Sensex, Nifty Snap Two Week Winning Streak As Worries Mount Over Covid

India equity benchmarks snapped two weeks of gains as coronavirus cases continue to surge, triggering concerns that a national lockdown may be reimposed.

The S&P BSE Sensex ended little changed at 48,732.55 while the NSE Nifty 50 Index lost 0.13% to 14,677.80. Both the indices closed the week lower by nearly 1%

Sixteen of the 19 sector sub-indexes compiled by BSE Ltd. declined, led by a gauge of real estate companies. On the flip side, the S&P BSE Fast Moving Consumer Goods advanced 2%, making it the index's best performance since March 30.

Earnings of technology and banking companies had helped the benchmark Sensex advance in the previous two weeks after they posted profit growth that met analysts estimates. Indian companies, however, have been cautious about giving outlooks as the pandemic continues to disrupt businesses.

Escorts Ltd reported net income for the fourth quarter that beat the average analyst estimate.

• Net income Rs 271 crore, +94% YoY, estimate Rs 255 crore
• Revenue Rs 2,210 crore, +60% YoY, estimate Rs 2,080 crore
• Total costs Rs 1900 crore, +56% YoY
• Dividend per share Rs 7.50
• Ebitda Rs 345 crore, estimate Rs 338 crore

COMMENTARY AND CONTEXT

• Dividend Includes Special Dividend of Rs 2.5 /share
• The construction equipment business may see an impact of the current environment going ahead
• The second wave of the pandemic has impacted rural geographies as well company’s core customer base, Chairman Nikhil Nanda said

Macrotech reported net income for the fourth quarter of Rs 311 crore vs. Rs 132 crore YoY.

• Revenue Rs 2,530 crore, -20% YoY
• Total costs Rs 2,060 crore, -35% YoY
• Other income Rs 77.6 lakh

Target Corp. completed a vendor re-empanelment process with Welspun Global Brands, a unit of Welspun India, the Indian firm says in a stock exchange filing.

• Welspun India shares jumped as much as 6.8%
• Welspun will “strive to foster a strong, transparent and sustainable business relationship” with Target going forward, according to the statement
• Until 2016 financial year, Target accounted for 10% of Welspun India’s business

FOURTH QUARTER RESULTS

• Net income Rs 130 crore, +52% YoY
• Revenue Rs 2,140 crore, +32% YoY
• Total costs Rs 1,990 crore, +28% YoY
• Ebitda Rs 358 crore, +21% YoY
• Ebitda margin 16.5% vs. 17.8% YoY
• Approves Rs 200-crore share buyback at Rs 120 each

Dr Reddy’s Laboratories started a soft launch of Russia’s Sputnik V Covid-19 vaccine in India as part of a limited pilot, the drugmaker said in a press release

• It received regulatory clearance from India’s Central Drugs Laboratory on May 13
• The first dose of the vaccine was administered in Hyderabad on May 14
• More consignments of imported doses are expected over the coming months
  • Soon after, Indian manufacturing partners will also start supplying the vaccine
• Imported doses of the vaccine are priced at 948 rupees plus 5% GST per dose
  • Possibility of a lower price point when local supply begins
• The company is “working closely with its six manufacturing partners in India to fulfil regulatory requirements to ensure smooth and timely supply”: statement

Meanwhile, the drugmaker reported Generics revenue for the fourth quarter that missed the average analyst estimate.

• Net income Rs 554 crore, -27% YoY
• Revenue Rs 4,730 crore, +6.8% YoY, estimate Rs 4,779 crore
  
  • Generics rev. Rs 3,870 crore, +6.3% YoY, estimate Rs 3,990 crore
  • North America revenue Rs 1,750 crore, -3.3% YoY, estimate Rs 1,821 crore
  • India sales Rs 845 crore, +24% YoY, estimate Rs 941 crore
  • Europe sales Rs 396 crore, +15% YoY, estimate Rs 404 crore
• North America sales -3%
• Total costs Rs 1,780 crore, +9.9% YoY
• R&D expenses Rs 409 crore
• Ebitda Rs 1,133 crore, +13% YoY, estimate Rs 1,065 crore
• Gross margin 53.7%
• Dividend per share Rs 25

COMMENTARY AND CONTEXT

• Q4 gross margin 53.7%
• Working on Molnupiravir, Baricitinib and several other Covid drugs

Shares of ITC Ltd. rose 4% to Rs 211 apiece on heavy volumes, snapping its two-session losing streak.

