Market Live: Midcaps outperform Sensex, Nifty; Sun Pharma extends gains

Jai Corp, Prism Cement, GVK Power, Welspun India, Indiabulls Real, JSW Energy and NMDC gained 1-8 percent.

  

Estimates: Shree Cements is likely to post a profit after tax (PAT) of Rs 265 crore in Q3, a rise of 13 percent against Rs 235.4 crore year on year, according to a CNBC-TV18 poll of analysts.

The revenue from operations may grow over 24 percent at Rs 2,290 crore against Rs 1,843 crore in the third quarter of FY17.

At the operating level, operating profit may grow to Rs 545 crore, a rise of 16 percent from Rs 469 crore, while the operating margin is seen lower at 23.8 percent against 25.4 percent.

Japan's stimulus:  The Bank of Japan maintained the amount of its bond purchases today, helping to soothe a market rattled earlier this week by a cut in its buying of longer-dated debt that fanned worries the central bank may be moving to turn off its stimulus.

The BOJ maintained the size of its buying in one- to three-, three- to five-, and five- to ten-year Japanese government bonds at 250 billion yen (USD 2.24 billion), 300 billion yen and 410 billion yen respectively.

CPI Inflation Poll: India's retail inflation likely rose to a 17-month high in December, a Reuters poll showed, and that could push the central bank to tighten monetary policy.

After November's 15-month high of 4.88 percent, consumer price inflation likely climbed to 5.10 percent, which would the highest since July 2016, according to the median in the poll of nearly 40 economists over the past week.

The December inflation data is due to be released on Friday, January 12 at 17:30 hours IST.

Rupee Trade: The rupee slid further by 22 paise to hit a low of 63.82 against the greenback in late morning deals on continued bouts of dollar demand from importers and banks amid flat equities.

The rupee opened lower at 63.65 per dollar from yesterday's closing level of 63.60 at the inter-bank foreign exchange market today.

The Indian unit witnessed volatility and fell further to 63.82 on heavy dollar demand.

Buzzing: Sun Pharma shares extended gains, rising more than 1 percent after CNBC-TV18 reports quoting Cogencis that company's Halol unit in Gujarat has received Good Manufacturing Certificate from Dutch Agency.

Dutch's health regulator had audited Sun Pharma's Halol unit on August 25, 2017.

Mobile Users Addition: Bharti Airtel has added 43 lakh users in November while Reliance Jio, the part of Reliance Industries, added 61.2 lakh users in same month.

Idea Cellular and Vodafone, which are going to merge in current year, added 32 lakh and 27 lakh users in November.

Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.

Buzzing: Share price of India Nippon Electricals advanced 10 percent intraday as board going to consider sub-division of equity shares of the company.

The company has been decided to convene a meeting of the board of directors on January 29 to consider the unaudited financial results of the company for the quarter ended December 31, 2017.

The board will also consider the proposal of sub-division of equity shares of the company. The board will consider payment of an interim dividend for the year ending March 31, 2018. The rate, quantum, date of payment of interim dividend and the record date, if declared, will be intimated soon after the meeting.

Lupin outlook: Lupin is aiming for a bigger thrust on the USD 54-billion complex generics market as it tries to insulate itself from increasing competition and consolidation of distribution channel in US in plain vanilla copycat drugs.

Out of USD 98-billion products under development 55 percent will come from complex categories like biosimilars, inhalation, depot injectables, opthalmic and topical dermatological drugs, the company said in its presentation at JP Morgan Healthcare conference in San Francisco, US.

Lupin—India’s number two company by sales—is banking on the inhalation pipeline worth USD 17 billion in the next three years. It said it is in discussions with the US FDA to explore opportunities to accelerate development timeline for inhalation programs.

Results Date: Car maker Maruti Suzuki said the meeting of the board of directors is scheduled to be held on Thursday, January 25 to consider and approve the unaudited financial results for the quarter ended on December 31, 2017.

 Market Outlook: "We expect strong momentum to continue for equity market over FY19 due to revival in earnings after teething problems of GST, low base of demonetisation, increasing focus of government on infrastructure development even at the cost of fiscal slippage and favourable global headwinds with favourable commodity prices," Abhinav Gupta - President, Capital Markets - Share India Securities said in an interview to Moneycontrol.

Increasing government spend will lead to higher purchasing power and we expect earnings to grow at around 17-18 percent over next year, he added.

The research house has maintained its year-end Nifty target at 12,500 in line with current multiples and pricing in the earning growth over the course of year. Indian markets currently in pre-budget rally might see a small correction which we believe would be a buying opportunity.

Crude Oil Update: Oil prices held near three-year highs, supported by a surprise drop in US production and lower crude inventories, although analysts increasingly warned of signs that fuel markets have overheated.

