Happy Janamashtami To all our Viewers......From Team IndianMarketPulse

   

Nifty likely to open with a gap of more than 100 points on Monday after FM booster shot

The finance minister unveiled measures to boost or improve investor and business sentiment.

  

The Nifty50 which closed with losses of about 2 percent for the week ended August 23 could see a strong opening when the market will resume trading on August 26 after Finance Minister Nirmala Sitharaman’s booster shot for the economy.

In light of slowdown fears, the finance minister unveiled measures to boost or improve investor and business sentiment.

A rollback in recent tax hikes on foreign and domestic investors, infusion of Rs 70,000 cr in state-run banks, a key measure to announce auto sector, are some of the measures to boost growth in Asia’s third-largest economy.

The government also outlined measures to support the NBFC sector and small businesses to calm the nerves of investors ahead of the upcoming festival season.

One big sentiment booster for D-Street is the rollback of higher surcharge on foreign portfolio investors (FPIs) as well as domestic investors. FIIs have pulled out nearly Rs 30,000 crore from the cash segment of India equity markets since July.

D-Street will welcome measure announced by the Finance Minister and we could see a bounce of about 100-points on the Nifty when the market resumes trading on Monday/

Post Budget, the correction was one-sided. We made a low above 10600 on Friday. But, going forward, the overall rally should be strong, and we could even touch fresh highs by December 2019 if earnings also show recovery,.

The measures which were announced on August 23 will go a long way in restoring growth and push India’s economy towards the $5-trillion economy in line with Prime Minister Modi’s vision.

It will also help in reviving faltering earnings growth seen in the June quarter. A revival in the economy will also revive demand, boost consumption, and push earnings higher. For the June quarter, excluding the banks & financials segment, aggregate net profit declined by ~5 percent for Sensex companies.

The finance minister has announced a slew of measures that will go a long way in addressing the expectations of investors and equally importantly, improving consumer confidence. We expect the market to gap up on Monday morning, and the process of restoration of growth via reforms is underway.

These measures will go a long way in reassuring investors of a pro-growth agenda. In large part, financial markets sold off on a disappointing budget. Investors will draw comfort from the measures announced today and the process for growth recovery has started.

What should investors do?

The Indian market was on the verge of turning negative for the year 2019. The Nifty50 broke below 10,682 in intraday trade but bounced back towards the closing on hopes of a stimulus package from the government.

The Nifty 50 closed with gains of more than 80 points while the S&P BSE Sensex rallied by over 200 points on Friday, ahead of FM speech.

The Nifty50 is still down by over 10 percent from its record high of 12,103, while the S&P BSE Sensex is down by about 9 percent. But, experts feel that it time to convert fear into greed as FM is likely to announce more such measure in the coming future.

Markets seem to be coming out of a fear spell which had gripped them since the beginning of August. Indian bourses should give opportunities to short term traders but some amount of money can be allocated by long term investors at the current levels as well.

FMCG, private bank, pharma sectors should be looked at by conservative investors whereas investors with a higher risk appetite can look at buying selective metal plays and cement stocks.

MORE WILL UPDATE SOON!!

Watch out! Top 10 stocks brokerages downgraded post June quarter

Of 114 companies it covers, 36 percent of companies' earnings were below expectations, 15 percent were in-line and 49 percent were above estimates.

    

After a muted June quarter, analysts expect September quarter to be uneventful as well with most brokerages slashing the EPS rating for Nifty in FY20-21.

Elara Capital downgraded Nifty 50 EPS for FY20 to 582 (4.3 percent) and FY21 to 701 (4.2 percent) in the past quarter, primarily led by auto, energy and IT.

Most brokerages downgraded earnings estimates as half of the companies they cover missed expectations. As a result, brokerages feel the target for earnings estimates predicted earlier for FY20 is unlikely to be met.

Earnings downgraded across the board. Our coverage universe pre-ex earnings growth is at a 5-quarter low of 0.2 percent. Ex-PSU oil sector, our coverage pre-ex earnings increased 15 percent and ex-oil & gas, metals & financials, our universe pre-ex profit fell 1 percent.

Of 114 companies it covers, earnings of 36 percent companies were below expectations, 15 percent were in-line and 49 percent were above estimates, it added.

Numbers from sectors like insurance, cement, FMCG, as well as banks were largely in line to encouraging numbers. However, metals, auto, telecom, high debt companies were in any case expected to deliver muted results.

“There is a general slowdown in consumer credit and therefore some pockets of the economy are reeling under the heat of slowdown which may drag further unless the government takes efforts. This weakness is expected to last for 2-3 quarters more,” Umesh Mehta, Head of Research, SAMCO Securities told Moneycontrol.

