Short covering in weekly index options and addition of fresh bullish bets on index futures — Nifty and to some extent Bank Nifty — by FIIs fuelled Tuesday’s 200-point rally to 11,095. Weekly options data hint that the Nifty could immediately test the 11,200 resistance before moving higher, supported by heavyweights like RIL and HDFC Bank. Apart from buying a provisional 704 crore shares, FIIs net purchased 22,560 index futures contracts, up from 3,370 contracts a day earlier. Option sellers in Nifty covered shorts big time, resulting in the weekly Nifty open interest put-call ratio rising to 1.09 from 0.6 on Monday.
India has the largest disconnect between the rallying stocks and deteriorating economic data. Just months into the new fiscal year, the fiscal deficit is close to touching its annual target. India’s bad loan ratio is expected to swell to the highest level in more than two decades in 2021. The outlook for Indian businesses is the worst in the world, IHS Markit said last month. The Indian GDP is expected to contract in FY21 for the first time in over four decades. Meanwhile, the BSE Sensex is up 45% from its March 23 lows pushing the valuations to record highs.
A Fund of Funds or FoF invests in mutual fund schemes. A regular mutual fund scheme or fund collects money from investors and invest the money in stocks or debt securities. A FoF collects money from investors and invest it in other mutual fund schemes. These mutual fund schemes can be within the fund house or in other fund houses. However, these schemes or the concept of FoF never really took off. FoFs were treated as non-equity schemes for taxation purpose. This was major drawback at that time when equity mutual funds used to enjoy zero long-term capital gains tax.
Front running is an illegal practice where a broker who has advance knowledge of a client’s non-publicized specific market order buys the shares on own account to make extra profit unethically just before executing the customer's order. Say, a broker receives an order to buy 1 lac shares of Reliance Industries (CMP Rs 1800) from a big client. The broker buys 2,000 shares on own account before executing the client’s order. As soon as the client order is executed, the price of RIL moves up to Rs 1,900 and the broker also pockets Rs 100 per share as illegal gains.
Negotiations over resolving the personal debt of Kishore Biyani, amounting to about Rs 2,000 crore, is one of the final key items as the deal between Reliance Industries Ltd (RIL) and Future Group reaches its final leg. The enterprise value of the retail assets expected to be acquired by RIL stands at around $3 billion, or Rs 22,700 crore, including the debt to be assumed. RIL is also likely to acquire up to a 10-15% minority stake in the group’s FMCG business Future Consumer. Nearly the entire 46% stake held by Biyani and his family in Future Lifestyle is pledged.
YES Bank has decided to sell its mutual fund business as the private lender plans to focus on its core businesses. The bank has received proposals from six entities expressing interest to takeover YES Mutual Fund, which had assets under management of Rs 57 crore as of June 2020, down from Rs 2,000 crore in March 2019. The net losses of YES Mutual widened from Rs 4.5 crore in FY18 to Rs 16 crore in FY19. YES Bank, led by former SBI chief financial officer Prashant Kumar, decided to sell the mutual fund to cut losses and free up capital.
BSE Sensex and Nifty50 rallied over 7% each in July but the real action was in select mid & small-cap space. The S&P BSE Small-cap index and the S&P BSE Mid-cap index closed with gains of over 5% each. As many as 126 stocks in the BSE500 index rallied 10-80% in July that include names like Cadila Healthcare, PVR, Bank of Maharashtra, M&M, Dr Lal Pathlabs, L&T Infotech, and Laurus Labs, among others. A staggered buying strategy through SIPs in fundamentally strong small and mid-cap stocks is the right approach, especially when they are trading at decent valuations, experts suggest.
The market is at extremely overbought levels. Rollover data in frontline stocks suggests majority of the long positions have been carried forward to the next series, Jimeet Modi CEO, Samco Securities & StockNote said. Such extremely high optimism may lead to short-term corrections. LIC, whose public offer is expected to be the largest ever in the history of the domestic capital market, may take away precious liquidity from the market by Diwali 2020. A lot of other IPOs, too, are lined up for the next 2-3 months, a trend that historically signals capping of upside potential for the broader market.
