Download our Handbook of IPOs to be able to pick only the right ones.

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

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