Here are 10 stocks downgraded by the brokerages post-June quarter: 

Divis Laboratories Ltd: Downgrade to Hold | Target Rs 1,670

Divis Laboratories profit grew marginally by about 1.8 percent to Rs 272.44 crore in the June quarter, and revenue rose by 17 percent to Rs 1,163 crore as compared to the same period a year ago. On a sequential basis, profit fell 6.7 percent and revenue declined 8.2 percent in Q1.

Global brokerage HSBC downgraded the stock to hold from buy and slashed its price target to Rs 1,670 from Rs 1,760 after its June quarter earnings missed analyst expectations.

Revenues declined on a QoQ basis on continuous supplies issues faced in Q1. Operating margin was broadly stable, and the fundamentals remained intact. Going forward, the start of supplies from expanded capacity will be crucial to realize operating leverage.

Shree Cements: Downgrade to underperform | Target: Rs 20,800

Company's consolidated profit in Q1 increased 36 percent to Rs 380 crore driven by operating income but was below market expectations. The revenue of the company grew by 7.6 percent to Rs 3,302.8 crore compared to the year-ago period.

On a segmental basis, cement business revenues contracted by 1 percent YoY due to lower cement offtake. CLSA downgraded Shree Cement to 'underperform' from 'outperform' with a target at Rs 20,800 per share at 17.5x one-year forward EBITDA.

The brokerage raised its realization assumptions based on higher spot cement prices, which offset lower volume growth estimate. It raised EBITDA estimates by 1-2 percent.

While having a 'reduce' call on the stock with a target price at Rs 14,630 per share on rich valuations, HSBC said Shree Cement's volumes underperformed peers and were lower than estimates.

Godrej Properties Ltd: Downgrade to Neutral | Target: Rs 910

Despite a decline in its revenues, Godrej Properties reported a nearly two-fold increase in consolidated net profit for the quarter ended June 30 at Rs 89.87 crore mainly on the back of a decline in total expenses. However, the robust numbers failed to impress global investment bank Macquarie.

Reacting to the results, Macquarie downgraded the stock to neutral post-June quarter results but raised its target price to Rs 910 from Rs 900 earlier.

The company remains focused on business development opportunities, and the global investment bank expects Godrej Properties to continue to gain market share in the medium term.

But, for the near term, the global investment bank slashed earnings estimates by 6.6-8.4 percent for FY20-21.

Cipla: Downgrade to sell | Target Rs 460

Cipla’s net profit grew 0.4 percent at Rs 447.2 crore in Q1FY20 against Rs 445.6 crore in the year-ago period. Revenue declined 1 percent to Rs 4,067.39 crore in Q1, compared to Rs 4,109.10 in Q1FY18.

The near-term catalyst for the stock is absent. The global investment bank slashed FY20-22 EPS estimates by 9-14 percent for Cipla.

The negative surprise from the June quarter result was a 12 percent YoY decline in India sales. No big launches in the US in the near-term should keep growth outlook muted, said the note.

Bharat Forge: Downgrade to Neutral | Target: Rs 450

BofAML downgraded Bharat Forge to Neutral from buy post-June quarter earnings and has also reduced its target price to Rs 450 from Rs 540 earlier.

Slowing export momentum pose a risk to the near-term earnings. The outlook for exports across Class 8 trucks & industrial forgings has weakened which will keep upside fixed for the stock.

The global investment bank expects the standalone profit margin to shrink by 120 bps in the next 2-year basis. It sees a significant room for growth from defence vertical as well as PV exports.

Apollo Tyres: Downgrade to Neutral | Target: Rs 170

Nomura downgraded Apollo Tyres to Neutral post-June quarter results with a target price of Rs 170. The June quarter was largely in-line with estimates, but the demand outlook has worsened.

Apollo Tyres reported 43.8 percent fall in its Q1FY20 consolidated net profit at Rs 141.6 crore against Rs 251.8 crore in the same quarter last fiscal. Revenue of the company was up at Rs 4,331.3 crore against Rs 4,299.3 crore.

Godrej Consumer: Downgrade to Underperform | Target: Rs 645

CLSA downgraded Godrej Consumer to underperform from buy earlier post-June quarter results with a target price of Rs 645 from Rs 800 earlier.

The company continues to show a volatile earnings trend. Going forward, Indonesia, as well as Gaum cluster, show modest CC growth.

The business may need time to stabilise and pick-up. CLSA feel that the stock may remain range-bound. It slashed its EPS estimates by 3-4 percent for FY20-21.

