Sensex, Nifty Close Lower As Investors Digest Earnings; RIL Drags

India's key equity benchmarks closed lower, dragged by index heavyweight Reliance Industries and banking stocks, as earnings for June quarter continued to disappoint.

The S&P BSE Sensex declined 0.23% to 52,852.27, and NSE Nifty 50 Index posted losses of similar magnitude to 15,824.45. Both the indices swung between gains and losses, locked in a narrow range, before finally closing lower.

The broader markets outperformed their larger peers. The S&P BSE MidCap was little changed while the S&P BSE SmallCap gained 0.34%. Thirteen of the 19 sectoral indices posted losses with S&P BSE Energy shedding 1.09% and S&P BSE Realty declining by 0.76%.

The market breadth was skewed in favour of the bulls. About 1,845 stocks advanced, 1,509 declined and 155 remained unchanged on the BSE.

Reliance Industries was among prominent contributors to the Nifty's decline, falling nearly 1.4%. The company, which reported its earnings after markets hours on Friday, missed analysts’ estimates for June quarter profit as its retail and energy businesses were hurt by Covid-19 related situation.

In earnings, 12 of the 16 Nifty companies that have announced results so far fell short of analysts’ estimates while four have beaten the consensus.

Shares of M&M Financial Services Ltd. shed as much as 7% to Rs 142.75 apiece after it reported a loss for June quarter.

Key Highlights

• Net loss at Rs 1,528.76 crore

• Revenue at Rs 2,187.06 crore vs estimate Rs 1,480 crore

• Total costs at Rs 4,256.87 crore

• Finance cost at Rs 1,017.94 crore

• Other income at Rs 11.08 crore

Commentary and Context

• Cites ECL, additional overlay provision for loss

• Expect improvement over the next few quarters, resulting in provision reversals for 80-90% of loan contracts over Q3/Q4 FY22

• During the June quarter, the Company has implemented resolution plans to relieve Covid-19 pandemic related stress of eligible borrowers in 59,455 loan accounts with a total outstanding of Rs 2,172 crore as on June 30.

Out of the 36 analysts tracking the company, 17 maintained ‘buy’, 12 maintained ‘hold’ and 7 analysts maintained ‘sell’ recommendations. The overall consensus price of analysts tracked by Bloomberg hints at an upside of 21.1%. Shares of Mahindra & Mahindra Financial services shed 14.41% in 2021 so far.

Shares of JSW Energy Ltd. gained for the 8th consecutive day, the longest winning streak in over 6 years. Over the last 8 sessions, shares of JSW Energy have added 44% while the S&P BSE Sensex gained 0.3 percent over the same period.

The company, which will report its June quarter earnings on Friday (July 30) has an Relative Strength Index (RSI) of 89, which indicates that the stock may be in overbought territory.

Out of the 14 analysts tracking the company, 4 maintained ‘buy’, 4 maintained ‘hold’ and 6 maintained ‘sell’ recommendations. The overall consensus price of analysts tracked by Bloomberg implied a downside of 50.9%.

Shares of Kotak Mahindra Bank gained 1.46% to Rs 1,746.05 crore apiece after it reported net income that met street estimates.

Kotak Mahindra Q1FY22 (Standalone)

• Net income Rs 1,642 crore, +32% YoY, estimate Rs 1,650 crore

• Net interest income Rs 3,942 crore vs estimate Rs 3,961 crore

• Net non-performing assets 1.28% vs 1.21% QoQ

• Gross non-performing assets 3.56% vs. 3.25% QoQ

• Provisions Rs 934.77 crore, down 21% QoQ

Out of the 45 analysts tracking the company, 20 maintained ‘buy’, 17 maintained ‘hold’ and 8 analysts maintained ‘sell’ recommendations. The overall consensus price of analysts tracked by Bloomberg implied an upside of 7.6%.

For a detail report on Kotak Mahindra's Q1 performance, click here.

CreditAccess Grameen Ltd. fell as much as 6.9%, the most since April 12 this year.