• Trading volume was 22.5 million shares, quadruple the 20-day average of 6.14 million shares for this time of day.
• Trading in the company's call options totalled 49,401 contracts, compared with the average of 19,951 over the past 20 days. Trading in the company's put options totalled 10,242 contracts, compared with the average of 7,017 over the same period.
• ITC Ltd trades at 19 times its estimated earnings per share for the coming year. It trades at 17 times trailing EPS.
• Analysts have 31 buy, six hold, and one sell recommendations on the stock.
• The price target of Rs 253.90 represents a 20% increase from the last price

FMCG Index Bucks The Trend

Sovereign bonds in India are lower as traders show disappointment over which securities the RBI has chosen for its acquisition program of Rs 35,000 crore of debt for May 20.

• Traders were hoping that the bonds auctioned last week would be part of the purchase plan, but this isn’t the case, and now they are stuck with the securities
• NOTE: RBI to buy 6.18% 2024 bond, 7.59% 2026 bond, 6.79% 2027 bond, 7.17% 2028 bond, 5.85% 2030 bond, 7.95% 2032 bond, and 6.22% 2035 bond using the multiple price method
• Yield on 6.64% 2035 bond up 4bps to 6.61%; 5.63% 2026 bond yield up 3bps to 5.58%; both papers were auctioned last week
• Benchmark 10-year yield up 2bps at 6.03%

Source: Bloomberg

Shares of the fertiliser maker jumped as much as 9.6% after Morgan Stanley upgraded its rating on the stock on its fourth-quarter performance.

The broking firm upgraded the stock to overweight from earlier equal-weight. The price target has been raised to Rs 832 from earlier Rs 426.

Stock insight

• Trading volume was almost 10 times the 20-day average for this time of day.
• Trading in the company's call options totalled 53,034 contracts, compared with the average of 12,003 over the past 20 days. Trading in the company's put options totalled 12,448 contracts, compared with the average of 3,797 over the same period.
• The relative strength index on the stock was above 70, indicating it may be overbought.
• UPL trades at 15 times its estimated earnings per share for the coming year.

PowerGrid InvIT made its trading debut at Rs 104 per unit on BSE, a premium of 4% over its initial public offering.

The IPO, which ran from April 29 to May 3, was subscribed 4.83 times.

The issue was priced in the band of Rs 99-100. It included fresh issues of units worth Rs 4,993.48 crore, while the rest was an offer for sale. The InvIT will use the proceeds to provide loans to the initial portfolio assets for repayment or pre-payment of debt.

PowerGrid InvIT is set up to own, construct, operate, maintain and invest in power transmission assets in India. Its sponsor, PowerGrid Corp. of India, is a central public sector enterprise under the Ministry of Power, and is listed on the BSE and NSE.

Shares of Borosil Renewables jumped after it reported a multifold jump in net profit to Rs 66.87 crore for March quarter on the back of higher revenues.

Total income rose to Rs 196.90 crore in the quarter from Rs 95.29 crore in the same period a year ago.

"Board of Directors...also passed an enabling resolution for raising of capital by way of the offer and issuance of equity shares of the company for an amount not exceeding Rs 100 crore by way of a rights issue to the eligible equity shareholders of the company," it said.

The funds from the rights issue would be used for part financing the installation of the first phase of the expansion plan in the form of an additional manufacturing facility (SG–4) with a capacity of up to 500 tonnes per day at its existing location in Bharuch, Gujarat.

Asian Paints Ltd.’s shares rose as much as 11%, the most since October 2010, after its net income and revenue for three months ended March beat analyst estimates.

Fourth-quarter volume growth of 48% was extremely strong and the company also expanded its market share, Jefferies analyst Vivek Maheshwari wrote in a note. The outlook remains uncertain in the wake of second Covid wave and its impact on near-term demand, he added.

The company’s stock was best performer on S&P BSE Sensex, and led gains in smaller peers. Berger Paints India Ltd. gained as much as 5.3% while Shalimar Paints Ltd. jumped 12% and Indigo Paints Ltd. climbed 9.1%.

• Trading volume was 910,980 shares, eight times the 20-day average of 114,647 shares for this time of day.
• Analysts have 15 buy, nine hold, and 13 sell recommendations on the stock.
• The price target of Rs 2,640.59 represents a 1.6% decrease from the last price

Analysts’ Take

Jefferies

• Resurgence of Covid-19 cases in India and the resultant lockdowns have created near-term demand uncertainties; however, management is confident that it is well-positioned to capture demand recovery once the wave abates
• The company continues to see healthy trends in tier-2 and below markets and projects business, as well as a strong pick-up in tier-1 and metro cities
• Asian Paints gained share both from organized as well as unorganized players
• Retains hold rating while lowering price target to Rs 2,400 from Rs 2,500