US West Texas Intermediate (WTI) crude futures were at USD 63.49 a barrel, 0.13 percent below their last settlement but still close to a December 2014 high of USD 63.67 per barrel reached the previous day.

Brent crude futures were at USD 69.09 a barrel, 0.16 percent below their last finish. That was also close to the previous day's high of USD 69.37 a barrel, which was the highest level since an intraday spike in May 2015 and, before that, in December 2014.

Market Check: Benchmark indices continued to be rangebound in morning but the broader markets outperformed, with the Nifty Midcap rising 0.24 percent. Investors focussed on corporate earnings.

The 30-share BSE Sensex was up 3.41 points at 34,436.48 and the 50-share NSE Nifty slipped 7.30 points to 10,624.90.

About 1,268 shares advanced against 959 declining shares on the BSE.

Buzzing: Share price of Som Distilleries and Breweries touched 52-week high of Rs 262.90, gaining nearly 12 percent in morning as investor Porinju  Veliyath bought stake in the company.

On January 10, 2018 Porinju V Veliyath bought 1,50,000 shares of the company at Rs 197.95.

EQ India Fund also bought 5,00,000 shares of the company at Rs 197 on the NSE.

Rupee Trade: The rupee weakened 12 paise to trade at 63.71 against the US dollar in morning session at the Interbank Foreign Exchange on increased demand for the American currency from banks and importers.

Foreign fund outflows and rising crude oil prices also weighed on the rupee sentiment.

Crude oil prices were ruling at around three-year high levels, putting pressure on the rupee as India is a major oil importer.

Yesterday, the rupee had bounced back to end higher by 11 paise at 63.60 against the US currency on bouts of dollar selling by exporters and corporates.

Satyam Case: Finding Price Waterhouse guilty in the multi-crore Satyam scam, Sebi today barred its network entities from issuing audit certificates to any listed company in India for two years and ordered disgorgement of over Rs 13 crore wrongful gains from the audit major and its two erstwhile partners who worked on the IT major's accounts.

The market regulator's order comes after nine years post the scam at Satyam Computer Services came to light and after two failed attempts by auditor major Price Waterhouse to settle the case through consent mechanism.

This is also one of the most stringent orders passed by any regulator against a Big Four audit major.

Buzzing: Shares of GE Power India rose 5.6 percent in the early trade on contract win worth Rs 818.3 crore.

The company has been awarded a contract worth approximately Rs 818.3 crore by Navayuga Engineering Company.

The contract includes design, engineering, manufacturing, supply, erection, testing and commissioning of 12 Nos., 80 MW capacity vertical full kaplan turbine generator units along with all associated auxiliary and ancillary equipment.

IPO Subscription: The initial public offer (IPO) of Apollo Micro Systems, which caters primarily to the defence and aerospace sectors, was subscribed 2.14 times on the first day of bidding on Wednesday.

The IPO, to raise Rs 156 crore, received bids for 88,60,500 shares against the total issue size of 41,44,955 shares, data available with the NSE showed.

The portion reserved for qualified institutional buyers (QIBs) was subscribed 32 peipocent, non institutional investors 51 per cent and retail investors 3.78 times.

Market Check: Equity benchmarks were flat in opening on Thursday as investors await third quarter earnings of Infosys, TCS and IndusInd Bank.

The 30-share BSE Sensex was down 2.74 points at 34,430.33 and the 50-share NSE Nifty fell 7.20 points to 10,625.

About 780 shares advanced against 536 declining shares on the BSE.

Infosys, Hindalco and HCL Technologies were early gainers.

Wipro, Yes Bank, Bajaj Finance, Cipla, HPCL, L&T, Eicher Motors, Axis Bank and ICICI Bank were early losers.

Jai Corp, Prism Cement, GVK Power, Welspun India, Indiabulls Real, JSW Energy and NMDC gained 1-8 percent.

MORE WILL UPDATE SOON!!

Apollo Micro Systems’ Rs 156-cr IPO opens today. Should you subscribe to the issue?

The company fixed a price of Rs 270-275 per share and said that the proceeds will be used to meet additional working capital and other general corporate purposes.

 

A new entrant to the primary market on Wednesday will be Apollo Micro Systems, which is set to open its initial public offering.

"The IPO of Rs 156 crore of face value of Rs 10 each for cash at a premium will be offered through a book-building route at a price band of Rs 270–275 per equity share," Apollo Micro Systems had said in a statement earlier.

The company fixed a price of Rs 270-275 per share and said that the proceeds will be used to meet additional working capital and other general corporate purposes.

Further, a discount of Rs 12 on the issue price will be offered to retail investors and to eligible employees.

