Sensex, Nifty Decline After Bearish Calls Drag ITC, Sun Pharma

Indian equity benchmarks declined for the second time this week, mirroring the losses in global markets, as traders girded for a potential intercontinental ballistic missile launch by North Korea.

The S&P BSE Sensex declined 0.46 percent to 31,661 while the NSE Nifty 50 Index dropped 0.36 percent to 9,916. Twelve of the 19 sector gauges compiled by the BSE Ltd. declined led by the S&P BSE Healthcare Index’s 1.35 percent drop, the most in three weeks. On the flipside, the S&P BSE Metal Index gained 0.67 percent.

The country’s largest drugmaker Sun Pharmaceutical dropped 3.6 percent, the most in over a month, after brokerage house CLSA said the stock seems “expensive” considering the challenges it faces in the U.S.

ITC Ltd. was the second-biggest loser on the Sensex after the stock was downgraded by two brokerage houses. While Macquarie downgraded ITC to ‘Neutral’ from ‘Outperform’ and Jefferies also cut its rating on ITC to ‘Hold’ from ‘Buy’.

Nipun Mehta, founder and CEO, Blue Ocean Capital, says, “since the last 2-3 weeks geo-political concerns are acting as headwind for markets. Earlier it was between India and China now it is between North Korea and U.S…. if there is any escalation of hostility, it could lead to a selloff in equities and spur demand of safe haven assets like gold.”

“Till the time hostility remains the market will trade in a range,” adds Mehta.

• SKF India: The Mumbai-based maker of ball bearings surged as much as 4.25 percent, the most since July 28, to Rs 1,590. Trading volume was 9.2 times its 20-day average.
• Leel Electricals: The Delhi-based commercial and residential building products maker rallied as much as 17.5 percent, the most in two years, to Rs 251.95. Trading volume was 16.9 times its 20-day average.
• Southern Petrochemicals: The Chennai-based fertiliser manufacturer rose as much as 17 percent to Rs 39.10. Trading volume was 23.8 times its 20-day average.
• Rico Auto Industries: The Gurugram-based auto component maker advanced 11.4 percent, the most since July 13, to Rs 89.40. Trading volume was 14.2 times its 20-day average.

The S&P BSE Metal Index rose as much as 0.6 percent to 13,759 – its highest since July 2014. The index has risen for a fourth straight session, was up 35.7 percent so far this year.

The rupee fell to a three-week low of 64.26 against the U.S. dollar as outflows from Indian stocks accelerated.

Foreign investors sold net $132.2 million of local shares on September 4, after withdrawing $116.5 million on September 1. This follows outflow of $1.73 billion outflows in August, the highest since November, according to Bloomberg.

• Dixon Technologieas IPO subscribed 10 percent

Source: Exchanges

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Shares of the consumer finance company rose as much as 3.03 percent to record high of Rs 1,848.70. The company on Tuesday launched an institutional share sale, aiming to raise up to Rs 4,500 crore, bankers aware of the development told BloombergQuint.

BloombergQuint speaks to management of Dixon Technologies on first day of IPO.

Shares of the local search engine rallied as much as 7 percent, the most in over a month, to Rs 403.90 a day after HDFC Mutual Fund bought stake in the company.

HDFC Mutual Fund bought 32.06 lakh shares (4.6 percent) of Just Dial at weighted average price of Rs 375.

BloombergQuint speaks to management of Bharat Road Network on first day of IPO.

The S&P BSE Consumer Durables Index was the top sectoral gainer, up 0.5 percent. Jewellery-to-watch maker Titan rose as much as 1.92 percent after gaining 4.34 percent in the previous session.

Shares of the salt-to-hotel conglomerate fell as much as 1.93 percent, the most since August 8, to Rs 277.40 after a couple of brokerages downgraded the stock.

International brokerage firm Macquarie downgraded the stock to 'Neutral' from 'Outperform' and cut its target to Rs 304 from Rs 340. It expects cigarette volume to decline by 4 percent in FY18. It has also cut FY18-19 earnings estimate by 2-5 percent and recommends switching to Hindustan Unilever.

Another brokerage Jefferies has cut its rating on ITC to 'Hold' from 'Buy'. It said cigarette business remains impacted by regulatory pressures and other businesses will see gradual uptick in growth and profitability.

Shares the Delhi-based media company jumped as much as 9.6 percent to Rs 62.20. The stock has risen 75 percent in six sessions.