• The stock was the worst performer among its peers.

• Trading volume was 163,389 shares, 48% above the 20-day average of 110,746 shares for this time of day.

• The shares are down 12% in the past 5 days and fell 14% in the past 30 days.

• Analysts have 13 buy, two hold, and no sell recommendations on the stock.

• The price target of Rs 779.71 represents a 19% increase from the last price

• CreditAccess Grameen trades at 20 times its estimated earnings per share for the coming year.

• An annual shareholder meeting is scheduled for July 30.

Indian farmers have planted monsoon crops on 72.14 million hectares of land as of July 23, a drop of 8.9% from a year earlier, according to the farm ministry.

• Sugar cane area has risen 1.7% to 5.39m hectares so far this year, the ministry’s data showed late Friday

• The area under cotton fell 7.7% to 10.89m hectares

  • NOTE: Sowing normally begins in late May and peaks in July; monsoon rains spur planting

India's stock benchmarks struggled for direction amid weak Asian trade as investors await a slew of earnings.

The S&P BSE Sensex remained little changed at 52,979.23, and NSE Nifty 50 Index traded flat at 15,856.25. Reliance Industries Ltd. contributed the most to the index decline, decreasing 0.8%. JSW Steel Ltd. had the largest drop, falling 1.4%.

The broader markets outperformed their larger peers. The S&P BSE MidCap rose by 0.35% while the S&P BSE SmallCap gained 0.74%. Twelve of the 19 sectoral indices posted gains, S&P BSE Basic Materials, S&P BSE Consumer Durables and S&P BSE Metal adding over 1%.

The market breadth skewed in favour of bulls. About 1,921 stocks advanced, 1,313 declined and 174 remained unchanged on the BSE.

Tata Motors, Axis Bank, Kotak Mahindra Bank, L&T, SBI Life, Vedanta, DLF are among the companies scheduled to report earnings today.

Shares of Caplin Point Laboratories Ltd. gained as much as 18.7% to Rs 940 apiece, a record high for the stock.

The stock has risen for a sixth straight session after it received a USFDA nod for migraine drug Sumatriptan, a therapeutic equivalent of IMITREX injection of GlaxoSmithKline.

Shares of Caplin Point advanced 40% so far this month in comparison to the 3.8% gains for S&P BSE Healthcare. All three of the analysts tracking the company maintained the ‘buy’ recommendation. The overall consensus price of analysts tracked by Bloomberg hints at a downside of 26.6%.

The Relative Strength Index of Caplin Point Laboratories is 82.83 indicating that the stock may be in overbought territory.

Indian bonds gain amid a drop in global oil prices in Asian trading and lower sale of state debt on Tuesday. The rupee is marginally lower.

• Yield on 6.1% 2031 bond steady at 6.16% after rising by 3bps on Friday; 5.63% 2026 bond yield down 2bps to 5.67%; 6.64% 2035 yield down 1bp to 6.77%

• States to sell Rs 7,000 crore of debt Tuesday vs 184b rupees scheduled in the indicative calendar

• NOTE: Primary dealers bought Rs 11,140 crore ($1.5 billion) of bonds out of Rs 14,000 crore of 6.1% 2031 debt offered at Friday’s sale, the RBI said in a statement

• USD/INR up 0.1% at 74.4725

Reliance reported net income for the first quarter that missed the average analyst estimate, though strong growth in Jio subscribers and wider margins for its oil-to-chemical segment were seen as positives. Its shares fluctuated in a narrow range Monday.

The launch of a new low-cost smartphone this quarter may help ramp up subscribers, while the retail business, hit by regional level lockdowns during the second wave of the pandemic, is expected to see a revival as restrictions ease, according to analysts.

“Reliance Retail’s profit potential appears the strongest due to its push for e-commerce, recent acquisitions, accelerated new store opening and the launch of its own brands,” Horace Chan, an analyst with Bloomberg Intelligence, said in a note.