Ramkrishna Forgings: Downgrade to Hold | Target: Rs 475

Anand Rathi downgraded Ramkrishna Forgings to hold post-June quarter earnings and also reduced the target price to Rs 475 from Rs 758 earlier.

We expect the domestic business to decline, exports continue to grow both in the US and Europe. We continue to expect growth in FY20, and the domestic market to decline, albeit slower than the underlying OEMs," said the note.

The domestic brokerage firm expects revenues to grow 3 percent CAGR for FY19-21 to Rs 1940 crore. It expects earnings to decline by 7 percent CAGR to Rs 103 cr leading to an EPS of 31.7, due to higher depreciation and interest.

Repco Home Finance: Downgrade to Accumulate | Target: Rs 343

IDBI Capital downgraded Repco Home Finance to Accumulate post the June quarter earnings and slashed its target price to Rs 343 from Rs 495 earlier.

Repco Home Finance’s asset quality during Q1FY20 deteriorated by 120bps on a sequential basis to 4.2 percent. The loan growth remained modest at 13 percent on a YoY basis, largely due to sluggish growth of 8 percent in its core Tamil Nadu book while its Non-TN book grew at a robust pace of 19 percent.

NII/PPP has grown by 11/7 percent each on a YoY basis. Growth in the net profit remained muted at 2.5 percent on account of higher provisions during the quarter. However, despite the uncertainties in the sector, it can garner a spread of 3 percent with a comfortable liquidity position.

Gateway Distriparks Ltd: Downgrade to Neutral | Target: Rs 113

Phillip Capital downgraded Gateway Distriparks Ltd to Neutral post-June quarter results and also reduced its target price to Rs 113 from Rs 190 earlier.

The stock trades at 17.9x our FY21 earnings. The leverage profile has increased significantly given economic slowdown and increase in gross debt to Rs 830 crore (Debt to EBITDA of 3.1x) post-acquisition of a stake in Gateway Rail.

We have valued rail business now at 7xEV/EBITDA FY21 (10xEV/EBITDA of FY20 earlier) at Rs 96 (earlier 140 per) share. Post AS 116, the profitability of CFS business has impacted and we estimate a marginal loss of Rs 5.8 cr in FY21 (excluding SEIS benefit).

MORE WILL UPDATE SOON!!

Current market weakness not similar to 2002-2003 crisis; bet on these 4 consumption stocks

FII's outflow, slower domestic growth, weaker rupee, fiscal deficit are major concerns that should be addressed soon.

 

The 2002-2003 crisis in the US affected all global indices. Current economic environment is not that devastating as compared to that bear market. In the current scenario, the market is facing a healthy correction and we can see further upside ahead.

As per unconfirmed news, Finance Minister and Prime Minister had a good meeting and the PM is very optimistic about the outcomes of the meeting. It is anticipated that and the government is thinking on giving a major push to boost the economy by one-time stimulus package for real estate developers along with slashing of GST rates to 18 percent across all auto segments.

Along with these, repo rates have been slashed for the three consecutive times in order to maintain liquidity and cheap finance cost. The major announcement in the budget of increasing surcharge on FPIs is also under consideration, and we may see a rollback soon. A major relief for the stock market will be to increase the LTCG term to three years. These steps can help markets and economy gain positive momentum.

Index has corrected around 10 percent from its highs and it is a good time to invest your 60 percent capital in good quality stocks, we may witness good upside from current levels and be ready to tap buying opportunities with the remaining 40 percent in case of dips.

Largecap stocks can generate good returns in next 2-3 years. Consumption stocks would be a good bet to invest your money into, this includes HUL, Marico, Dabur and Nestle.

Global markets have remained subdued amidst the US-China trade war. Weakness in crude prices might be an indication of subdued global growth.

Also, a surge in gold prices and increased demand is a reflection that investors are looking for safe haven investments in the current uncertain scenario of global markets.

Discomfort in Hong Kong was a major concern in South East Asia, and Hang Seng underperformed all major indices. We may see more pain and downside in the equity market for the rest of the financial year.

A: It would be premature to comment that the market is in bear phase. It is in a correction phase. Indeed the equity market was not able to generate good returns in the last year. More than half of Nifty stocks have tumbled from their highs and corrected more than 12-15 percent. But we may expect upside, as the government is trying to take measures to bring the economy back on track. We should start accumulating good large cap stocks.

A: As far as the automobile sector is concerned, without a doubt, it is in pain. Lower demand, high inventory pile-up, competition within the sector are major concerns that have impacted the whole sector. One should keep themselves away from the sector and wait for the turnaround. As the festive season is ahead, we may see some demand traction. But right now, it is a wait and watch situation for the sector.