Aryaman Financial Services is the sole book running lead manager to the issue.

The company offers integrated solutions to the aerospace, defense, home land security and transportation sectors.

Multiple brokerages recommend subscribing to the issue, citing reasonable valuations and strong sectoral outlook as well.

Apollo Micro | Rating: Subscribe

The brokerage highlighted that it reported a CAGR of 54.2% and 58.3% on revenue and net profit fronts respectively over FY2013-2017. On its upper band of price of Rs 275, the issue is priced at PE ratio of 27.1x of its H1FY2018 annualised EPS of Rs 10.2.

“We believe that the IPO is fairly priced leaving a room for upside. Hence, we recommend to Subscribe the IPO,” it said in a report.

Angel Broking | Rating: Subscribe

The brokerage house highlighted aspects regarding valuation and said that the pre-issue P/E works out to 29x 1HFY2018 annualized earnings, which is lower compared to its peers like Astra Microwave (trading at 36.2x its 1HFY2018 annualized earnings).

Further, the company has a strong financial record and return ratios compared to Astra Microwave.

Hence, considering the above positive factors, growth in the defence industry we recommend subscribe on the issue.

Choice Broking | Rating: Subscribe with Caution

Choice Broking believes that the business is fairly priced, leaving limited space for further upside. Defense investment theme is long term in nature. “Given the strong sector outlook, we believe that the stock would provide returns in medium to long term.

However, the key concern linked to the sector is the highly stretched working capital cycle. Thus considering the above observations, we assign a “subscribe with caution”rating for the issue.

MORE WILL UPDATE SOON!!

2017-like rally unlikely, but can expect 12-15% returns this year; 5 themes key in 2018

12-15% returns possible if earnings show 10/19 percent growth in FY18/19 and GDP grows more than 7 percent in next few quarters.

The market gave a big surprise to investors in 2017 as the 50-share NSE Nifty shot up 29 percent, which was largely in line with global trend, but it was despite growth slowdown due to twin disruptions — demonetisation and GST implementation.

The stupendous rally was driven not only by liquidity, but also by hope of earnings and economic recovery (due to reforms by Modi government) going ahead, which had been lagging for many quarters in the past.

That kind of returns seem unlikely in 2018 though earnings and economic recovery look possible, is the word coming from Aditya Birla Capital.

What it expects is 12-15 percent return in the current year and the similar kind of uptrend is likely to continue in 2019 & 2020 as well.

But is it really achievable? Yes, it is largely possible if earnings show 10/19 percent growth in FY18/19 and GDP grows more than 7 percent in next few quarters, Mahesh Patil, Co-Chief Investment Officer of Aditya Birla Sun Life AMC said on the sidelines of Aditya Birla Capital conference on Tuesday.

These are not the only assumptions for double digit returns for 2018. The research house expects crude oil to trade in range of USD 55-65 a barrel, global growth to continue, reforms (GST, IBC, RERA, road projects worth Rs 7 lakh crore, Rs 2.11 lakh crore PSU banks' recapitalisation, affordable housing, etc) announced in last two years to show results and rural growth which was lagging to be seen going ahead, which will create conducive growth environment for the country.

"Modi government's five reforms would see the results starting 2018 putting India in a 'Stronger for longer' position," Patil said.

He further said the higher ranking in 'ease of doing business' and Moody's India upgrade also gave strong confidence to investors.

Last year, global rating agency Moody's after raising India's rating by a notch to Baa2 (after 13 years) had said reforms implemented to date would advance the government's objective of improving the business climate, enhancing productivity, stimulating foreign and domestic investment, and ultimately fostering strong and sustainable growth.

The reform program would thus complement the existing shock-absorbance capacity provided by India's strong growth potential and improving global competitiveness, it added.

Other positives that Aditya Birla Capital pointed out are consumption growth (due to low interest rates, 7th pay commission, lower GST rates, farm loan waiver, recovery in rural) is expected to drive GDP; likely pick up in private capex; likely long term liquidity support to market on the downside; stability in inflation; comfortable current account deficit (led by foreign flows & forex reserves); and stability in rupee (around 61-66 to US dollar).

The investment firm expects India to remain an investment destination for foreigners due to growth opportunities it provides at the back of strong economy and currency.

Mutual fund industry, which has seen average monthly inflow run rate of Rs 19,000 crore in 2017, is expected to see at least Rs 10,000 crore monthly inflow in current year, the firm said.

It also believes the NSE Nifty which rallied 29 percent on hopes of recovery is not in a bubble territory and will look cheaper as earnings recover going ahead. In fact, the Nifty has merit in trading at premium valuations compared to historical averages and also 2008 peak.