Brokerage View

Credit Suisse (Neutral; price target raised to Rs 2,020 from Rs 1,930)

• Launch of low-cost 4G smartphone in September should help Jio subscriber base cross 500m; closure of future retail deal, finalization of terms with Saudi Aramco key catalysts

• Weakness in core retail sales offset by strong petrochemical margins; next quarter likely to be muted as petrochemical margins will be lower while retail sales recovery is still low

• Expects company to leverage existing merchant relationships of JustDial to accelerate addition of new merchants

Nomura (Buy, price target Rs 2,400)

• Expects key business segments to improve after a relatively subdued Q1

• Oil-to-chemicals to benefit from rising refining margins, revival in domestic demand; retail to gain from revival in footfall, new store openings while Jio subscriber addition to get a boost from new low cost phone launch

Shares of SBI Cards and Payment Services Ltd. rose the most in over a month as the payment solutions provider posted strong first-quarter earnings.

While revenue went up only 2% sequentially to Rs 2,361.9 crore, its net profit went up 74% to Rs 304.61 crore. Gross NPA fell to 3.91% against 4.99% in the previous quarter, while the net NPA also fell to 0.88% as compared to 1.15%.

Brokerages Nomura, Kotak Institutional Equities, Morgan Stanley, Motilal Oswal and ICICI Securities all maintained their bullish ratings on the stock.

Shares of the bank rose as much as 4.4%, the most since June 24, to Rs 999 apiece. Of the 18 analysts tracking the company, 17 suggested a ‘buy’ rating and one recommended a ‘hold’, according to Bloomberg data. The average of 12-month consensus price targets implies an upside of 17.3%.

Brokerages View

Nomura

• Recommends ‘buy’ with a target price of Rs 1,250.

• June quarter results indicative of the core profitability of the business model.

• Spends are recovering well while receivables remain impacted due to the lockdowns.

• Expect net credit cost to normalize going forward.

• Strong profitability and low capital consumption make SBI Cards a niche play.

• Firm offers good combination of superior growth with strong RoEs.

• Asset quality worries are largely behind, residual stress to ease going forward.

Motilal Oswal

• Recommends ‘buy’ with a target price of Rs 1,200.

• June quarters earnings steady, asset quality has improved sequentially.

• Stable fee income, improvements in loan mix led to margin expansion.

• Lower Opex, stability in asset quality aided profitability.

• Spends have started showing gradual improvement in the month of June as the second wave impact eased.

• Expect RoA/RoE to improve to 7.9%/30.5% in FY23E.

Shares of ICICI Bank gained as much as 1.3% to Rs 685.45, paring a 1.9% drop, after the private lender posted a 77.6% rise in profit at Rs 4,616 crore year-on-year.

Net interest income of the bank went up 17.8% at Rs 10,936 crore year-on-year. The bank’s gross NPA ratio stood at 5.15%, versus 4.96% in the previous quarter. Net NPA ratio was at 1.16% as compared to 1.14% in the last quarter of the previous fiscal year.

In a press release, the bank said in the absence of regulatory dispensations like moratorium on loan repayments and standstill on asset classification during the second Covid-19 wave, the impact on the quality of the loan portfolio would likely be sharper and earlier during fiscal 2022.

Brokerages Edelweiss, Motilal Oswal, YES Securities, Nomura and Jefferies all maintained their bullish ratings on the stock.

All 50 analysts tracking the company suggested a ‘buy’ rating, according to Bloomberg data. The average of 12-month consensus price targets implies an upside of 14.7%

Shares of Jindal Steel & Power Ltd. gained 3.57% to Rs 411.30 apiece after it received a revised bid from Worldone for its thermal power arm.

In April, JSPL divested 96.42% in JPL to Worldone for Rs 3,015 crore. However, after feedback from several investors and shareholders who pointed out that the deal value is lower than expected, JSPL asked for revised bids.

“Worldone will buy out all the equity shares and redeemable preference shares of JPL held by JSPL for a total consideration of approximately Rs 7,401 crore,” said the company in a statement.