Shares of the micro-finance lender fell as much as 2.53 percent to Rs 900 after the Reserve Bank of India restricted foreign institutional investors from investing in the company.

RBI said foreign shareholding in the company through FIIs reached the trigger limit in Bharat Financial Inclusion.

Shares of the country's largest drugmaker fell as much as 3 percent, the most since August 18, 2017, to Rs 477.10 after brokerage house CLSA maintained its 'Sell' rating on the stock for target price of Rs 370.

The brokerage in a note said:

• EBIT margin ex-Taro of 5 percent despite Ranbaxy synergy is worrying
• Key products witnessing a declining sales trend except Absorica
• Limited support from specialty pipeline in the near term
• Trades at an expensive 25 times FY19 and 20 times FY20 earnings; does not capture concerns

Indian stocks slipped, reflecting weak global markets, as investors continued their risk-off trade as nations grapple with how to deal with escalating provocations from North Korea.

The S&P BSE Sensex fell 0.56 percent to 31,632 and the NSE Nifty 50 Index declined 0.55 percent to 9,898. From the Nifty 50 basket of shares, only four were trading higher while 57 were among the losers.

All the 19 sector gauges compiled by BSE were trading lower led by S&P BSE Realty Index's 1 percent decline.

Money markets continue to reel under the ongoing geopolitical tensions in the Korean peninsula.

Add to that, dovish comments by the US Federal Reserve's Lael Brainard and Neel Kashkari have pressed Treasury yields lower.

Their colleague Robert Kaplan said the fallout from Hurricane Harvey won’t change his view that the U.S. central bank ought to start winding down its massive balance-sheet at the first opportunity.

The Indian rupee fell yesterday and may trade lower. Its peers in the Asia Pacific region were mixed with Malaysian ringgit and Chinese yuan rising against the dollar, while the kiwi and the Aussie dollar fell.

In bonds, India's benchmark bonds may rise tracking lower US treasury yields. Rupee and Indonesian rupiah bonds lured a record $29 billion of inflows this year, with central banks in India and Indonesia reducing key interest rates. While swaps traders don’t see India cutting again this year, top investors like Mirae Asset and Schroder remain bullish on these debts.

• Nifty September Futures closed at a premium of 19.4 points versus 14.6 points
• Nifty September futures closed at 9971.6; open interest up 4 percent
• September series’ highest call base at 10000 (open interest at 41.7 lakh, down 7 percent)
• September series’ highest put base at 9700 (open interest at 46.3 lakh, up 4 percent)
• Call strikes 9900, 10000, 10,100 see unwinding of open interest
• Put strikes 9800, 9900, 10000 see open interest addition

JP Morgan On Kotak Mahindra Bank

• Upgrades stock rating to ‘Overweight’, raises target to Rs 1,100 from Rs 875
• Parent bank strongly positioned while the subsidiaries are in a sweet spot
• Stock has been upgraded as the bank is strongly positioned for growth
• Subsidiaries give investors a diversified exposure across high-growth segments

IDFC On Mahanagar Gas

• Upgrades rating stock to ‘Outperform’, raises target by 13 percent to Rs 1,220
• Estimate average growth of 4.7 percent in volumes over FY18-19
• Revise our earnings per share (EPS) estimates for FY18-19 higher on stronger margins across segments
• Q1FY18 margins not an aberration, expect FY18 to see sustained strength

CLSA On Sun Pharma

• Maintain ‘Sell’ for target of Rs 370
• EBIT margin ex-Taro of 5 percent despite Ranbaxy synergy is worrying
• Key products witnessing a declining sales trend except Absorica
• Limited support from specialty pipeline in the near term
• Trades at an expensive 25 times FY19 and 20 times FY20 earnings; does not capture concerns

CLSA On Reliance Industries

• Maintain ‘Buy’ for target of Rs 1,920
• A big cut in interconnect usage charge (IUC) will be a huge positive
• Positives from JioPhone are still under appreciated
• Strong downstream margins, capacity starts and other triggers reiterate ‘Buy’

CLSA On Astral Poly Technik

• Maintain ‘Buy’ for target of Rs 785
• Adhesives to drive incremental EPS growth, return on capital employed (RoCE) expansion
• Expect revenue to grow at compounded annual growth rate (CAGR) of 22 percent over FY17-20 in the adhesives business
• Adhesives is a high-RoCE business with 6-8 times asset turn