Considering other parameters like P/B, P/S, dividend yield etc, there is no froth in the markets. Infact, IIP, eight core industries and other indicators point to bottom of the cycle is behind and the economy is recovering. Composition of Nifty50 index has also changed with more weightage to non-cyclical sectors. Hence, it commands more valuation than in the past.

But... if all these things go for a toss, which means earnings & economic recovery do not happen, reforms do not work out, crude increases sharply, geo-political risks arise, US specific risks pop up (political, reforms, tax), China growth slows down etc, though are unlikely, then that could be a bigger risk for 12-15 percent market return expectations.

MORE WILL UPDATE SOON!!

51 stocks have fallen over 50% from their 52-week highs: Should you pick any?

A rising tide lifts all boats, or most. With markets hovering at all-time highs, nearly all stocks in the market have appropriately risen.

While some investors and traders choose momentum  as a strategy, in which you chase high-performing stocks, others look at a contrarian approach.

So even as the general complaint in the market is there are not enough lucrative opportunities left anymore, interestingly, there are 51 stocks that are trading at, at least, a 50 percent discount from their 52-week high.

To filter out microcap stocks, we weeded out companies with marketcap below Rs 100 crore.

Should you go out and buy these stocks then? Don't -- at least not only because of their fall. Remember the market adage 'don't catch a falling knife'.

But here's a further spin to our numbers.

To assess the fundamentals of the companies whose names turned up in the above list, we looked for those that had posted at least double-digit sales growth and return on equity for each of the last fiscals.

Only two stocks, Kushal and Pincon Spirit, passed our screen.

Price performance: While Kushal has given a sterling 1574 percent absolute return over the past three years, Pincon Spirit has netted a stable 80 percent.

Company’s growth: Both the companies have clocked consistent sales and profit growth of 40% over 3 years.

MORE WILL UPDATE SOON!!

Should investors wait for a 3-5% correction before putting fresh money ahead of Budget?

If the dip happens, investors would welcome it with both hands but it is difficult to time markets. Hence, a staggered approach of investing should be followed.

   

The bulls remained in control of Indian markets so far in the month of January with benchmark indices climbing to record highs just ahead of the Budget 2018.

The next crucial question in the mind of investors is -- will the momentum continue and is this the right time to deploy fresh capital?

Moneycontrol spoke to analysts tracking D-Street who confirmed that what we are witnessing is a pre-budget rally and any fresh capital should be deployed on dips or at least in a phased manner.

The correction which everyone is eyeing for might not come ahead of Budget and even if it comes, it will be quickly bought into leaving most on the sidelines.

Over the last 12-18 months, we have not seen any major corrections owing to strong domestic liquidity and raging global bull markets.

Long-term participants may deploy 50 percent of the investable amounts at current levels and any major shocks or corrections of around 7-10 percent into the markets can be utilized to deploy the rest amounts.

Indian market is discounting most of the negative news flow such as a rise in inflation, rising bond yields, crude oil prices which are inching towards USD 70/bbl, and lingering concerns over fiscal deficit.

Even the derivative data points towards bullishness atleast in the near term. Open Interest (OI) breakouts are the most interesting sweet-spots to be traded. The strike of 10,600 had the nearest highest congestion before 11,000 and with a move in Nifty above that, a lot of shifts are expected.

Smart money has already been sitting firmly at 11,000 for a long time and could be a probable upper range for January expiry. India VIX despite the fact of an event and result season has been quoting lower than normal. VIX has a negative correlation to Nifty and it seems to be respecting the fact that Bulls are in control,” Shubham Agarwal, CEO & Head of Research at Quantsapp Private Limited.

A wise way to approach this Budget season would be to build positions pre-budget and deploy a hedge to cover uncertainty of the event. This may lead to a slight compromise to the return but on a risk-adjusted basis is still lucrative. The level of 10,450-10,400 now becomes a strong support for the index with upside open up to 11,000-11,200.

Should investors wait for a dip?

If the dip happens, investors would welcome it with both hands but it is difficult to time markets. Hence, a staggered approach of investing should be followed.

We prefer a pyramiding approach, continued to add, albeit, slowly to positions that have been built earlier. However, waiting for a 3-5 percent dip may be a folly, if it were to happen in the next 30 days or so, as it should ideally mark a break in momentum, and hence, it would be prudent to play the strength, rather than waiting for weakness,” Anand James, Chief Market Strategist at Geojit Financial Services told Moneycontrol.

“However, with earnings beginning to flow in across the globe, it would not be surprising to bump into pockets of volatility, but 11,000 in Nifty should continue to act as a lighthouse for the time being.

MORE WILL UPDATE SOON!!

