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Shares of leading pharma companies including Sun Pharmaceutical, Lupin, Cadila Healthcare and Cipla weakened on Thursday after Bank of America Merrill Lynch downgraded its ratings on these stocks. The brokerage is the first to downgrade these pharma stocks, which have been outperformers in the last one year.
"Post recent rally, we think absolute returns are unlikely in the next 12 months...... despite being positive on their long-term prospects,"said Merrill's analyst Manoj Garg in a client note dated April 09.
The brokerage downgraded its rating on Sun to 'underperform', and on Lupin Cipla and Cadila to 'neutral' from 'buy'. It has maintained a buy rating on Aurobindo Pharma.
The BSE's healthcare index was down almost 2%. Sun Pharma fell as much as 3.8%, Lupin declined 3.66%, Cadila Healthcare dropped 3.99% and Cipla was down 2.83% at Rs 720.50 in intraday trade.
"While some multiple expansion is justifiable given higher returns, we view that some stocks in sector may be priced to perfection with less room for error," said Garg.
"Slowdown in ANDA approvals, heightened regulatory action (Form 483, warning letters) and EM currency headwinds (10% change impacts EPS by 2/8%) are the key challenges near-term," he said. "While we see most of these as transient, they could pose a risk to premium valuations if they persist".
India Inc has pitched for rate cut to boost economic activities, but the Reserve Bank may not oblige in its annual policy tomorrow as unseasonal rain may adversely impact food inflation in the coming months.
Reserve Bank Governor Raghuram Rajan in his annual monetary policy is expected to draw a balance between the need to cut interest rate and contain inflationary expectations.
"Industry always wants rate cut. Low interest rate will bring down cost of fund for the industry," Bajaj Group Chairman Rahul Bajaj told reporters on the sidelines of CII event here.
Echoing similar views, Adi Godrej, Chairman of the Godrej Group, said: "Rate cut by RBI is very much required. It will help in boosting economic activities."
The Reserve Bank of India (RBI) has cut interest rate twice since January and is unlikely to further reduce it this time. However, RBI may indicate a rate cut in future after seeing some improvement on the price front.
State-run Union Bank's Chairman and MD Arun Tiwari said it is "highly unlikely" that RBI would further ease its monetary policy on April 7, given the current price situation, as they have already done so twice in quick succession.
The RBI had lowered its policy rate by 25 basis points to 7.5 per cent on March 4, after a similar cut on January 15, on the back of softening inflation and the government's commitment to continue with the fiscal consolidation programme.
Both the rate cuts were announced outside RBI's regular policy review.
State Bank of India chairperson Arundhati Bhattacharya said she would rather want the central bank to cut cash reserve ratio (CRR) so that the cost of fund can come down and the bank can pass on the same to the borrowers.
She said such a move would also help in an effective transmission of monetary policy action.
Asked if Statutory Liquidity Ratio (SLR) would help in cutting rate, Bhattacharya said, "May be reduced. But Liquidity Coverage Ratio (LCR) requirements will need us to invest in G-Secs. So SLR cut does not help much right now."
Indian Banks' Association Chairman T M Bhasin, who is also CMD of Indian Bank, said: "We are expecting a cut in CRR so that banks can reduce lending rate."
Bhasin said that a cut in repo rate at this point would not help banks lower their interest rates, as they are not borrowing much. The credit offtake is low and is expected to remain so in the first quarter of 2015-16, he added.
Bank credit grew 9.5 per cent in the fortnight ended March 20 -- the lowest growth in last two decades.
CRR, the portion of total deposit parked with the RBI, currently stands at 4 per cent.
HDFC Bank's Principal Economist Jyotinder Kaur said the unseasonal rainfall in recent weeks across the northern and central regions of the country has had an adverse impact on key Rabi (winter) crops such as wheat, oilseeds and pulses.
As per an Assocham study, the damage could be at least 25-30 per cent to the crop yields.
The rains have sparked expectations that the RBI might wait till the full impact of the weather disturbance becomes evident and keep the key policy rates unchanged in its review on tomorrow, Kaur said.
Regulator Sebi will soon put in place new norms for changes in constituents of the key stock market indices, including Sensex and Nifty, as it frames a separate mechanism for regulating the index providers.
