Sensex, Nifty Close Flat Driven By Late Spurt In RIL; Rupee Extends Losing Streak

The Nifty 50 index managed to close flat, powered by gains in Reliance Industries Ltd.

Weakness in heavyweights like ITC Ltd. and HDFC Bank Ltd. kept the benchmark in the red for most of the day. But the late surge in RIL shares helped lift the markets higher.

UPL Ltd., Tata Steel Ltd. and JSW Steel Ltd. were among the other top contributors to the Nifty's performance. 28 Nifty stocks rose, while the remaining 22 fell.

S&P BSE Sensex index closed 0.16% lower, with 13 stocks advancing and 17 stocks declining.

The rupee declined for a third day as higher oil prices fuelled worries about inflation and government finances, according to Bloomberg. A stronger dollar also weighed on emerging Asian currencies.

Broader market gauges that track mid- and small-cap stocks outperformed the frontline indices today.

S&P BSE 500 index rose 0.5% compared with the S&P BSE Sensex's minor losses. Motherson Sumi and Sumitomo Chemicals were among the top gainers in the broader index.

Muthoot Finance Ltd. shares surged nearly 10% even as the company's March-quarter performance fell short of expectations.

Net profit rose 2% quarter-on-quarter to Rs 996 crore, according to its exchange filing. That compares with the Rs 1,120-crore consensus estimate of analysts tracked by Bloomberg.

The non-bank financier's total income rose 2% sequentially to Rs 2,820 crore.

Muthoot Finance's board approved fund raising to the tune of Rs 5,000 crore by way of public issue of redeemable non-convertible debentures in one or more tranches.

Shares of smaller, government-owned banks perked up in trade today.

• Bank of Maharashtra shares rose as much as 10.4%, the most in seven weeks.

• Central Bank of India shared jumped as much as 7.8% to the highest in 15 weeks.

• Indian Overseas Bank stock rose as much as 6%, the most in two weeks.

Motherson Sumi Systems Ltd. shares surged after the company reported better-than-expected March quarter earnings.

Net profit fell 11% quarter-on-quarter to Rs 714 crore, according to an exchange filing. That compares with the Rs 536-crore consensus estimate of analysts tracked by Bloomberg.

Other Q4 Highlights (QoQ)

• Revenue down 1% to Rs 16,972 crore. (Bloomberg estimate: Rs 16,757 crore)

• Ebitda down 4% to Rs 1,626 crore. (Bloomberg estimate: Rs 1,782 crore)

• Ebitda margin at 9.6% Vs 9.9%. (Bloomberg Estimate: 10.6%)

Shares of Motherson Sumi jumped as much as 10% to Rs 261 apiece.

Watch the interview with Motherson Sumi Chairman Vivek Chaand Sehgal:

The rupee declined for a third day, dropping 0.4% to 73.16 to the dollar.

Factors:

• Higher oil prices fuel worries about government finances.

• Stronger dollar is also weighing on emerging Asian currencies.

• Traders await outcome of the Monetary Policy Committee's decision on June 4.

Nifty is set to extend its losing streak to two days.

The benchmark index dropped 0.6% to around 15,480 as of 12:30 p.m. as heavyweights HDFC Bank and ITC dragged.

The index is 1.1% below its 52-week high on June 1, 2021 and 62.3% above its low on June 12, 2020, according to Bloomberg data.

Shares of the private lender jumped as much as 4.9% to Rs 60.35 after ICICI Securities initiated coverage on the stock with a ‘Buy’ rating.

Excerpts from the broking firm’s note:

• The new bank, with a new board, new management and renewed focus, has made significant strides in retailisation and granularisation of its business.
• Stress build-up and franchise investment resulted in a weak return profile (net worth erosion) during the transition phase. However, current return profile is dragged by high-cost structure, low fee income and elevated credit cost.
• Nonetheless, its marginal unit economics is superior and incremental retail disbursements have potential RoE of >20%.

Key Triggers:

• Normalisation of cost to income ratio, retail fee income scale-up, and steady improvement in NIM trajectory.

Key Risks:

• Sustenance of cutting edge execution of stated strategy and elevated ‘cost to income’.

To read the full research note, click here.

Shares of the gas distribution company rose as much as 6.8% to Rs 577 apiece, just Rs 3 just of their record high after it reported fourth-quarter earnings that beat analysts’ forecasts.

Jefferies says

• Maintain Buy with a target price of Rs 620 (revised from Rs 595 earlier)
• Overall volumes in Q1 FY22E are around 20% below normal amid the second wave
• Spot LNG has risen but price hikes taken in January and new deepwater domestic gas sourcing keeps us comfortable
• Q4FY21 not a game-changer but our structural thesis remains intact
• Upside optionality in volumes appealing too
• Modestly raise FY22-23E EPS and price target by around 4% on higher volumes/margins

CLSA says

• Downgrade stock from 'Buy' to 'Outperform', target price raised to Rs 570 from Rs 510 earlier

• Incremental margin gains may be capped given stronger LNG prices.
• Management expects volume to normalise once lockdown curbs are lifted.
• A higher share of industrial volume should drive recovery.