Short covering likely to push index towards 10,750; 5 stocks which can give up to 19% return

On the technical front, 10,550-10,500 spot levels is strong support zone for Nifty and current trend is likely to continue towards 10,700-10,750.

 

At current levels still, there is a lot of outstanding short position held in Nifty and Index calls and we can expect another round of short covering move going forward.

As per the current derivative data, Nifty can move towards 10,750-mark as the market undertone remains bullish with the support of consistent long buildup and short coverings.

The derivative data indicates the bullish scenario is expected to continue with Nifty having multiple strong supports at lower levels around 10,550 and 10,500 spot.

Currently, Nifty is moving up, with a decent addition in the open interest (OI) which indicates strength in the current trend. Option writers were active in the recent rally as we have seen put writing in 10,400, 10,500 & 10,600 strikes along with the unwinding in calls.

We have been continuously seeing open interest addition post expiry which indicates long buildup. Moving forward, we expect a fresh breakout in the Nifty Bank which can lead the market and let Nifty to make new highs.

On the technical front, 10,550-10,500 spot levels is strong support zone for Nifty and current trend is likely to continue towards 10,700-10,750.

Here is a list of top 5 stocks which can give up to 19% return in the short term:

Bharat Gears Limited: BUY| Target Rs247| Stop Loss Rs197| Return 14%

The stock has been trading in a rising channel band on the daily and the weekly charts. However, from the last three weeks, the stock has been seen consolidating in a narrow range of 200-215. The price movement is similar to a rectangle formation on the charts.

In Tuesday’s session, fresh breakout and the stock price rose above the pattern formation along with higher volumes. The formation is generally traded as continuation pattern of the previous trend.

Traders can accumulate the stock in the range of 215-220 for the target of 247 with a stop loss below 197.

Persistent Systems Limited: BUY| Target Rs837| Stop Loss Rs685| Return 13%

The stock has given a price volume breakout above Rs675 levels in the recent past and also tested Rs720 levels in the short span of time.

However, since then, the stock is trading in the range of Rs695-720 and formed a bullish flag pattern on the daily charts.

In Tuesday’s session, we saw a fresh breakout above the pattern formation along with hefty volumes which suggest next up move in prices moving forward.

Traders can accumulate the stock in a range of 740-745 for the upside target of 837 with a stop loss below 685.

Srikalahasthi Pipes Limited: BUY| Target Rs490| Stop Loss Rs390| Return 15%

In the recent past, the stock witnessed profit booking at higher levels and fell towards its 200 days exponential moving average on daily charts.

However, since then the V shape recovery has seen in prices as once again the stock has risen above its short-term moving averages.

Additionally, on the daily charts, it has formed an inverted head and shoulder formation and also given breakout above the neckline of the pattern. Traders can accumulate the stock in a range of 425-430 for the target of 490 with a stop loss below 390.

Garden Silk Mills Limited: BUY| Target Rs59.50| Stop loss Rs45| Return 19%

The stock has given consolidation breakout above 40 levels in recent past and tested 49.50 levels following the bullish momentum.

At the current juncture stock has formed Bullish flag formation on daily charts and has also given breakout above the recent resistance of 49 along with breakout above the pattern formation along with marginally higher volumes.

Traders can accumulate the stock in a range of 50-51 for the target of 59.50 with a stop loss below Rs45.

Kanoria Chemicals & Industries Limited: BUY| Target Rs122| Stop Loss Rs98| Return 14%

On the daily and weekly interval, the stock has formed a symmetrical triangle formation. Additionally, a fresh breakout above the pattern formation has also been witnessed in Tuesday’s session along with hefty volumes.

Moreover, positive divergence in secondary indicators like stochastic and RSI also supporting the next up move in prices moving forward.

Traders can accumulate the stock in a range of Rs107-109 for the target of Rs122 with a stop loss below Rs98.

MORE WILL UPDATE SOON!!

Looking where to invest? Check out CLSA's list of 7 midcap stocks

The global investment bank has turned cautious on the midcaps space and prefers quality and growth visibility. The domestic mutual fund's industry has a bias towards mid/smallcaps in general.

The CNX Midcap Index is trading at a 30 percent premium to the Nifty on a one-year forward PE basis over the 10-year average discount of 10 percent, CLSA said in a note released last week.

The global investment bank has turned cautious on the midcaps space and prefers quality and growth visibility. The domestic mutual fund's industry has a bias towards mid/smallcaps in general.

A recent Sebi circular proposes imposing several conditions on domestic equity mutual fund houses and schemes and may force them to buy more midcaps (market cap of US$1.4bn-4.4bn) over the next few months.

