For the quarter, benchmark index BSE Sensex skid 5.85 per cent to 26154.83 on September 30. The index was at 27780.83 on June 30. The broad-based NSE Nifty slid 3.61 per cent during the same period. (Photo: Reuters)

The performance of India Inc for the period ended September 2015 has been muted once again with growth in net sales being negative for the fourth successive quarter while net profit growth has been marginally higher than June quarter but lower than September 2014, says Care Ratings.

Net sales of Indian companies fall 5.9 per cent for the quarter ended September 2015 as against growth of 7 per cent in the same period of last year. On the other hand, net profit of India Inc jumped 4.1 per cent against 12.6 per cent growth registered in the corresponding quarter last year. The negative growth in net sales is largely attributed to weakness in demand and pricing power. Despite negative producer’s inflation as measured by the WPI signalling lower raw material cost.

For the quarter, benchmark index BSE Sensex skid 5.85 per cent to 26154.83 on September 30. The index was at 27780.83 on June 30. The broad-based NSE Nifty slid 3.61 per cent during the same period.

Below are 5 stocks on which brokerage houses are looking bullish post their second quarter(Q2) earnings.

Aurobindo Pharma
Recommended By: IndiaNivesh Securities
Target Price: Rs 980
Market Price*: Rs 817.35
Why Buy: Aurobindo Pharma has cumulative filing of 382 ANDAs at the end of 2QFY16. The cumulative ANDAs pending for approval stands at 168, which has good mix of complex molecules which would enable not only enhanced sales growth but also improved profitability for sustained period. The upside in earnings is subject to regulatory approval. The company has around 51 products pending for approval in injectables space and 16 products in controlled substance space. According to IndiaNivesh Securities, Aurobindo’s R&D effort towards peptides, microspheres as well as hormones would also deliver better growth over 3-5 year period. The faster turnaround of acquired Actavis operation in Europe would also help in further improvement in overall margins of the company. ARBP has maintained its guidance of shifting 50 per cent of Actavis products to India facility by FY17. The brokerage house expects the second half of the ongoing financial year (2HFY16) will be better than the first half (1HFY16) on the back of increased business from approved products as well as new approvals expected in 2HFY16.

Coal India
Recommended By: IndiaNivesh Securities
Target Price: Rs 467
Market Price*: Rs 333.75
Why Buy: After a couple of years of stagnant production levels in the past, Coal India (CIL) finally delivered strong performance in FY15. Production and offtake jumped by 9.2 per cent and 9.9 per cent respectively in 7MFY16 on the back of a concerted push by the government. The government has set a gross output target of one billion tonnes of coal by 2019-20, which is around double the current production. In near term the company has guided 12 per cent off take volume growth to 550 MT and 11 per cent production volume growth to 550 MT in FY16. However, IndiaNivesh forecast FY16 production at 529 MT (+7% YoY); off-take 523 MT (+7%). The company has a strong balance sheet, with cash equivalents of Rs 61,800 crore (Rs 98/share) at end of H1FY16. The company has dividend payout ratio of near 100 per cent in previous two years. The brokerage house believes the dividend payout will remain healthy. According to IndiaNivesh, Coal India is likely to show strong performance in medium to long term (expect CAGR production growth of 7 per cent in next five years) due to strong domestic coal demand and monopoly in coal production in India.

State Bank of India
Recommended By: IndiaNivesh Securities
Target Price: Rs 370
Market Price: Rs 243.85
Why Buy: SBI, being the largest bank in Indian banking sector, remains the biggest beneficiary of revival in economy by way of pick up in loan growth and improvement in asset quality. In Q2FY16, loan growth of SBI picked to 10.3 per cent year-on-year (yoy) from 7 per cent yoy in Q1FY16. The brokerage house believes, the bank can easily grow its loan book at 13 per cent CAGR over FY15-17E with upward bias if corporate capex picks up significantly. With market leadership positioning in Home and Auto loan segment, growth in retail for SBI continues to remain higher.

Triveni Turbines
Recommended By: Sharekhan
Target Price: Rs 135
Market price*: Rs 112.05
Why Buy: For Q2FY2016, Triveni Turbines reported a 14 per cent yoy growth in revenue led by a strong 21 per cent growth in product sales. The aftermarket segment has reported a marginal fall in revenue mainly due to unfavourable base effect. Lower raw material cost led to a 110 basis points improvement in operating profit margin to 23.5 per cent, highest in the past ten quarters. Overall, the net profit rose by 16 per cent to Rs 27.7 crore.
Sharekhan in a research note said, “We have downgraded our earnings estimates for FY2016 and FY2017 by 7 per cent and 11 per cent respectively mainly in view of slow order booking in its JV with GE. We expect net profit to double (CAGR of 26 per cent) in three years, FY2015-18. We like the stock for its strong competitive positioning, international marketing efforts, margin profile and healthy balance sheet (it is a debt-free company with superior return ratios). Any major order win in the GE JV in the near term would be a positive trigger for the stock.”