Worldone Pvt is owned by the JSPL promoter group, managing and holding investments across various listed and unlisted companies.

Out of the 25 analysts tracking the company, 20 maintained ‘buy’, 4 maintained ‘hold’ and 1 analyst maintained ‘sell’ recommendation. The overall consensus price of analysts tracked by Bloomberg hinted at an upside of 28.9%. Shares of JSPL added 52.14% in 2021 so far as compared to 67.29% gains for S&P BSE Metal Index

Shares of the hotels-to-cigarettes conglomerate rose as much as 1.6% after 1.99 million shares changed hands on the bourse in a single large trade.

• Buyers and sellers were not immediately known

Q1 Earnings Highlights (Standalone QoQ)

• Revenue down 8% at Rs 12,959.15 crore Vs Rs 14,156.96 crore (Bloomberg estimate: Rs 11,572 crore)

• Net profit down 16% at Rs 3,190.12 crore Vs Rs 3,775.44 crore (Bloomberg estimate: Rs 3,254 crore)

• Ebitda down 11% at Rs 3992.16 crore Vs Rs 4473.04 crore (Bloomberg estimate: Rs 3,943.2 crore)

• Margin at 30.8% Vs 31.6% (Bloomberg estimate: 34.1%)

• Cigarette segment’s revenue fell 12.6% to Rs 5,122.19 crore.

• Revenue of the remaining FMCG business rose 1.0% to Rs 3,725.55 crore. Hotels unit revenue fell 55.8% to Rs 127.24 crore.

• Agri-business revenue rose 21.4% to Rs 4,091.27 crore.

Out of the 39 analysts tracking the company, 29 maintained ‘buy’, 9 maintained ‘hold’ and 1 analyst maintained ‘sell’ recommendation. The overall consensus price of analysts tracked by Bloomberg indicated an upside of 18.1%.

Shares of ITC Ltd. gained 2.3% in 2021 so far as compared to 8.6% gains posted by S&P BSE FMCG over the same period.

To read what brokerages made of ITC's Q1 performance, click here.

Shares of Yes Bank gained 5.28% to Rs 13.76 apiece on the back of better-than-expected June quarter earnings.

• Net profit at Rs 206.84 crore Vs estimate of net loss of Rs 678.5 crore

• NII at Rs 1,402 crore Vs estimate of Rs 1,238 crore

• GNPA at 15.6% vs 15.41% (QoQ)

• NNPA at 5.78% vs 5.88% (QoQ)

• Provisions down 88% at Rs 644.43 crore Vs Rs 5,239.59 crore (QoQ)

• To sell its entire stake in its wholly-owned subsidiaries Yes Asset Management (India) and Yes Trustee to CPL Finance and Investments.

“We have been able to take care of the legacy issues,” Prashant Kumar, the bank’s chief executive officer, said in a Bloomberg TV interview on Monday. “Going forward, there will be continuous improvement.”

Out of the 17 analysts tracking the company, 6 maintained ‘hold’ and 11 maintained ‘sell’ recommendation. The overall consensus price target of the analysts tracked by Bloomberg implied a downside of 15.8%. Shares of Yes Bank have shed 23.33% in 2021 so far.

ICICI Securities

• Recommends ‘hold’ with a target price of Rs 14.

• Slippages in June quarter were more than offset by upgrades, recoveries and write-offs.

• GNPAs remained stable and credit cost was contained at 1.6%.

• Retail/SME mix as well as CASA showed improvement.

• NIM normalization, treasury gains and recoveries from written-off accounts supported earnings.

Key Risks

• Covid resurgence likely to cause further stress.

• Lock-in of shares and lower floadt boosting value beyond fundamentals.

Nirmal Bang

• Recommends ‘sell’ with a target price of Rs 12.

• Muted credit growth and lower NIM weighed on NII.

• Lower retail disbursements and lower than expected corporate loan growth led to the decline in Advances.

• Bank continues to be in weak footing in terms of asset quality.

• Restructured portfolio increased to 2.7%, but further restructuring pipeline is insignificant.