 

Here are top seven stocks from the midcap space:

Aditya Birla Fashion & Retail: BUY

Aditya Birla F&R offers a strong combination of India’s top-four apparel brands (Madura division) and one of the largest value-fashion retail networks (Pantaloons). The steps taken to turn Madura around should lead to sustainable same-store sales growth (SSG).

Pantaloons continue its store expansion, with the majority of the newer stores coming under franchise agreements. CLSA sees a large opportunity in women’s fast-fashion with limited competition.

FY21 is likely to breakeven by end of FY18. The innerwear business is ramping up rapidly and the distribution network has now expanded to more than 3,400 outlets.

Crompton Consumer: BUY

Crompton Consumer has set itself a target to be the fastest-growing company in the sector with an aim to create ‘disproportionate’ stakeholders returns.

Crompton has margin tailwinds with an opportunity to grow not only in its existing categories but also considerably expand its addressable opportunity.

A shorter credit cycle could help Crompton negotiate better vendor terms; offset near-term margin headwinds from higher ad and distribution expenses. Expansion into a new category by leveraging its strong distribution network and brand recall could lead to further stock rerating.

Crompton’s strong returns profile, robust growth expectations, and improvement in FCF justify premium valuations. Crompton remains our most preferred pick in the consumer durables and affordable housing space.

Century Plyboards: BUY

Century Plyboards is transitioning from a market leader in plywood to a complete interior-infrastructure-solutions provider by leveraging its brand strength and distribution network.

Its diversified raw material sourcing capability is its key competitive advantage. It has scaled up its laminates business operations and is further expanding its capacity about 50% to 7.2m sheets by FY18CL.

It has made a strong entry into the MDF market with an installation capacity of 198,000 cubic metres, around 35-40% of the total MDF capacity. The recent cut in GST rates also impacted its margins.

Jubilant FoodWorks: BUY

Jubilant FoodWorks, a play on the recovery in consumer sentiment and its growth focus and profitability should drive strong earnings growth.

Apollo Hospitals Ltd: BUY

Apollo Hospitals is seeing a turnaround in its existing and new hospitals.

Oberoi Realty and Godrej Properties: BUY

Both companies are major beneficiaries of the shift to organised developers after the implementation of RERA.

MORE WILL UPDATE SOON!!

Budget 2018: FM may offer sneak peek into direct tax overhaul plan

While a task force on direct tax reforms will submit its report by May, the Budget speech may indicate broad pointers of the blueprint.

   

Finance minister Arun Jaitley may give an idea about the broad contours of a comprehensive direct tax reforms in the union budget 2018-19 that the government intends to rollout later during the year.

In September, Prime Minister Narendra Modi had said that more than half a century old Income-Tax Act needs to be re-drafted and a new Direct Tax Code (DTC) needs to be introduced in ‘consonance with economic needs of the country’.

The finance ministry in November constituted a six-member task force. Arbind Modi, Member (legislation) of Central Board of Direct Taxes (CBDT) is the convenor. Chief Economic Adviser (CEA) Arvind Subramanian is a permanent special invitee in the task force.

While the report needs to be submitted to the government by May, 2018, the Budget speech may include some direction on the tax law.

The task force will draft a direct tax legislation keeping in mind, tax system prevalent in various countries, international best practices, economic needs of the country, among others.

Some of the provisions of the Direct Tax Code such as General Anti-Avoidance Rule (GAAR) and Place of Effective Management (PoEM) has already been implemented.

While the Goods and Services Tax (GST) replaced more than a dozen of central and state levies to bring in one unified nation-wide tax, DTC will consolidate and simplify the direct tax laws into a single legislation.

The erstwhile UPA government had finalised DTC and had introduced the Bill in the Parliament in 2010. However, the Bill lapsed with the dissolution of the 15th Lok Sabha. The draft law proposed to do away with various exemptions, increase threshold of taxation and lower tax rates.

As the government overhauled the existing indirect tax system last year by implementing GST, on a larger scale, tax reforms would remain incomplete without revamping country’s direct tax system.

MORE WILL UPDATE SOON!

Multibagger opportunity! We are in a bull market which could span 10-15 years

Lastly emerging markets have also turned attractive. All factors are pointing to an increase in global trade in 2018 which should augur well for emerging markets like India.

 

Today, we stand at an inflection point whereby there is a high probability that the economy, and the markets will shift a gear higher in the year 2018.

The global macros are now more favorable than what they were a few years back. People are reasonably baking in US rate hikes (probably 3-4 hikes next year) and this seems possible given the fact that economy has expanded at a 3.3 percent pace, which has been the strongest since 2014.

The US unemployment rate has fallen to 4.1 percent which points to the economy is in a very healthy condition. People are also keenly watching Donald Trump’s tax cut plan passing through by end of the year.