CESC
Recommended By: Sharekhan
Target Price: Rs 730
Market Price*: Rs 540
Why Buy: For Q2FY2016, CESC reported substantially better earnings than estimated. The revenue was in line with estimates but on account of lower other expenses, the operating profit as well as net earnings were better than estimates. During the period, power generation was lower by 20 per cent YoY as it was compensated by sourcing power from its newly commissioned Haldia power plant (under subsidiary). The power sold remained flat yoy and revenue grew by 7 per cent yoy with better tariff. The operating profit registered a 5 per cent growth but on account of higher interest cost, PAT was flat (2 per cent up yoy) at Rs 195 crore, which was substantially better than estimate.

According to Sharekhan, the negatives related to the loss in the Chandrapur plant and potential under recovery as a result of aggressive bidding for coal mines have been already priced in the stock. Nevertheless, the company continues to put efforts to cover the under recovery from exporting some power in exchange and get PPA linkage for the new plant. The drag related to retail subsidiaries is receding though slower than initially expected. Overall, the financials of FSL should improve. The brokerage house has ‘Buy’ retainin on CESC shares.

* Market price as on November 19.

(Disclaimer: The stocks are recommended by the respective brokerage houses and not a recommendation from Financial Express online)

Axis bank: Stocks of the private sector lender will be in focus as it opened a representative office in Dhaka on Sunday as part of its global expansion plan. (Photo: Reuters)

The BSE Sensex turned flat on Monday after opening 76 point up on global cues. At 9.23 am, Sensex was down 16.24 points at 25,852.25. NSE Nifty was trading 0.40 points down at 7,856.15.

Below are the stocks that are likely be in focus today:

Vedanta, Hindalco Industries: Metals and mining major Vedanta and Aditya Birla group flagship firm Hindalco Industries will shift out of the BSE benchmark Sensex from December 21.

Adani Ports and Asian Paints: Asia Index Private Ltd, a joint venture between S&P Dow Jones Indices and BSE Ltd, said it would add Adani Port and Special Economic Zone and Asian Paints Ltd to its 30-member S&P BSE Sensex index.

Axis bank: Stocks of the private sector lender will be in focus as it opened a representative office in Dhaka on Sunday as part of its global expansion plan.

GAIL: GAIL stocks are likely to be in focus as Moody’s has affirmed the Baa2 long term rating of the company and has changed the outlook to negative from stable.

Britannia: Britannia Industries is embarking on a new growth path of becoming a total food company, aiming at Rs 20,000 crore turnover within 5-6 years.

Aurobindo Pharma: Aurobindo Pharma said that the company has received final approval from the US Food & Drug Administration (USFDA) to manufacture and market generic version of Pfizer’s Revatio (sildenafil citrate) tablets, used in the treatment of high blood pressure in lungs.

Adani Power: In a major relief to Adani Power, the Supreme Court on Friday set aside a 2010 notification of the Union government which levied customs duty to the tune of Rs 300 crore on the company for electricity transfer from its thermal power plant in Mudra Special Economic Zone to domestic areas with retrospective effect.

Dr Reddy: Dr Reddy’s Laboratories, which is embroiled in a legal battle with AstraZeneca over the usage of purple colour for generic version of Nexium, has filed a complaint in a US court alleging that the latter “knew” about its plans to use the same colour in the capsules.

Maruti Suzuki: The automaker has maintained its leadership position in the domestic passenger vehicle (PV) market in October with four of its models featuring in the top 10 selling brands last month.

Petronet LNG: India’s biggest gas importer is close to renegotiating a major deal with its Qatari supplier Rasgas, lowering the cost of gas shipments and avoiding a $1.5 billion penalty fee for lifting less gas than agreed, two sources said.

Pfizer: US drug major has secured formal board approval on Sunday for its acquisition of Botox maker Allergan Plc for more than $150 billion, a deal that will create the world’s biggest drug maker, according to media reports.

Neyveli Lignite Corporation: The state-run miner has said it is set to foray into coal mining for power generation and aspires to become a 19,000 MW power company by 2025.

Sobha Ltd: The realty firm has tied up with another realtor Chintels India to develop a group housing project comprising of 1,700 flats in Gurgaon at an estimated cost of Rs 1,000 crore.

Asian shares got off to a slow start Monday as a holiday in Japan sapped liquidity, while the prospect of more policy easing in Europe kept the euro on the defensive to the benefit of the US dollar. (Reuters)

Asian shares got off to a slow start Monday as a holiday in Japan sapped liquidity, while the prospect of more policy easing in Europe kept the euro on the defensive to the benefit of the US dollar.

MSCI’s broadest index of Asia-Pacific shares outside Japan was all but flat, while South Korea’s main index  gained 0.2 percent.

The head of the European Central Bank, Mario Draghi, last week offered the strongest hint yet that the ECB will unveil fresh stimulus measures at its Dec. 3 policy meeting.

The contrast with the US Federal Reserve could not be more stark as it seems destined to lift rates in December for the first time in a decade, underpinning the dollar.

Wall Street could find support from news of another blockbuster merger. Sources told Reuters that Pfizer Inc  was due to secure formal board approval for its acquisition of Allergan Plc for more than $150 billion, creating the world’s biggest drug maker.

