More than the farmers, the stock markets, it seems were more concerned over the fate of the monsoon. The likelihood of the below normal precipitation by the India Metrological Department recently spooked the markets. Concerns aired by the RBI governor during the credit policy announcement also did not go down well with the markets resulting in the Sensex shedding 1189 points during the fortnight beginning 22 May. The Sensex closed at 26768 on 6 June with 1000 points declining in the last five sessions itself.
While Raghuram Rajan did cut the repo rate by 0.25 per cent as was widely expected, the lowering of the GDP estimate to 7.6 per cent from 7.8 per cent projected earlier due to the interplay of global factors and the weather forecast saw markets re-rating prospects. This was against the background of disappointing predictions of corporate earnings by brokerage houses. Mumbai-based Motilal Oswal Financial Services has cut down its earlier EPS estimate by 3 per cent to 71,605. This is 12 per cent down since November 2014. Foreign investors are also doing a re-think and pruning their exposure to India. HSBC Global Research in its report has stated that valuations need to be adjusted downwards. Fils were net sellers to the tune of 74,408 crore in May with the momentum of sales having picked up in June. Till 5 June they were sellers
to the tune of 71,250 crore. Domestic investors had no option but to play bull to the Fils. Even so the overall market cap of the companies listed on the BSE dipped below the 71 lakh crore mark yet again, to touch 799 lakh crore, down from the high 7106 lakh crore reached recently.
Fils have had a pretty good run in the markets over the last one year, since Narendra Modi took up the reins, with total returns averaging around 30 per cent and some amount of profit taking was inevitable. Especially with neighbouring markets like China offering good if not better opportunities, by flooding the markets with new issues, FPOs and IPOs. However no one really believes that the India story is over. And no serious exodus is really expected from the equity markets.
52 wk hi: 71,200 (7/4/14); low: 7594 (5/6/14) Change: -3%; Marketcap: 7205,985 crore
A better than normal spell rain could change the sultry dim: and lift the clouds of despair. W: reports of rains having arrived in Kt ala petering in, one is likely to see . change in investor sentiment soom than expected. The passage of the G5 Bill as is widely expected during the monsoon session of Parliament con.: aid the turnaround in sentiment More so, as some analysts predict the the implementation of a uniform GST could add at least 1.5-2 per cent to the GDP. The negative factor which coul: have an adverse impact is the fallou- in Greece and the further strengthening of the US dollar vis-a-vis other global currencies.
Amongst the sectors which were most badly hit were finance and realty. Since the beginning of this year both these indices have under- performed the Sensex. Banks and finance companies are the largest contributors to the Sensex. The fears of NPAs continuing saw several banks touch 52-week lows. The lowering of the Standalone Credit Profile (SACP) of Bank of India to ‘bb+’ from ‘bbb-‘ saw its share price dip to 7183 from over 7300 at the beginning of the year. Allahabad Bank was the other PSU to have recorded its 52-week low. However the sales in the bank’s shares were not limited only to public sector banks alone. There was a wide-spread selling rally witnessed in private sector banks, including ICICI, HDFC Bank and HDFC. One factor which weighed on the mind of the investors was the fear that the 0.25 per cent cut in the RBI lending rate is
BANK OF INDIA
|jso A share Price Totalturnover
(7) (7 lakh)
1 Jan -4 June 2015
52 wk hi: 7333 (9/6/14); low: 7179 (5/6/15) Marketcap: 711,310 crore
probably the last one till at least coming October. Fears of limited precipitation could lead to a spark in the prices of pulses and edible oil which could in turn impact inflation.
On the property front, DLF, the largest player with a market cap of over ?19,000 crore, in the investors presentation has not held out hopes of an early revival in demand. It has in fact said that the demand would remain around the same level, except in a few pockets. The shares of DLF were traded around ?107 down from ?242 a year ago on 9 June 2014. REITs could probably provide some relief to companies like DLF by providing liquidity against their commercial assets. Many of the property stocks are being reassessed.
Besides weak demand there were other factors which also impacted stocks. In case of Aban Offshore, which is in the business of providing rigs for oil exploration, the low price of crude took its toll. Investors reckoned that low prices may stem demand from explorers and a repricing of oil rigs would be inevitable if the situation continued for some time. The drop was despite the improved performance declared by the company for FY15. On a consolidated basis PAT rose to ?545 crore from the ?393 crore seen in FY14, mirroring a rise of 39 per cent.
Restructuring has been undertaken by companies in a bid to unlock value for shareholders, as also for some correction in the price
Total turnover of shares. Adani Enterprise, the holding company of Adani group, saw a sharp fall from ?575 to ?115 soon after the record date. The company distributed shares of its subsidiaries Adani Ports & SEZ, Adani Power and Adani Transmission (unlisted) to remain a pure trading company. The group had started as a trading company but with trading companies not getting the same valuation as the asset holding company, analysts believe that it may take some time for Adani Enterprise to regain its earlier sheen. Max India is the other big company which will be going in for similar restructuring.
Given the poor market conditions it is doubtful whether the government will go ahead with its divestment plans, at least not in the immediate future. Just Dial, market cap ?7,600 crore, one of the few stocks to have given positive returns in the recent past, shelved its plans for raising funds and is instead planning to
|M() 4 Share price
|Total turnover (T lakh)|
|1 Jan – 4 June 2015|
|52 wk hi: 7940 (8/7/14); low: 7309 (4/6/15) Marketcap: 71,936 crore|
go in for a buyback (through a tender basis where shares would be accepted on a proportionate basis). The buyback would be done at a maximum price of ?1,550 per share. This was against the ruling price of ?1,111. Institutions including Fils and private equity firms collectively hold around a 44 per cent stake in the company – higher than the promoter holding of 33 per cent. The shares were quoted at over ?1,800 on 5 August 2014.
The adverse performance following the takeover of Ranbaxy saw Sun Pharma’s share dipping by almost 15 per cent during the fortnight, from a high of ?1,000 to under ?850. Consolidation in the pharma sector saw Cipla ruling steady.
Many companies that had come out with FPOs saw their share prices dip below the offer price. Tata Motors’ shares were quoted at ?442 as against the offer price of ?450 while the DVR shares were also quoted marginally below issue price. The company had raised ?7,500 crore on a rights basis.
Consumer stocks are the ones to watch out for in the coming weeks. A better than expected monsoon could again see a rerating in this segment as rural demand has a material impact on the companies in this sector. For the coming fortnight the two factors to be watched for are the onset of the monsoon and the Parliament session which will begin on 5 August and last for 26 days. The current fall in the market has thrown up good opportunities for bottom-fishing.