Japan has also continued its GDP expansion and Europe macros also look good given its latest prints on manufacturing orders growth and robust PMI data. Bank of England also hiked rates for the first time in 10 years, denoting healthy growth in the country.

Lastly emerging markets have also turned attractive. All factors are pointing to an increase in global trade in 2018 which should augur well for emerging markets like India.

As regards our domestic economy, we have to be a bit cautious given higher inflation worries and consequently higher interest rates. Back of the mind, crude oil prices are also causing worry edging to a higher range of $65-$70 a barrel.

We also have to watch credit demand revival from corporate banks and commencement of lending by the PSU’s post recapitalisation which could signal a revival in private capital expenditure.

Given that capital expenditure by the Govt. has already been underway over the last couple of years the joining of forces by the private sector would certainly boost infrastructure spending and with it economic growth.

On the interest rate front, RBI may be on pause mode until the middle of next year unless something drastic happens in either direction. Overall, with the major policy initiatives like demonetisation and GST out of the way, we look set for a higher trajectory in GDP growth and other metrics.

The equity markets would increasingly look at earnings delivery given the fact that valuations are robust based on trailing returns. While structural liquidity continues to provide comfort earnings growth has to happen in order to move the markets to the next leg of the upswing.

We also believe that the recent Gujarat election verdict is a positive as the drop in seats by the ruling party would make it work doubly harder to ensure that it does not suffer even a minimal loss of support from the people.

It also indicates that GST and demonetization have largely been taken positively by the people which should ensure minimal dilution of the development mandate.

Within equities, there is a hunt for value across market capitalizations as well as sectors. We believe that investor should be invested for the long-term and be present across the cap curve with a major part of their allocation in mid and small cap space as historically this category has been able to deliver wealth-creating returns over the long term as compared to other categories.

We are especially positive on the rural prosperity theme as we believe that the policy initiatives and the increased and focussed spend on rural will spur growth.

Similarly, the consumption theme is another we are very hopeful about given that the structural change in consumption patterns on the back of increased income is still in its infancy. Also, growth in the rural economy would act as a further booster for growth in consumption.

We strongly believe that we are still in the initial stages of a long-term bull market which can span 10 to 15 years and so investors should stay invested and keep adding on to their positions through SIPs and STPs.

MORE WILL UPDATE SOON!!

Spotting wealth-creating ideas is easy; Don’t miss out these 5 themes in 2018: Credit Suisse

Amid high valuations and a volatile macro environment, Credit Suisse recommends investors to focus on long-term structural themes that have been shaping up in India.

 

Credit Suisse maintains a cautiously optimistic outlook on Indian equities, but a sustained or a sharp correction on D-Street is unlikely as domestic flows remain strong while a solid global growth outlook should be supportive for risky assets.

Amid high valuations and a volatile macro environment, Credit Suisse recommends investors to focus on long-term structural themes that have been shaping up in India.

Investors can build their portfolios around these themes, which we believe can potentially outperform the market in the medium term, it said in a report authored by Jitendra Gohil, Head of India Equity Research at Credit Suisse.

Here is a list of top 5 themes which investors can watch out in the year 2018:

Rural demand revival and financial inclusion:

Credit Suisse is positive on demand revival in rural and semi-urban areas. For the past couple of years, monsoon has been relatively good. Ahead of the general elections in summer of 2019, the government could take speedy measures to improve growth in rural and semi-urban areas, in our view.

Moreover, benefits of the 7th Pay Commission, farm loan waiver, record-high MANREGA allocation, etc. should provide a fillip to overall demand in 2018.

Credit Suisse likes Emami, Dabur India (HOLD), PI Industries (BUY) and Hero MotoCorp (HOLD), which are best positioned to benefit from rural demand revival.

Moreover, there is a huge scope for retail lending to improve, especially in rural and semi-urban areas, as penetration levels in India remain abysmally low.

Within retail lenders, Credit Suisse prefers rural and semi-urban lenders where there is maximum stress right now. Structurally, the global investment bank likes Shriram City Union Finance (BUY) and Cholamandalam Investment and Finance (BUY).

It reiterates BUY on Edelweiss, the largest ARC in the country, as Credit Suisse believes that the company will continue to demonstrate stellar growth in its credit as well as non-credit businesses (Net profit CAGR of over 50 percent in FY 2017– 2019E).

Progress on affordable housing is encouraging:

Credit Suisse expects the government to accelerate spending on affordable housing, which can create goodwill among voters and help create job opportunities as the construction sector is the second-largest employer after agriculture in India.

The global brokerage firm prefers housing finance companies, among which Indiabulls Housing Finance(BUY) and PNB Housing Finance (HOLD) are top picks. There are several industries such as paints, tiles, cement, faucets, white goods, cement, etc. that depend on the real estate sector.

