Nifty did make a brief dash for 11,500

The Nifty did make a brief dash for 11,500 but stopped short at 11,450, just slightly shy of the mark. Big Oilcos like ONGC and Reliance-led the rally on Wednesday even as select pharma stocks came under pressure. A/D ratio was sharply positive in the ratio of 2:1 for the Nifty. Brent Crude fell by 1.55% to $73.45/bbl on China demand concerns. With the US officially imposing the second round of tariffs on Chinese imports worth $16 billion, oil markets are worried that the trade war could take its toll on Chinese demand for crude oil. Chinese demand could be a key overhand for markets.

It was a tale of two pharma stocks. Lupin fell over 5% after Q1 profits were below the street estimates. Lupin reported a 43% fall in net profits on a YOY basis due to weak sales in the US and Japan. EBITDA margins of Lupin also narrowed from 21% last year to just 18.8% in this year. On the other hand, Cipla managed to beat analyst estimates in Q1 largely on the back of robust domestic sales. The 10.4% growth in Cipla’s profits at Rs.451 crore was better than expectations. The sharp rise in profits was driven by a 22% jump in India revenues. Indian market accounts for 1/3rd of Cipla’s total revenues.

With the telecom competition hotting up in India, Bharti may be looking at ways and means of quickly monetizing its assets. To begin with, it may list its Africa unit in the next 1 year. Bharti will be looking to use the proceeds to pare debt in its India operations. After the approval of the Idea-Vodafone merger, Indian telecom is down to just 3 players; Idea-Vodafone, Bharti Airtel, and Reliance Jio. Africa business has generated more than Rs.20,000 crore in revenues for Bharti group last year with profits margins of 36.4%. It has been the saving grace for Bharti in a year when domestic ARPUs have fallen sharply.

Downstream oil companies like HPCL and BPCL have been reported bumper profits on the back of superior GRMs. HPCL net profits were up by 86% at Rs.1719 crore in the first quarter. HPCL was helped along by a 22% growth in overall revenues on the back of higher gross refining margins (GRM). GRM for the quarter moved up sharply to $7.15/bbl from just $5.86/bbl. This figure is interesting because now even the OMCs are able to report GRMs that are higher than the Singapore benchmark. With oil prices stabilizing in the range of $70-80/bbl the worst may be over for these OMC stocks.

RBI to pay Rs.50,000 crore as special dividend to the government for June fiscal year. It may be recollected that the RBI financial year ends in June each year and that is when the dividends are paid out. Till 2016, RBI was paying close to $10 billion (Rs.65,000 crore) each year to the government as a dividend. However, in 2017, the RBI sharply cut the dividend to the government by half to compensate for demonetization costs and also as a future safety net. The 2018 dividend figure is sharply higher than the Rs.30,600 crore that the RBI had transferred to the government in the previous year. The government had been calling upon RBI to hike the dividend payout this year. This year, the government was counting on a generous payout by the RBI to help meet its steep fiscal deficit.

The mid-cap carnage may be far from over, although there are signs of a bottoming out. More than half the Nifty-500 stocks are still 30% below the peak. This can be largely attributed to the deeper damage that mid-cap stocks suffered in the last 6 months.  These stocks have borne the brunt of higher crude prices, rising CPI inflation and a general tightness in credit in the economy. In addition, the Additional Surveillance Margins (ASM) imposed by SEBI on mid-caps also played spoilsport when it came to mid-cap performance on the bourses. This indicates that mid-caps still have a long way to go.

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