Motilal Oswal expects Reliance Industries to report gross refining margin (GRM) at $9.0 per barrel for the June 2020 quarter against $8.1 a barrel in Q1FY20 and $8.9 a barrel in Q4FY20. The GRM is the difference between the total value of the refined petroleum products coming out of an oil refinery (output) and the price of the raw material, (input) which is crude oil. The margins are calculated on a per-barrel basis. GRM is typically expressed in US dollars per barrel. Typically, gross margin does not account for other costs such as energy, chemicals/catalysts, labor, materials, or fixed costs.
The Indian market has rallied about 50% from the March lows but there are as many as 18 stocks in BSE500 index that are trading below Price-to-Book (P/B) of less than 1, including Dish TV, Canara Bank, Union Bank of India, Bank of India, BHEL, Mahindra Lifespace, Indiabulls Real Estate and UCO Bank. But beware! The maximum number of stocks that look cheap on valuations could turn out to be a value trap. Investors should carefully analyze companies that are trading at cheap valuations, and avoid those with bleak future, weak fundamentals and having very poor growth visibility, suggest experts.
Dr Reddy's Laboratories share price touched a 52-week high of Rs 4,447.80, rising more than 3% in the morning trade on July 30, a day after the company reported a 12.6% YoY drop in consolidated net profit at Rs 579 crore for Q1FY21 compared with Rs 662.8 crore in Q1FY20. Revenue from operations during Q1FY21 stood at Rs 4,418 crore, up 15% YoY. The company continues to be one of the best companies in largecap pharma space structurally, though there is limited headroom for a further upgrade in earnings estimate and PE expansion. Motilal Oswal has kept the rating 'neutral'.
Market regulator Securities and Exchange Board of India (SEBI) has extended the timeline for submission of financial results for the quarter, half year and financial year ended June 30 by a month to September 15. As per SEBI rules, a listed company is required to submit its quarterly, half year and annual financial results within 45 days or sixty days as applicable from the end of each quarter or half year or financial year. Accordingly, listed entities were required to submit the financial results for the quarter or half year ended June 30, 2020, on or before August 14, 2020.
SGX Nifty traded 19 points lower at 11,215, signalling that Indian indices are headed for a tepid start on Thursday. Reliance Industries (RIL), HDFC, Dabur India, Piramal Enterprises, Cholamandalam Investments & Finance, JM Financial, Laurus Labs, Max Financial Services and Tata Communications are scheduled to announce their June quarter earnings on Thursday. Telecom major Bharti Airtel reported a consolidated net loss of Rs 15,933 crore in the April-June quarter. SpiceJet reported a net loss of Rs 807.1 crore in the fourth quarter of FY20. Tyres maker Ceat reported a loss for the April-June period as revenue contracted by over 36%.
Bharti-AXA General is likely to merge with ICICI Lombard in Rs 2,600 crore, all-stock transaction. The two firms are in talks for a merger deal, which is expected to be sealed soon subject to regulatory approvals. The valuation of Bharti-AXA has been pegged at Rs 2,600-2,800 crore. AXA, the French insurance and asset management major, which holds a 49 per cent stake in the company, may exit the general insurance business once the deal goes through. ICICI Lombard, one among the three listed general insurance companies, commands a market share of 8.4 per cent, as per the June 2020 figures.
Raymond Ltd., one of the world’s biggest producers of worsted wool fabric used to make quality suits, is cutting costs as people continue to work from home during the coronavirus outbreak which has slammed demand for business clothing worldwide. The Mumbai-based company is reducing jobs, rents, and marketing costs to decrease expenses by 35% for the current financial year, Chairman Gautam Hari Singhania said. It has also sought to freeze loan repayments under a one-time moratorium program offered by the RBI. Raymond has seen its shares suffer the biggest loss among global peers this year as the virus outbreak intensified.