Credit Suisse remains positive on Pidilite Industries (BUY), Kajaria Ceramics (HOLD), Shree Cements (BUY), Crompton Greaves Consumer (BUY) and Voltas (BUY).

Infrastructure and capital goods in a sweet spot:

As per IMF projections, India could spend on infrastructure on an average 8.1 percent of GDP per year from current fiscal year to 2022 compared to just over 5 percent a few years ago.

This accelerated spending along with policy support and international financing could potentially transform India’s infrastructure landscape. Apart from budgetary support, we expect the government to push public sector companies (PSU) to spend more or pay higher dividends.

Credit Suisse is positive on Larsen and Toubro (BUY), KEC International (BUY), Sadbhav Engineering (BUY), Dilip Buildcon (BUY) and VA Tech Wabag (BUY).

The energy sector continues to attract attention:

India is a net importer of oil and gas, and the sector has remained under-invested for years now. Credit Suisse expects the government to provide a favorable policy framework to attract more investments and improve energy infrastructure in India for curbing imports and moving toward energy independence.

In terms of gas sector reforms, Credit Suisse prefers ONGC (BUY), which will benefit from a better policy framework. Within oil marketing companies, we prefer Indian Oil Corporation (BUY), which will benefit from expansion and lower valuation.

NPA resolution will be keenly watched:

Stressed assets (NPA, restructured, etc.) in the Indian banking system are estimated at 14 percent of total loans. Starting June 2017, the Reserve Bank of India (RBI) issued a direction to banks to refer 40 cases to the National Company Law Tribunal (NCLT) for bankruptcy proceedings if they along with resolution professionals fail to finalize a resolution plan within the stipulated 270 days.

Progress on the resolution of most of these accounts has been better than expected so far, especially in case of the steel sector where banks have received multiple “Expression of Interests.”

Credit Suisse believes that State Bank of India (BUY) is best positioned to benefit from large accounts’ resolutions.

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Technical View: Nifty forms a Doji like pattern; tread with caution with stop below 10,600

The Nifty 50 which opened at 10,645.10 rose to a record high of 10,659.15 which made a small upper shadow, but bears quickly took control and pushed the index towards 10,603 which made a long lower shadow on the daily charts.

  

Bulls powered D-Street to yet another record high for the third straight day in a row on Tuesday. The index witnessed some profit booking but recouped initial losses to close near day’s high making a Doji pattern on the daily charts.

A 'Doji' is formed when the index opens and then closes approximately around the same level but remain volatile throughout the day which is indicated by its long shadows on either side. The body will be insignificant which will appear like a plus sign on the charts.

The Nifty50 index continued its formation of higher highs and higher lows for fifth consecutive sessions and registered a fresh lifetime high of 10659 zones.

The Nifty50 which opened at 10,645.10 rose to a record high of 10,659.15 which made a small upper shadow, but bears quickly took control and pushed the index towards 10,603 which made a long lower shadow on the daily charts.

The bulls took control and pushed the index towards its record high. The Nifty finally closed 13 points higher at 10,637, a fresh record closing high.

Investors are advised to stay long but tread with caution because the index is trading near key resistance levels. Analysts advise traders to keep a strict stop loss below 10,600 on a closing basis as this rally can falter going into the budget at any point in time.

“The Nifty50 registered a Doji kind of indecisive formation suggesting that traders are clueless at higher levels about further direction as the market remained range-bound throughout the trading session,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“Though weakness is visible on short-term charts bulls are putting up a brave face with new lifetime highs. Hence, traders can choose to flow with the momentum but at the same time need to remain cautious and maintain tight stops for their long positions,” he said.

Mohammad advice traders to put a stop below 10600 on a closing basis for the next session. If the move gets extended on the upside beyond 10660 a modest target of 10700 can be expected in the near-term.

India VIX moved up by 0.78 percent at 13.85. VIX has to hold below 13-12.50 zones to support the fresh leg of the rally with a smooth ride in the market.

On the options front, maximum Put open interest was seen at 10500 followed by 10400 strikes while maximum Call OI was seen at 11000 followed by 10600 strikes.

“We have seen fresh and significant Put writing at 10600 and 10500 strikes which is shifting its support while fresh Call writing is seen at 10700 and 10600 strikes. Option band signifies a shift in support to 10550-10600 zones as this strike has seen fresh Put OI congestion.

“Nifty witnessed a decline from higher levels but finally closed on a positive note by forming a Small Bodied candle on the daily scale. Now index continues to hold above 10550 zones to extend its up move towards 10700 while on the downside supports are seen at 10500 levels.

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