A: This sector has outperformed all other sectoral indices and interestingly SBI Life and HDFC Life are trading at their 52 weeks highs, despite negative returns elsewhere in the market. Government is also inclined towards giving a push to the sector to make sure that insurance reaches each and every person. In this regard, the government has also launched many schemes.

Earning and AUM of insurance sector witnessed tremendous growth along with an expansion in the bottomline. Based on the projected growth in the upcoming five years, we would not be surprised to see exponential growth within the sector.

The 2002-2003 crisis in the US affected all global indices. Current economic environment is not that devastating as compared to that bear market. In the current scenario, the market is facing a healthy correction and we can see further upside ahead.

One should find the opportunity to invest in good stocks and start accumulating them. FII's outflow, slower domestic growth, a weaker rupee, fiscal deficit are major concerns that should be addressed soon.

MORE WILL UPDATE SOON!!

FM withdraws surcharge on FPIs and domestic investors: Analysts feel market set for strong run

With Finance Minister Nirmala Sitharaman announcing withdrawal of surcharge on foreign portfolio investors, analysts are confident that this will provide the market with a much-needed boost.

Withdrawal of enhanced surcharge on FPI is a big positive for Indian markets as it could reverse the outflows seen since post-Budget,

Announcement should also help rupee appreciation .

Sensex lost more than 7 percent and more than Rs 14 lakh crore wealth eroded since the announcement of additional surcharge on FPIs registered as trusts and domestic investors.

FIIs also have been net sellers since Budget, pulling out more than Rs 25,000 crore though domestic institutional investors remained supportive during that period.

"In order to encourage investment in capital market, it is decided to withdraw enhanced surcharge on FPIs. Surcharge on domestic investors in equity also goes. Pre-budget position is restored,"said Nirmala Sitharaman told reporters.

The approximate revenue implication due to removal of surchange on FPIs and domestic investors will be around Rs 1,400 crore, said Revenue Secretary Ajay Bhushan Pandey, adding the government will keep that tax at pre-budget levels.

Experts believe this could definitely have positive implications on the market and help in reversal of FPI outflow.

One can now expect reversal of the FPI selling and the market is likely to look up from now on.

However, sustained rally in the market will happen only when we have visibility on good earnings growth and reversal of the slowdown under way in the economy. This requires more reforms. The FM has announced that she will come back with more reforms soon. So, there is hope.

FPIs were selling given the risk-off mode in the global market which had enhanced in India due to higher surcharge post budget, and that could be reversed to a good level in culmination of other supportive measures like recapitalization of PSBs, transmission of rate cut and Auto.

The finance minister in the budget on July 5 had proposed a higher tax surcharge - from 15 percent to 25 percent for incomes between Rs 2 crore and Rs 5 crore, and from 15 percent to 37 percent for higher incomes on non-corporate FPIs.

Here is what other experts say about FPI surcharge withdrawal impact:

The Finance Minister has undone most of the damages caused by her maiden Budget speech by rolling back the surcharge on FPIs and domestic investors. This is a welcome step and markets are expected to cheer for it. Release of Rs 70000 crore upfront for the PSU banks and other major announcements for easing crisis in NBFCs will help in credit off take.

The best part is, FM is now open to act on Industry feedback and has promised to announce a few more stimulus measures in the coming weeks.

After this much awaited booster doze, I expect market to form base around current level and inflows will be witnessed in broader markets among quality mid cap & small cap stocks. We may witness rally in the favorite stocks of FIIs which majorly constitute our benchmark Index.

The main takeaway of today’s announcements by the Finance Minister is that they are aimed at restoring confidence and tackle the challenges of weak demand.

Withdrawal of surcharge on FPIs and domestic investors would help in alleviating the tax burden on investors in capital markets. Likewise, quicker transmission of rate cuts, faster recapitalisation of banks and external benchmarking of rates are likely to aid credit off take.

Most importantly, recognition of issues in the economy and the measures to address them is itself a positive signal and will help to ease concerns on growth slowdown.

These are just the kind of measures which were required to boost the economy. In the immediate term, we can expect the markets to bounce back on Monday with a gap up opening, and continue the rally for a few sessions to come. With the stimulus to FPI taxation, we can expect this FII outflow trend to reverse in the immediate term.

It is a phenomenal announcement from FM and if she played the card well, then there could be a definite boost to economy and the party could continue going ahead.

He expects 11,000 on the Nifty on Monday and bears could get slaughtered. But the follow-up rally will depend on economic growth and global factors like US-China trade war.

MORE WILL UPDATE SOON!!