Axis Capital

• While the company’s 3Q and 4Q earnings were exceptionally strong, some underlying drivers on-demand and cost sides will normalize going forward due to base catch-up and risks from the second Covid wave
• The stock trades at a rich 55x estimated FY23 EPS and has ‘little margin of safety’ amid an inflationary input environment
• It also notes that Asian Paints didn’t make any price hikes in 4Q; however, it has raised prices by about 2.8% since May
• Retains reduce rating; cuts price target to Rs 2,500 from Rs 2,600

HDFC Securities

• Company’s wide distribution arbitrage helped it recoup most of its annual demand in FY21 and a similar demand normalization trajectory is expected in FY22
• It continues to see margin pressure due to rising raw material prices; however it would be partly cushioned by price hikes
• Retains reduce rating and price target at Rs 2,300

Indian equities fluctuated between gains and losses in opening trade.

The S&P BSE Sensex fell 0.2% to 48,594.58, while the NSE Nifty 50 Index lost 0.4% to 14,641.40. This after both the indices had opened nearly 0.4% higher.

Fifteen of the 19 sector sub-indexes compiled by BSE Ltd. dropped, led by a gauge of metal stocks.

Earnings of technology and banking companies had helped the benchmark Sensex advance in the previous two weeks after they posted profit growth that met analysts estimates. Indian companies, however, have been cautious about giving outlooks as the pandemic continues to disrupt businesses.

Indian bond traders will be awaiting the results of a Rs 26,000 crore ($3.5b) of debt auction by the central bank later on Friday. Traders will also assess retail inflation slowing to a three-month low.

• USD/INR rose 0.1% to 73.4263 on Wednesday.  
  • Implied opening from forwards suggest spot may start trading around 73.49
• 10-year yields little changed at 6.01% on Wednesday; bond and currency markets were closed Thursday for a holiday
• CPI index rose 4.3% y/y in April from 5.5% in March, government data showed after close of markets Wednesday

The moderation in headline inflation should support MPC’s policy stance to prioritize growth, Upasna Bhardwaj, an economist at Kotak Mahindra Bank, wrote in a note

• While the RBI’s policy stance going ahead will depend on the evolution of Covid and incoming data, we do not completely rule out the possibility of gradual policy normalization towards the end of FY2022
• While promising to provide adequate liquidity, the MPC may consider increasing the cost of overnight liquidity or even a hike in the reverse-repo rate, while keeping the repo rate unchanged

Go Airlines India Ltd. has filed with the Indian market regulator seeking to raise as much as Rs 3,600 crore ($490 million) in an initial public offering, according to its draft red herring prospectus.

• The low-cost carrier may consider a pre-IPO share issue of as much as Rs 1,500 crore; IPO size will be cut if the pre-IPO placement happens
• Go Airlines plans to use the IPO proceeds for repayment of debt, and dues to Indian Oil Corp.
• ICICI Securities, Citi and Morgan Stanley will manage the IPO

To read more on the news. click here

Most Asian stocks climbed Friday after U.S. benchmarks halted a three-day slide, with signs of a strengthening labour market outweighing investors’ concerns about rising inflation for now.

Shares rose in Japan and Australia, but fluctuated in China, after the country’s MSCI Index slipped into bear-market territory.

India’s SGX Nifty 50 Index futures for May delivery rose 1.1% to 14,670.50, while MSCI Asia Pacific Index up 0.9%. The NSE Nifty 50 Index fell 1% Wednesday to 14,696.50. Markets were closed on Thursday for a holiday.

U.S. futures rose following gains in the major indexes overnight, with industrial and financial shares outperforming, while energy producers joined a slump in oil.

Bitcoin pared some of the losses sparked by Musk’s comments, and was trading around $50,000.

Treasuries rallied from the prior session’s weakness, with the 10-year yield easing to 1.66% despite a lacklustre auction of 30-year bonds. The Federal Reserve tweaked its purchasing plan to focus more on longer-dated Treasuries, while leaving the $80 billion monthly total unchanged.

Meanwhile, concerns about a possible pullback in Fed support have stalled the rally in commodities. Oil traded below $64 a barrel.

Back home, UPL, Lupin, Mphasis, Tata Power, Pidilite, Vedanta, Jindal Steel, Apollo Tyres, Polycab, Happiest Minds may react as the companies reported quarterly results after the market closed Wednesday. Larsen, Cipla, Dr Reddy’s, Escorts, Macrotech Developers are among the companies scheduled to report earnings Friday.

India to release wholesale-price inflation data for April. Foreign investors bought net Rs 716 crore of stocks on May 11, according to the NSDL website.