The index operators, which include subsidiaries of stock exchanges and independent entities such as S&P, currently do not come under Sebi's direct regulatory purview and the new norms would also include a 'code of conduct' for them while mandating more disclosures and greater transparency while including or excluding a stock from the indices.
"The broader equity indices traded at Indian stock exchanges are owned and managed by separate legal entities or subsidiary of stock exchanges. As a result, these entities do not come under the purview of any specific regulation or ambit of regulations," a senior official said.
"Therefore calculation, maintenance and management of Indices are carried out at the discretion of Index providers and no regulatory oversight is presently available," he added.
Accordingly, Sebi has decided to put in place a regulatory framework for the index providers and their activities.
Among others, the major indices on the NSE are managed by India Index Services and Product Ltd (IISL), a NSE group company, which maintains over 80 equity indices comprising broad-based benchmark indices, sector indices and customised indices. Earlier, rating agency Crisil had a stake in IISL, which it exited in 2013.
At the BSE, the major indices, including Sensex, are managed by Asia Index Pvt Ltd, a 50-50 partnership between the exchange and S&P Dow Jones Indices LLC, the world's largest provider of financial market indices.
According to Sebi's proposal, the new regulation would include "a code of conduct for Index Providers in order to mitigate concerns of misuse of information associated with rebalancing/reconstitution of Indices".
Besides, it would provide for greater level of disclosure and transparency regarding stocks moving on and out of indices.
Also, the new norms would require a broad framework to be followed by Index Providers while managing/maintaining Indices and licensing indices or products based on indices in foreign jurisdictions.
Fund raising from equity markets hit a five-year high in 2014-15 despite a lackluster showing by IPOs (initial public offerings). Money raised from equity markets doubled to Rs. 58801 crore in the financial year, the highest since 2009-10, as companies used the buoyancy to mobilise funds mainly under the QIP (qualified institutional placement) route. The benchmark indices gained about 25% during the year.
Fund raising in 2014-15 was substantially through the 55 QIPs which saw Rs.28429 crore being mobilised from institutional investors, up 202% compared to the previous year, according to PRIME Database, which compiles data on the primary capital markets.
There were no big ticket IPOs during the year. Despite a stable government coming into power and the resultant buoyancy in the secondary market, only eight main-board IPOs came to the market collectively raising a meager Rs.2769 crore in 2014-15. This included only one Rs. 1000 crore plus IPO (Inox Wind-Rs. 1020 crore).
During the last fiscal, just one IPO, which mobilised Rs. 919 crore, hit the market. The highest-ever mobilisation through IPOs was in 2007-08 when companies raised Rs. 41323 crore. As many as 103 companies, which received approval from market regulator SEBI since April 2009 to collectively raise Rs. 48150 crore, allowed these to lapse, despite approvals being valid for a period of one year.
In addition, 58 companies which had filed their offer documents with SEBI since April 2009 to collectively raise Rs. 17685 crore withdrew their offer documents. If these 161 companies had been able to hit the market, an additional Rs.65835 crore, almost the same as the Rs.73909 crore which was actually raised in the six-year period, would have been raised.
The response from the public to the IPOs of the year, was mixed. While three IPOs received good response (Sharda Cropchem at 51 times, followed by Snowman Logistics at 46 times and Wonderla Holidays at 32 times), only three were oversubscribed by more than three times.
"The biggest disappointment for the primary market has again been the lack of divestments by the government," said Pranav Haldea, managing director, PRIME Database. Despite a huge target of Rs. 58425 crore for 2014-15, only Rs. 24338 crore, or just 42% of the target, was achieved. On an overall basis, PSUs (public sector units) contributed 41% of the total equity mobilisation.
Offers for sale (OFS) through stock exchanges, one of the major routes used in the last two years, primarily for helping promoters of already-listed companies in complying with the minimum public shareholding requirement, saw a huge increase.
Companies raised Rs. 26935 crore through 28 OFS in 2014-15, an almost four-fold increase compared to the previous year. The mega OFS of Coal India, which raised Rs. 22558 crore, propped up mobilisation under the route. Mobilisation of funds through rights issues increased 48% to Rs. 6750 crore in 2014-15.
The financial year 2014-15 threw up several surprises for investors. The sustained rally in equities surprised bulls and bears alike while debt investments also did reasonably well. But assets like real estate and gold, long considered defensive bets, floundered. Here is a report card of various investment classes in the financial year: