Sensex Remains Flat; Auto Stocks Witness Buying Interest

Tue, 8 Nov 11:30 am

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After opening the day on a flat note, the Indian share markets have continued to trade near the dotted line. Sectoral indices are trading on a mixed note with stocks in the automobile sector and metal sector witnessing maximum buying interest.

The BSE Sensex is trading up 17 points (up 0.1%) and the NSE Nifty is trading up 10 points (up 0.1%). The BSE Mid Cap index is trading down by 0.1%, while the BSE Small Cap index is trading up by 0.1%. The rupee is trading at 66.70 to the US$.

The D-Day is here. The United States of America (USA) will vote in the much awaited presidential elections later in the day today with the results expected to be out by tomorrow morning. The outcome of elections results will surely have its impact on global financial markets.

The markets are expecting Mrs. Hillary Clinton to win the presidential elections. However, in case of a Trump win, Foreign Institutional Investors (FIIs) may flee from emerging markets to safe haven assets.

Donald Trump's win would deal a big blow to US trade deals with Asia. His stance on trade, immigration and foreign policy is already making markets jittery. While economies like China may suffer the most, Indian exports will not remain untouched.

That said, there are businesses in India that will continue to do well. And that would create shareholder wealth in the long term when invested in at right levels. So our message to all value investors is this: Focus on the business fundamentals, and use short term corrections due to global economic events to add such businesses to your portfolio.

In fact, we are keeping a close watch and will use any crash opportunity such as above to recommend great businesses that look good but do not allow action due to valuation concerns. Meanwhile, take care at your end to stay clear of profit killers, irrespective of how tempting the valuations look.

Moving on to news from domestic equity markets, the stock of ICICI Bank is witnessing buying interest post its Q2FY17 results. The key takeaway from the results is the growing concern over the bank's bad loan scenario. Fresh slippages during the quarter amounted to a massive Rs 80.2 billion. This in-turn led to the banks gross non-performing asset (NPA) doubling to Rs 321.7 billion at the end of September 2016 quarter as compared to a year ago period. As a percentage to total loans, the ratio of gross NPAs stood at 6.8% at the end of September 2016 quarter as compared to 3.7% in the year ago period.

The bank had created a watch list of loans worth Rs 440.6 billion at the end of the March quarter. The watch list comprises of loans which are at a risk of slipping into the non-performing asset category. This watch list now stands at Rs 324.9 billion as at September 2016 as about Rs 91.1 billion of loans from the watch list have already gone bad between April and September.

A check on the asset quality and the watch list will be the key things to watch out for. At the time of writing, the share price of ICICI Bank was trading higher by around 0.3%.

On to the news from the initial public offer (IPO) space, shares of Varun Beverages debuted at a 3.4% discount, as the stock of the company opened at Rs 430 apiece today.

The Rs 11 billion IPO was sold between 26-28 October and was subscribed 4.94 times from institutional investors. The categories for high net-worth and retail investors were subscribed 0.42 times and 0.79 times, respectively.

As far as IPOs are concerned, listing gains and over subscription of the issues have caught the eye of market participants. In our view, 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.

The bottomline: One needs to evaluate each IPO on its merits by considering its fundamentals and most importantly the valuations, particularly when the hype and mania surrounding an IPO is at its peak.

One of our editions of The 5 Minute WrapUp offers two ways to think about IPOs and explains how to profit from them. Further, in case you wish to run IPOs through a handy checklist, we have something for you. Download our Handbook of IPOs to be able to pick only the right ones for you.

In news from commodity markets, gold is witnessing buying interest this week on the back of safe-haven bets. The yellow-metal also registered gains last week on increased jewellery demand during the festive season. To know more on the movements in gold and other commodities, you can read stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency and commodity markets.

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

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