Benchmark Indian share indices posted a weekly fall for the first time in three weeks as investor fatigue set in after the market rebounded about 15 per cent from its February low, but the emergence of support as prices swung widely indicate savvy fund managers were using the volatility to accumulate stocks. New offerings are also drawing good demand.
The muddy outlook for the world economy, Japan’s decision against any new stimulus and first quarter growth stalling in the US were the global events that set the agenda for the domestic market for much of the past week. However, domestic expansion is picking up and this is pulling in more foreign money.
Overseas portfolio investors are net buyers of Indian stocks for a second consecutive month, and market pundits believe the revived interest — after outflows in the first two months of 2016, foreign institutions have bought a net $1.8 billion (Dh6.6 billion) worth stocks so far in the year — would continue in the months ahead. Corporate earnings are set to gather steam, which should underpin the market.
“The greater-than-normal volatility highlights a churning of portfolios,” said equity strategist Mehul Maniar. “Funds are taking profits in stocks that have risen sharply, and cash is being funnelled back into lower-priced shares.”
While there is resistance at higher levels — the 14-day relative strength index at around 70 had triggered selling — there is a reservoir of support waiting in the wings to scoop up stocks when they fall, he said.
Stressed assets
The top-30 Sensex ended the week down 0.9 per cent, with banks coming under pressure after ICICI Bank posted its biggest drop in quarterly profit in at least 15 yeaRsBigger rival State Bank of India, which is yet to release results, fell for a third straight day on Friday.
ICICI Bank, the country’s No 2 lender, reported a 76 per cent slump in January-March profit, shocking analysts and brokers as its provisioning for sticky loans took a heavy toll. The private-sector lender set aside Rs36 billion as contingency and related reserves, in addition to provisions of Rs33.3 billion made including for bad and restructured loans.
“The weak global economic environment, the downturn in the commodity cycle and the gradual nature of the domestic economic recovery has adversely impacted borrowers in certain sectors,” Chief Executive Chanda Kochhar said. “It may take some time for the resolutions to be worked out.”
ICICI said gross bad loans were 5.82 per cent of total loans in March, up from 4.72 per cent in December. Shares in ICICI fell 6 per cent over the week to Rs236.6, and traders are bracing for more losses.
Maruti revs up
Maruti Suzuki, which produces every second new car sold in India, highlighted the resilience of companies. Its share jumped to an almost three-month high after its quarterly sales beat market estimates, while January-March profit fell for the first time in two years on one-time write-offs.
Still, robust sales and lower costs in the previous nine months helped the company to a record annual profit of Rs45.71 billion. Maruti is aiming for double-digit sales growth in 2016-17 and to feed rising demand it plans to spend Rs44 billion in capital expenditure, up from Rs25 billion the previous year.
The company, majority owned by Japan’s Suzuki Motor Corp, is conducting a feasibility study to open an assembly plant in Africa where demand for small cars is rising.
African countries including Algeria, Egypt and South Africa made up about 8 per cent of Maruti’s exports of 123,897 vehicles in 2015-16. Maruti would need to sell more than 50,000 vehicles a year in Africa to justify setting up an assembly plant, according to Managing Director Kenichi Ayukawa.
While domestic sales of Maruti rose 11.5 per cent in 2015-16, exports grew 2 per cent.
After the results, Morgan Stanley said it remained overweight on the stock with a 12-month target price of Rs4,310, saying that both revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) were 4 per cent and 12 per cent ahead of its estimates.
Maruti’s shares closed at Rs3,794.95 on profit taking after rising as high as Rs3,930 after the results.
Divestment, IPOs
New Delhi, which has a divestment target of Rs565 billion for the financial year 2016-17 that started on April 1, successfully kicked off its first sale in the past week. The government raised Rs27 billion through sale of 11.36 per cent holding in state-controlled hydropower producer NHPC Ltd.
Most of the bids came in at the base price of Rs21.75 a share, and bulk of the offering was picked up by big institutions. The sale brought down the government holding to 74.6 per cent, bringing it in line with a regulatory ruling for a minimum 25 per cent free float for public listed companies.
An initial public offering by diagnostic chain Thyrocare Technologies Ltd to raise Rs4.8 billion received bids for more than 70 times the shares on offer, underscoring the latent investor demand for equity in the world’s second most populous nation.
Demand for the sale was powered by a rival’s strong showing after the company went public. “After listing, premium valuations of Dr. Lal Pathlabs have expanded further due to its strong track record, healthy return ratios and high free cash flows despite the aggressive expansion and exponential growth in business,” brokerage Motilal Oswal Securities said.
Ujjivan Financial Services, one of 10 small finance bank licensee, received bids for 75 per cent of the Rs8.8 billion share sale by the second day. The offering closes on May 2.
The company is looking to raise fresh money of nearly Rs3.6 billion, while foreign shareholders such as Mauritius Unitus Corp, World Bank’s former president James Wolfensohn’s private equity WCP Holdings, Netherlands Development Finance Co and Women’s World Banking Capital Partners are selling their stake for the remainder at between four and nine times their original cost.
Their exit will bring down foreign holding in the company to about 45 per cent from 77 per cent currently. Under the bank licensee requirement, the limit on foreign holding is 49 per cent.
The writer is a journalist based in India.
