Sensex Ends Lower; Infibeam Crashes 70%

Indian share markets ended marginally lower on Friday, weighed down by automobile and information technology (IT) stocks. At the closing bell, BSE Sensex ended down by 97 points, while, NSE Nifty ended down by 47 points.

Except energy stocks and bank stocks, all sectoral indices ended the day in red with metal stocks and realty stocks falling over 5%.

Globally, Asian stock markets finished broadly higher today with shares in Japan leading the region. The Nikkei 225 is up 1.4% while China's Shanghai Composite is up 1.1% and Hong Kong's Hang Seng is up 0.1%. European markets are lower today with shares in Germany off the most. The DAX is down 0.6% while France's CAC 40 is off 0.3% and London's FTSE 100 is flat.

The rupee was trading at Rs 72.56 against the in the afternoon session.

Infibeam Avenues share price was in focus today. Share of the company tumbled more than 57% today ahead of the company's annual general meeting (AGM) on Saturday.

In response, the company in voluntary clarification to BSE said it had always provided timely information and clarifications as sought by the stock Exchanges.

As per the news, rumors doing the rounds were that the company had advanced an interest-free loan to a subsidiary, which has negative net assets. In recent times, it also allegedly classified a co-founder as non-promoter.

The stock of the company ended the day down by 70.2% on the BSE today.

From the banking space, Yes Bank share price was also in focus today. Shares of the bank continued their downfall seen during the morning hours today and went on to trade as low as 16% on the BSE.

The RBI last week curtailed the three-year term that the board had sought for Rana Kapoor, also one of the promoters of the bank, to January 31, 2019, and asked the bank to find a replacement.

In the news from the IPO space, Garden Reach Shipbuilders and Engineers, which opened its issue for subscription this week, was subscribed 72% on its fourth day of the bidding process yesterday.

Note that the company extended its initial public offer by three days to October 1 and also revised the price band to Rs 114-118 per equity share.

The offering is entirely an offer for sale (OFS) of 29.2 million shares by Government of India. With this OFS, the Government aims to divest 25.5% stake in the company. No new shares are being issued by the company and all the IPO proceeds will go to the Government. Retail investors and employees will receive shares at a discount of Rs 5 per share on final offer price.

Garden Reach Shipbuilders and Engineers Ltd (GRSE) is a shipbuilding company under the administrative control of the Ministry of Defence (MoD). The company was incorporated in 1934, and was later acquired by the Government of India from Macneill & Barry Limited on 19 May 1960.

The company primarily caters to the shipbuilding requirements of the Indian Navy and the Indian Coast Guard. It is also engaged in engineering and engine production activities.

To know more about the company, you can read our IPO analysis of Garden Reach Shipbuilders and Engineers Ltd(requires subscription).

Also, with so many IPOs set to hit the markets, we at Equitymaster 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.

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In the news from global financial markets, Federal Reserve Chairman Jerome Powell said that market participants should watch the data on jobs, wages and inflation for signals on monetary policy and not the US central bank's words or forecasts.

Note that as part of that so-called forward guidance, the Fed for years had described its policy stance as 'accommodative' to assure markets that it would not suppress economic growth. But yesterday, the central bank removed this phrase from its policy statement.

The Fed on Wednesday raised interest rate and left intact its plans to steadily tighten monetary policy, as it forecast that the US economy would enjoy at least three more years of growth.

It announced a widely-expected rate increase, its third of the year, bringing its target range for its benchmark overnight lending rate to between 2% and 2.25%.

The US central bank still foresees another rate hike in December, three more next year, and one increase in 2020.

The Fed sees the economy growing at a faster-than-expected 3.1% this year and continuing to expand moderately for at least three more years, amid sustained low unemployment and stable inflation near its 2% target.

How does a US interest rate hike affect Indian investors?

The instant effect is foreign money moving out of India's vaults. This means a slight correction in the share market in India, albeit temporarily.

While this might provide a good buying opportunity in long-term stocks, the main thing to look forward would be capex and earnings trends.

In the end, Indian investors are better off staying informed about the corporate earnings revival than Fed rate hikes.

It is also worthwhile to note that the Indian stock market has done relatively well during the last period of rate hikes by the US Fed.

Take 2003-2006 for example...

Between 2003 and 2006, the US Fed rate moved from 1% to 5.25%.

Sensex's Staggering Performance Despite the Fed Rate Hikes

 

Despite this, the Sensex rose from 3,500 levels to more than 10,000 during the same period. This increase was supported by strong earnings growth.

So, in the long term, rate hikes (triggered by economic growth) have proved good for the Indian markets. In fact, earnings growth is at the heart of Tanushree's prediction of Sensex 100,000.