• Overall stress levels, including the overdue book remains a cause for concern.

• Elevated credit costs and weakness in asset quality are the key reasons for the negative outlook on the bank.

Kerala-based ESAF Small Finance Bank Ltd. has sought approval from the markets regulator Sebi to raise Rs 800 crore ($107 million) selling new shares in an initial public offering, according to a copy of its draft prospectus on issue manager ICICI Securities’ website.

• Existing shareholders and founder ESAF Financial Holdings plan to sell as much as Rs 198 crore worth of shares in an offer-for-sale as part of the IPO

• The bank is planning a pre-IPO placement of Rs 300 crore of shares; new share sale will be lower if the pre-IPO sale happens

• The bank plans to boost its Tier 1 capital base with the proceeds from the planned IPO, which is its second attempt to go public after an earlier filing with the regulator in 2020

• Axis Capital, Edelweiss Financial Services, ICICI Securities and IIFL Securities will manage the sale

Indian equity benchmarks swing between gains and losses in opening trade amid weak global cues and a disappointing start to the quarterly earnings season.

The S&P BSE Sensex was little changed at 52,949.60 after falling as much as 0.36% and rising as much as 1.3%. The NSE Nifty too was unchanged at 15,849.90.

Ten of the 19 sector sub-indexes compiled by BSE Ltd. slipped, led by a gauge of banking companies.

In earnings, 11 of the 15 Nifty companies that have announced results so far fell short of analysts’ estimates while four have beaten the consensus.

The initial public offering of Rolex Rings Ltd., a Rajkot, Gujarat-based maker of automotive components, will raise about Rs 731 crore ($98.2 million) at the top end of the price band, according to an advertisement in the Financial Express newspaper Monday.

• Company plans to raise Rs 56 crore by selling new shares, while investor Rivendell PE LLC is seeking to sell 7.5 million shares in an offer-for-sale as part of the IPO

• IPO opens July 28 and closes July 30, anchor investors will bid July 27

• Investors can bid for minimum 16 shares of face value Rs 10 in the sale

• Rivendell PE LLC held 10.9 million shares, or a 41% stake, in the company before the IPO, according to the prospectus for the sale

• Equirus Capital, IDBI Capital Markets and JM Financial are managing the sale

Asian stocks fell Monday as China’s widening technology-sector crackdown hurt Hong Kong equities, overshadowing last week’s rally in U.S. shares to an all-time high on robust corporate earnings.

Hong Kong dropped about 2% and Chinese stocks retreated, while Japan jumped after reopening from a two-day holiday. Beijing’s latest tightening is a reform of its $100 billion education tech sector, undermining one of China’s hottest investment plays in recent years.

India's SGX Nifty 50 Index futures for July delivery fell 0.7% to 15,742.50, while MSCI Asia Pacific Index -0.3%. The NSE Nifty 50 Index added 0.2% Friday to 15,856.05.

U.S. equity contracts slipped after a record Wall Street close Friday, with the S&P 500 almost doubling from the depths of the pandemic. About 87% of the S&P 500 firms reporting results so far this season have beaten estimates.

Treasury yields inched lower but traders are braced for possible turbulence as Fed officials resume talks at this week’s two-day policy meeting on when and how to taper stimulus.

Elsewhere, Bitcoin jumped toward $40,000, continuing a recent rally. Crude oil fluctuated around $72 a barrel.

Back home, Reliance, ICICI Bank, ITC, JSW Steel, Yes Bank, Ambuja Cements, SBI Cards, United Spirits, Jubilant Pharmova may react as the companies reported quarterly results after the market closed Friday. Tata Motors, Axis Bank, Kotak Mahindra Bank, L&T, SBI Life, Vedanta, DLF are among the companies scheduled to report earnings Monday.

Punjab National Bank, Mahindra Financial, Coromandel are holding their annual shareholders’ meeting. Foreign investors bought net Rs 4,310 crore of stocks on July 22, according to NSDL website.