May 27, 2018 / 6:44 AM / a year ago

India Markets Weekahead: Time to get into mid-caps

Indian shares logged in minor gains in a highly volatile week with the Nifty moving in a 200-point range. The mood was initially cautious on rising oil prices and a weakening rupee.

A bird flies past the logo of National Stock Exchange (NSE) installed on the facade of its building in Mumbai, India, February 9, 2018. REUTERS/Danish Siddiqui/File Photo

Global cues were, however, supportive after trade tensions between the Unites States and China seemed to dissipate, but comments from Donald Trump that he was not satisfied with trade talks and his sudden announcement canceling his summit with North Korean leader Kim Jong Un dented sentiments again.

Domestically, investors continued to monitor political developments including the informal summit between Prime Minister Narendra Modi and Russian President Vladimir Putin.

Sentiments rose later in the week after Brent crude corrected nearly 2 percent to below $78 and the rupee strengthened by 54 bps to 67.80 on Friday. For the week, the Nifty ended higher by 91 points to close at 10,605. The small-cap index fell 1 percent.

On the stock specific front, oil marketing companies were in focus after petrol and diesel were made dearer by three rupees a litre and 2.77 rupees a litre respectively. NITI Aayog, the central government’s policy think tank, has urged state governments to cut duty on petrol.

ONGC corrected sharply after news reports that the government might levy a windfall tax on ONGC as part of a solution to moderate the rising retail fuel prices. However, such a windfall tax will disappoint both domestic and foreign firms foraying the oil exploration and production industry and will damage the sector.

The oil ministry later said that it is of the view that petroleum products should be brought under GST in order to bring down prices. This eased pressure off ONGC on Friday.

Bhushan Steel and Tata Steel were in the limelight as the latter completed buying a 72.65 percent stake in Bhushan Steel for 352 billion rupees in an all-cash deal as part of its resolution plan under the Insolvency and Bankruptcy Code. The conclusion of the deal gave a breather to lenders, who can now classify their outstanding loans to Bhushan Steel worth 560.79 billion rupees as standard, reducing their NPA burden.

However, they had to take a more than 37 percent haircut in the process.

Telecom stocks were also in focus after the release on subscriber base data for March, which crossed 1.2 billion, with Reliance Industries’ Jio adding the most number of new subscribers (9.4 million). Jio’s 5.32 percent user growth were supported by sales of the effectively free 4G-enabled JioPhone which has become the country’s best-selling feature phone.

On the earnings front, the results of most heavyweights were below market expectations with the exception of Sun Pharma. Dr Reddy’s reported a 3 percent fall in Q4 net profit, led by continuing pricing pressure in its largest market, the United States. SBI incurred a net loss in Q4 due to low treasury income, higher bond yield resulting in significant mark-to-market losses and incremental increase in provisioning for stressed assets.

Tata Motors posted a 50 percent fall in net profit due to higher operating costs and a one-time impairment. Also, the commentary on its JLR unit seems to be weak.

On the policy front, the Union Cabinet approved a few changes to the Insolvency and Bankruptcy Code 2016, including financial creditor status to home buyers. This means home buyers will now be equally treated with financial lenders in the liquidation proceeds of a defaulting builder.

In the coming week, markets are expected to take cues from macro-economic data and the progress of India’s monsoon. Volatility is expected to remain high ahead of the F&O contract expiry on Thursday. The rupee’s movement will also be watched, as will developments related to Donald Trump and Kim Jong Un’s on-and-off summit.

On the macro-economic front, India’s Q1 GDP data is expected to be released on May 31, while the Nikkei Manufacturing PMI data is scheduled for June 1. The mid-caps seem to be bottoming out and it would be a good time to enter the segment with a medium to long-term view.

Ambareesh Baliga has about 25 years of experience in the stock market and has worked with Karvy and Kotak groups in the past. He is a regular market commentator on various business channels. He is a commerce graduate from Calcutta University and a qualified cost accountant.

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