Sumitomo Chemical India Ltd. rose 7.4% to a record high of Rs 343 apiece after reporting fourth-quarter earnings.

• The stock was the best performer among its peers.

• Trading volume was 716,951 shares, 16 times the 20-day average of 44,174 shares for this time of day.

• The shares are up 6.2% in the past 5 days and rose 14% in the past 30 days.

• Analysts have five buy, one hold, and no sell recommendations on the stock.

• The price target of Rs 340.80 represents a 0.3% increase from the last price

Analyst Rating Changes:

• Nirmal Bang Institutional Equities analyst Ramesh Sankaranaraya upgraded the recommendation on Sumitomo Chemical India to buy and assigned a target price of Rs 405.

• Prabhudas Lilladher Pvt. analyst Prashant Biyaniupgraded the recommendation to buy and assigned a target price of Rs 369.

Shares of PNB Housing Finance Ltd. rose by their daily limit of 10% for a third consecutive day as brokerages upgraded the stock after the mortgage lender Monday approved a plan to raise as much as Rs 4,000 crore in capital from entities including private equity firm Carlyle Group Inc.

• Investec analyst Nidhesh Jain upgraded the recommendation on PNB Housing to buy and assigned a target price of Rs 700 yesterday.
• Trading volume was almost 60 times the average for this time of day.
• The shares are up 63% in the past 5 days and rose 86% in the past 30 days.
• PNB Housing trades at 12 times its estimated earnings per share for the coming year.

The announced large equity infusion should significantly improve the confidence of fixed income and equity markets and bring PNB Housing back on a growth path, according to Morgan Stanley.

• Believe this capital infusion could materially accelerate the business turnaround
• PAT forecasts go up as the free funds benefit from the higher issuance more than offset the royalty payments to PNB that will get effective as its stake falls below 30%.
• The confidence capital coming in should drive a meaningful valuation re-rating from beaten-down levels.

Risks to Upside

• Improvement in real estate sector fundamentals, driven by strong progress made by the government's real estate fund
• Asset quality improvement

Risks to Downside

• Rise in NPLs, especially retail NPLs
• Further aggressive price competition

Indian stocks opened lower, amid a broadly steady Asian trade, as investors cool their heels after a recent rally to record high for a key index.

The S&P BSE Sensex declined as much as 0.7% to 51,590.25 after ending a four-day winning streak yesterday. The NSE Nifty 50 Index fell as much as 0.5% to 15,564.05, after touching a record intraday high yesterday. Thirteen of the 19 sector groups compiled by BSE Ltd. advanced, led by a gauge of power stocks.

India’s economy expansion was faster than expected last quarter, official data showed yesterday. While the period preceded a resurgence of viral infections, the economic effects of the latest wave are unlikely to be large, India’s Chief Economic Adviser Krishnamurthy Subramanian said. New virus cases have halved from a May peak to fewer than 200,000 a day.

Indian sovereign bonds may come under pressure amid higher oil prices and U.S. Treasury yields. Traders await a 360-billion-rupee ($4.9b) auction of Treasury bills, while the RBI’s monetary policy committee begins its meeting Wednesday.

• RBI policy decision is due on Friday, where it’s likely to keep interest rates on hold
• USD/INR rose 0.4% to 72.8988 on Tuesday 
  • Implied opening from forwards suggest spot may start trading around 72.86
• 10-year yields little changed at 6.02% on Tuesday

Asian stocks were broadly steady Wednesday after U.S. equities inched lower as the tussle between economic optimism and inflation concern continues to play out in markets.

Japanese stocks led modest regional gains, while Hong Kong and China slipped. U.S. equity contracts were flat after the S&P 500 and Nasdaq 100 closed with small losses.

India's SGX Nifty 50 Index futures for June delivery fell 0.1% to 15,615.00, while MSCI Asia Pacific Index up 0.2%. The NSE Nifty 50 Index fell less than 0.1% Tuesday to 15,574.85.

Oil rose to a more than two-year peak, with OPEC+ providing an upbeat demand assessment and the prospect of a speedy return of Iranian barrels waning.

The dollar was steady in Asian trading. The Turkish lira fell to another record low against the greenback after President Recep Tayyip Erdogan renewed calls for lower interest rates. Australia’s dollar led Group of 10 performance amid robust economic growth data and the commodity rally.

Back home, ITC, Gujarat Gas may react as the companies reported quarterly results after the market closed Tuesday. Motherson Sumi, PVR, Muthoot Finance are scheduled to report earnings Wednesday. Foreign investors bought net Rs 5,160 crore of stocks on May 31, according to NSDL website.