Citi On Bharat Electronics

• Maintains ‘Buy’, raises target to Rs 220 from Rs 213
• Management has guided for 12-15 percent growth during FY18 in annual report
• Management has also guided for 100-150 basis points EBITDA margin contraction in FY18
• See 14 percent EPS CAGR with return on equity (RoE) increasing from 18.2 percent to 20.6 percent over FY17-20
• BEL, NBCC and L&T are among Citi’s top India industrial picks

Morgan Stanley On Cement

• Demand recovery is underway and is geographically broad based
• Higher capacity utilization will drive expansion in EBITDA/tonne and ROE
• Shree Cement is our top pick while Dalmia Bharat is our preferred mid-cap play

Edelweiss On Divi's Laboratories

• Maintain ‘Reduce’ with a target of Rs 545
• Unit-II remediation is the top priority of the management
• Uphill task for Divi's going forward as Unit-I is also due for U.S. FDA inspection
• Resolution of import alert will take at least 2 years going by the past experience

Citi On Jindal Steel & Power

• Maintain ‘Buy’ for target Rs 200
• FY17 annual report focuses on cash generation and improving product profile
• FY17 cash generation was healthy and substantially more than profits
• FY17 debt reduced marginally despite ongoing capex

Deutsche Bank on Marico

• Management expects a near-normal 2QFY18, despite some impact of de-stocking in July
• Management guides for 8-10 percent volume growth for rest of FY18
• Urban consumption has recovered a tad, however, rural is still slow
• Bangladesh is back on track and it expects double-digit growth in FY18
• Worst appears over in Middle East and Egypt and expect growth to return in second half of the year

• RBI says FPI investment in Bharat Financial shares reached trigger limit
• ICICI Bank will be in focus as ICICI Lombard gets SEBI nod for Rs 6,000 crore IPO
• Bajaj Finance QIP opened with at floor price of Rs 1,771.9 a piece
• Merck says its holding company is considering full or partial sale of its $1 billion consumer health business
• HCL Technologies acquired 100 percent stake in U.K.-based ETL Factory Ltd. for 7 million pounds
• Phoenix Mills increases stake in subsidiaries Offbeat Developers, Vamona Developers, Classic Mall and Alliance Spaces
• Music Broadcast says Radio City will offer customized content across all Lucknow metro stations
• Hospital stocks: NPPA asks companies to display knee implant system cost on websites within three days
• Government eyes Rs 2,500 crore from selling 15 percent stake in NLC India (Mint)
• IndiGo may buy stake in Jet Airways if Air India bid fails (Mint)

For a complete list of stocks to watch, click here

• Global economy faces threat from overgrown markets, says Ruchir Sharma
• UDAY may add to ‘worrying’ decline in states’ capex, says ICRA
• Six more countries may ratify Modi’s solar alliance by December
• Over 2 lakh companies deregistered, bank accounts inaccessible
• Bajaj Finance looks to raise up to Rs 4,500 crore via share sale
• Dixon Technologies mops up Rs 180 crore from anchor investors
• Putin echoes China in rejecting tougher North Korea sanctions
• Florida prepares as Irma menaces another U.S. economic hub
• Goldman sees oil gloom clearing as demand rises in Harvey’s wake
• Kashkari says Fed may have harmed economy with rate hikes
• Russia plans gem reform to compete with India’s million workers

Good Morning!

The Singapore-traded SGX Nifty, an early indicator of NSE Nifty 50 Index’s performance in India, fell 0.38 percent to 9,937.

Asian shares fell as traders girded for a potential intercontinental ballistic missile launch by Pyongyang, which will celebrate its "foundation day" Saturday. The Japanese yen was steady at 108.79 per dollar, within 1 percent of its high for the year.

Equities fell across Asia with Japan's Nikkei declining 0.3 percent, Hang Seng falling 0.8 percent and South Korea's Kospi slipping 0.3 percent.

Overnight, U.S. stocks slipped while Treasuries rallied the most in 10 months as tensions with North Korea mounted and another Atlantic hurricane threatened to make landfall.

Commodities

• West Texas Intermediate crude lost 0.2 percent to $48.55 a barrel following a 2.9 percent gain.
• Gold fell less than 0.1 percent to $1,338.77 an ounce after increasing 0.4 percent to the highest in a year.