The EMINI contract on the S&P 500 was trading 0.1 percent firmer on Monday. The Dow had ended Friday up 0.51 percent, while the S&P 500 added 0.38 percent and the Nasdaq 0.62 percent.

The S&P 500 boasted its best week in almost a year, while Europe’s main stock index enjoyed its strongest week in a month.

“Interestingly, markets are treating the prospects of policy divergence reasonably well,” said Jo Masters, a senior economist at Australia and New Zealand Bank.

“But with two of the world’s major central banks about to head on divergent policy paths, can such smooth sailing continue over the months ahead?” they wondered. “Increased policy tension is likely to mean that volatility remains elevated.”

The impact was clear in bond markets where yields on two-year German debt hit their lowest ever at minus 38 basis points, while US yields ended at their highest since mid-2010.

As a result the premium offered by US paper yawned out to 130 basis points, the fattest since 2006.

The drag from negative yields pulled the euro down to $1.0637, threatening the recent seven-month trough around $1.0615. It also peeled off to 130.78 yen, again the lowest since April.

Against a basket of currencies the dollar edged up to 99.664, while the US currency was steady on the yen around 122.93.

The strength of the dollar kept commodity prices under pressure. Gold was stuck at $1,076.11 an ounce having touched its lowest level in nearly six years.

Zinc, copper, lead and nickel were all near their lowest in five to seven years.

Oil prices dipped again with US crude off 35 cents at $41.55 a barrel, while Brent lost 20 cents to $44.46.

Market watchers confirm the caution among buyers is resulting in a preference for higher-rated corporate bonds. (Express Photo)

Despite the recent default by Amtek Auto, which failed to pay bond holders on the due date, investors aren’t really staying away from the corporate bond market. To be sure they’re asking for more to compensate for what could be ‘perceived’ higher risk. That’s evident from the fairly sharp rise in yields on corporate bonds, that don’t command a top quality rating. But they’re buying nevertheless.

Data compiled by FE shows that the highest coupon, on bonds rated below AAA, has moved up from 16%-17% in June-July to 22% in October. On September 30, Jet Airways offered BB rated NCDs worth Rs 698.9 crore at a coupon rate of 20.64% Bloomberg data shows. Companies that are rated below AA+ are now paying anywhere between 8.75% and 22%, nearly 275-750 basis points more than they were in July. The proportion of bonds rated below AAA rating has moved down from 50% in June to 21% in October.

Companies that command strong credit ratings, however, continue to tap the bond markets given the widening difference between interest rates that banks charge and the underlying yields in the debt market. Bloomberg data shows companies, rated AAA, have on average mopped up  around Rs 19,400 crore in each of the the last three months.

The coupon on AA- rated issuances, rated by CARE, has risen from 9.4% in July to above 10% in October. Future Retail raised about Rs 870 crore from the bond market in five tranches offering investors between 10.1% and 10.25%.

Religare Finvest and Karelidas Traders issued AA- rated bonds, with maturities of between three to six years, at coupon rates of 10.68% and 11.75%, respectively. These instruments were rated by ICRA.  October saw 63 transactions in long-term securities—non convertible debentures— rated below AAA worth close to Rs 7,029 crore. That compares with Rs 11, 336 crore in August and Rs 13,777 crore in June.

Market watchers confirm the caution among buyers is resulting in a preference for higher-rated corporate bonds. Rakesh Valecha, Head – credit & market research at India Ratings, observes that while investors continue to favour corporate bonds with ratings close to AAA,  they have turned cautious about buying bonds rated below AA-.

“The appetite for such bonds has clearly reduced and yields on issuances have also inched up,” Valecha confirmed adding that investors are more inclined towards the top end of issuances given these are primarily from banks, financial institutions and public sector undertakings.

Dwijendra Srivastava, CIO-fixed income, Sundaram Mutual Fund, confirms yields have gone up by 20 to 30 basis points (bps). Nevertheless,  mutual fund schemes that are mandated to invest in these bonds haven’t really pared their exposure although they’re extra cautious on prudential limits relating to a borrower.  However, no fund has altogether discarded bonds with lower ratings; even companies that are rated ‘A’ and above are able to find takers if their cash-flows are seen to be steady and sustainable. Several fund houses which held paper, that has been downgraded in recent months, are trying to sell them.

Yields have also widened to factor in risks associated with the relatively limited legal room available to mutual funds and insurance companies to recover their dues in the event of a default. Harshad Patil, CIO, Tata AIA Life Insurance points out insurance companies are not big buyers of lower- rated bonds given the mandate which requires them to invest 75% of their debt corpus in AAA bonds and government securities. “We also have a cap of 10% on investments in a single corporate issuance,”added Patil.

Asset management companies are also according a higher weightage to the track record of the promoters, given the stress in corporate India. The default by Amket has taught them how important the quality of management and the size of the balance sheet can be at a tme when the economy is in the midst of a slowdown. If activity in the corporate bond market remains high— close to Rs 2.9 lakh crore has been raised between April and October—a fair share has been raised by public sector companies.