Sensex Ends 222 Points Higher; Telecom And FMCG Stocks Witness Buying

Indian share markets continued their momentum and ended the day on a positive note today. Gains were largely seen in the telecom sector and FMCG sector.

At the closing bell, the BSE Sensex stood higher by 222 points (up 0.6%) and the NSE Nifty closed higher by 75 points (up 0.7%). The BSE Mid Cap index ended the day up by 1.3%, while the BSE Small Cap index ended the day up by 0.9%.

Asian stock markets finished on a mixed note as of the most recent closing prices. The Hang Seng stood up by 0.1% and the Nikkei was trading down by 1.3%. The Shanghai Composite stood higher by 1.06%.

European markets were trading on a negative note. The FTSE 100 was down by 0.37%. The DAX, was down by 0.30% while the CAC 40 was down by 0.54%

The rupee was trading at 68.75 to the US$ at the time of writing.

In the news from the banking space, Vijaya Bank share price was in focus today as the lender reported that its non-performing assets (NPAs) as a percentage of total advances eased to 6.19% in June quarter from 6.34% in March quarter and 7.3% in the year-ago quarter.

Vijaya Bank share price ended the day up by around 4.6% on the BSE. The bank also reported that its net interest income (NII) rose 27.8% for the quarter to Rs 12.06 billion compared with Rs 9.4 billion in the year-ago quarter.

In other news, SpiceJet share price was also in focus today. Gains were seen as the company said that arbitral tribunal ruled in favor of SpiceJet with regard to disputes with former SpiceJet owner Kalanithi Maran and KAL Airways Pvt Ltd (claimants).

At the closing bell, SpiceJet share price ended up by 4.6% on the BSE.

In the news from the IPO space, the IPO of HDFC Asset Management Company opens on July 25 and closes on July 27, 2018. The offering will entirely be an offer for sale (OFS) of 25.5 million shares by HDFC Ltd and Standard Life Investments Ltd. With the OFS, the selling shareholders aim to dilute their stake by 12% in the company.

The price band of the issue is set at Rs 1,095 to Rs 1,100 apiece.

HDFC Asset Management Company (HDFC AMC) is the asset management arm of Housing Development Finance Corporation (HDFC Ltd). Promoted by HDFC in 1999, Standard Life Investments (SLI) acquired 26% stake in HDFC AMC in 2001, and now the company operates as a joint venture between HDFC and SLI.

The company has been the largest AMC in India in terms of equity-oriented AUM since the last quarter of FY11. As of March 31, 2018, its proportion of equity-oriented AUM to total AUM was at 51.3%, which was higher than the industry average of 43.2%. Equity-oriented schemes generally have a higher fee structure than non-equity-oriented schemes, and this is where HDFC AMC wields its competitive advantage.

To know our view on this IPO, you can read our IPO note on HDFC Asset Management Company Ltd (requires subscription).

Speaking of IPOs, as per a leading financial daily, eighteen initial public offerings (IPOs) in the first six months of 2018 raised Rs 236.7 billion. This compares to Rs 120 billion that thirteen companies raised via IPOs in the year-ago period.

Further, as per the news, the outlook is bullish for the rest of the year as well, with 50 companies including HDFC Mutual Fund, Lodha Developers and Rail Vikas Nigam expected to launch their initial share sales.

Of these, 28 companies are awaiting SEBI nod to launch their IPOs and 18 others have received the regulatory approval.

Note that the stock market is gearing up for a burst of IPO activity, with at least 12 companies planning to raise more than Rs 170 bn over the next two months, after a quiet start to the June quarter.

Also, according to EY India IPO Readiness Survey Report, globally, Indian exchanges recorded the highest IPO activity as the country saw 90 IPO launches that raised US$ 3.9 billion in the first half of this year.

Meanwhile, the amount raised by SME IPOs in 2017 stood at Rs 17.9 bn. This is more than three times the amount raised in 2016. The number of SME IPOs launched also doubled from 66 to 132. This is evident from the chart below:

SME IPO Boom in 2017

We believe a merit-based selection, primarily including valuation, business, and management quality, is the logical way to go about investing in IPOs. If it means going against the herd, so be it. And going by recent past, this strategy has been proven to be successful more often.