Sunday, 23 August 2020

New entrants to soar Nifty valuation | Raamdeo Agrawal's top stock tips | NRIs betting big on India revival

MORNING NEWSLETTER

24 Aug, 2020 | 08:41 AM IST


Good Morning!

FII and DII investment flow data are sending out mixed signals. While FII inflows to Indian equities continued in July, the quantum fell 65% from June level. A BofA Securities study showed flows were positive for energy, discretionary and IT but negative for telecom and financials saw outflows. DII inflows improved 20% in July over June. June quarter data showed the FII-DII ratio has increased in insurance sector in last one year, meaning more FII interest there, but declined in telecom, NBFC, private banks, cement, auto, retail, healthcare and technology.

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MARKET CUES: Where do we stand >>>

    Nifty futures on the Singapore Exchange traded 42 points higher at 7 am (IST) this morning, signaling a positive start ahead for Dalal Street.

    On Friday, Nifty50 reclaimed the 11,350 mark, but formed a bearish candle on the daily chart, as the index gave up some of the opening gains. Analysts said the index now faces resistance in the 11,440-540 zone.

    Asian stocks rose, led by gains in Hong Kong, amid signs of a thawing in US-China tensions from the Trump administration. Hong Kong shares opened about 1% higher. Equities in South Korea, Japan and China also traded higher. Shanghai Composite gained 0.1% and Kospi 1%.

    On Friday US stocks rose, lifted by strong economic data. Dow finished the session 190 points higher at 27,930, while S&P 500 advanced 0.34 per cent to 3,397, a new record closing high. The Nasdaq climbed 0.4% and ended at 11,311, also a record close.

    Crude oil prices nudged higher on Monday as storms bore down on the Gulf of Mexico, shutting more than half the region's oil production. Brent crude futures added 8 cents, or 0.2%, to $44.43 a barrel while WTI crude gained 7 cents, or 0.2%, to $42.41

    The rupee settled 18 paise higher at 74.84 against the US dollar on Friday as heavy buying in domestic equities strengthened investor sentiments.

    The dollar steadied against major currencies on Monday as traders looked to the Federal Reserve's annual Jackson Hole retreat for guidance. The greenback held steady against the euro and was little changed against the yen. The offshore yuan traded 0.1 per cent higher.

    Gold prices rose to Rs 55,610 per 10 gm, while silver climbed to Rs 67,110 a kg. On MCX, October gold futures fell 0.26 per cent to Rs 52,016 while silver September futures traded at Rs 67,067 a kg on Friday. In international markets, gold began the week on the back foot, falling 0.4 per cent to $1,932.35 an ounce.

LOOK WHO'S

NRIs betting big on India… NRIs are betting big on India, a sign of their faith in the Indian rupee as well as the economic outlook for the country, as bank deposits from the diaspora swelled in sharp contrast to the historically low interest rates in advanced economies. This should also help bulk up Mint Street's record high forex reserves. Flows into non-resident-external rupee account surged by a record four times in April-June quarter, the period of severe Covid disruption. Read More

Company incorporations at 7-year high… In one of the clearest signs of a pick-up in business sentiment, company incorporations touched a seven-year high of 16,487 in July, or over 530 a day, according to data from the ministry of corporate affairs. The figure was a 50% increase from a year earlier. Officials said filings for new company registrations continue to rise in August. "This is not a declining trend. In August, filings have increased, not only companies but LLPs also," an official said. Read More

Consumer finance bouncing back… Consumer finance — one of the biggest drivers of sales — has made a comeback and is inching towards pre-Covid level as a share of total transactions. The popular no-cost EMI plans and zero down payment schemes are gaining traction too, with both consumers and financiers showing confidence in repaying capacity. Financing has touched 40% of total sales of electronics and smartphones in August from around 20% in July and 10% in June, and executives from banks and NBFCs expect it to touch pre-Covid level of 60-65% by the festive season in October. Read More

HDFC Bank's bad loans below GFC level… HDFC Bank CEO-designate Sashidhar Jagdishan has said the lender's bad loans on account of Covid-19 would be below what was seen during the global financial crisis. He also said that the bank could grow its loan market share from 9% to 15% without diluting credit standards by tapping the top end of the rural and semi-urban market, where it has built distribution capability. Read More

AND WHO'S

New entrants set to soar Nifty valuation… The record-high valuation of the Nifty will be pushed further up following the inclusion of Divi's Laboratories and SBI Life Insurance in the index later next month. The PE ratio — a popular valuation matrix — of the Nifty was at 32.08 times on Friday, making India's main index the most expensive among its emerging market peers. After Divi's and SBI Life are included, the index's PE would advance to 32.68 based on Friday's close. Read More

Motown panicky amid sales squeeze… The auto industry has pressed the panic button and said that sales will be in a free fall this fiscal due to the impact of the coronavirus and the economic slowdown. Passenger vehicle sales are likely to crash to a 11-year low as absolute numbers in 2020-21 go below those sold in 2009-10. The industry's capacity utilisation will be at around 50%, or "at best" 60%, as demand will remain severely depressed, despite the emergence of some green shoots over the past few weeks. Read More

Some funds signal equity pricey…. Balanced advantage funds — a mutual fund product category that invests in both equities and bonds — have pruned their allocation to stocks as the recent market run-up has made valuations rich. These schemes are structured to shuffle between equity and debt based on the outlook for the asset classes. After touching a four-year low of 7,511 on March 23, the Nifty has rallied over 50%. This has caused the price to earnings ratio — a widely-watched valuation measure — of the Nifty to cross 32 times on Friday. India is the most expensive emerging market. Read More

Meanwhile...
Investors grant GVK a carve-out…. The investor consortium of India's sovereign wealth fund, NIIF, Abu Dhabi Investment Authority and Canada's Public Sector Pension Investments has agreed to give a "carve-out" to the promoters of GVK, the Reddy family, allowing them to initiate parallel discussions with third parties, including Adanis, for Mumbai International Airport Limited. Read More
KEY INDICES
16,982 + 82.25
14,625 + 203.65
22,300 + 300.15
18,065  -60.8
Price Movers|Volume Movers|Near 52 Week High|Near 52 Week Low

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Stocks to Watch >>>

Tata Motors has started preliminary discussions for a technology and funding tie-up, even as it kicks off a transformative process to get its domestic passenger vehicle business back on track.

Vedanta Resources may have offered one of the highest yields on dollar bonds in the emerging markets this year, but early-bird investors have likely already made a profit in the first few days since the primary sale last week.

Vodafone Idea has told its lenders that despite financial constraints, it will pay accrued interest on due loans after the moratorium ends on August 31

Piramal Enterprises' financial services arm, Piramal Capital & Housing Finance, is in advanced talks with Apollo Global Management, one of the world's largest alternative asset managers, to raise over $500 million.

PNB on Friday reported a standalone net profit of Rs 308 crore for the quarter ended June even as provisions for bad loans doubled.

Profit at Tata Capital, the unlisted financial services arm of Tata Group, declined 87% to Rs 124 crore in fiscal 2020 as impairments saw a rise.

UnQuote: TIPS FROM A VETERAN
Beware! A lot of small firms will go down
Raamdeo Agrawal, Chairman & co-founder, Motilal Oswal Financial Service

The DAY PLANNER

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OUTLOOK

Surge in midcaps not a good signal
    Independent Market Analyst Anand Tandon says while the frontline index has been somewhat flat, it is the smallcaps and the midcaps that have actually been roaring. "So that is always a bit of a danger signal ahead, because when you cannot find stocks to buy on the frontline, you start scouting around for second-rung companies, especially in the context where we are also simultaneously saying that the market share is moving towards larger companies. It makes you wonder whether we are close to the top," says he. Read More

You got to be picky in pharma
    Daljeet Singh Kohli of Valentis Advisors says valuation wise, pharma stocks have all moved far ahead of their fundamentals. "There are a few structural changes in this sector, and that is why we are getting this kind of euphoria. Of course, when this happens initially, then everything moves and along with the good guys, there are some bad names which also come up. So you have to be very clear, very stock specific and understand what is the strength of these companies that you are buying," says he. Read More

How far is earnings recovery?
    Pankaj Murarka of Renaissance Investment Managers says from earnings growth perspective, this year is a complete washout. "If we talk about high single-digit contraction in India's growth, this is something India has not witnessed for a long time. The last time we had an absolute contraction in growth was in 1981. So, it has been 40 years. The path to earnings recovery from here on will be a slightly more gradual thing. My view is probably we will take about 18 months from here on for earnings to get back to where we were on a pre-Covid level," says he. Read More

STOCKS RECOMMENDATIONS
L&T Technology Services Ltd. 21 Aug, 2020 | 10:49 AM IST buyBuy
Healthcare Global Enterprises Ltd. 21 Aug, 2020 | 11:37 AM IST buyBuy


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