Month: November 2020

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Asian shares slip on faltering hopes for COVID-19 vaccines

Stocks fell back across Asia on Thursday after gains for big technology shares pushed most Wall Street benchmarks higher. News of potentially effective vaccines for COVID-19 has been countered by concerns over the logistical challenges of ensuring access to billions of people and over rising caseloads that are leading governments to re-instate restrictions on business and other activities to battle the pandemic.

Vaccine trades reversed to give way to ‘stay home’ trades” as shares of companies that do well when people stay home and work remotely rallied, Mizuho Bank said in a commentary. But it added, ”Fact of the matter is, progress on vaccine development is at worst two steps forward one step back, and not one step forward and two steps back on a sustained basis.”

Tokyo’s Nikkei 225 index gained 0.4% to 25,459.13 despite a report that machinery orders fell in September, suggesting weakness in corporate investment. But the mood was more sombre elsewhere in Asia. Hong Kong’s Hang Seng index fell 0.1% to 26,206.78 and the Shanghai Composite index declined 0.3% to 3,332.24. In Seoul, the Kospi gave up 0.2% to 2,480.95. Australia’s S&P/ASX 200 slipped 0.2% to 6434.60.

The Dow Jones Industrial Average edged 0.1% lower, to 29,397.63, dragged back by weaker prices for companies like American Express and Walt Disney, that had shot up this week after news of a potentially successful vaccine sent travel, entertainment and tourism companies surging.

The Dow declined shortly after news crossed that New York would put restrictions on bars, restaurants and gyms as COVID-19 infections rose in the state. Markets have been riding a wave of relief over hopes for a potential vaccine to beat back the pandemic. The S&P 500 rose 0.8%, to 3,572.66 and is just 8 points below the record high it set in September. The technology-heavy Nasdaq composite rose 2%, to 11,786.43.

While several significant risks remain for Wall Street broadly, the optimistic case that investors are embracing is that one or more coronavirus vaccines could help corral the virus by the second half of next year, encouraging people to return to life as it was before the pandemic.

All that economic activity would come on top of the tremendous aid that the Federal Reserve and other central banks around the world are pumping into the economy through very low interest rates and massive purchases of bonds. Hope also remains that the US government may eventually deliver some form of support for the economy, though its total size would likely be smaller than if Democrats had swept this month’s elections.

Strategists along Wall Street are raising their forecasts for stock prices on expectations that political control of Washington will remain split between the parties. Republicans look set to keep the Senate, as long as runoff elections go their way in Georgia in January, while Democrats will hold the House of Representatives.

Democrat Joe Biden has clinched enough electoral votes to win the White House, clearing some of the uncertainty that weighed on the market through the vicious campaign. Even though President Donald Trump has refused to concede, investors are ignoring his complaints so far. They’re instead working on the assumption that a split

Washington under Biden could keep tax rates low while offering more steady and predictable policies. Those expected results helped push strategists at Goldman Sachs to raise their forecast for the S&P 500 at the end of this year to 3,700 from 3,600. That would imply another 4.4% climb from Tuesday’s closing level. They expect it to rally another 16% through 2021. But the biggest driver for that is the hope for a return to normal life, rather than what happens in Washington.

In other trading, benchmark US crude oil picked up 19 cents to $41.64 per barrel in electronic trading on the New York Mercantile Exchange. It climbed 9 cents to $41.45 on Wednesday. Brent crude, the international standard, added 17 cents to $43.97 per barrel. The US dollar weakened to 105.31 Japanese yen from 105.42 yen. The euro rose to $1.1781 from $1.1776.

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Asian shares mostly higher as focus shifts to virus recovery

Shares were mostly higher Wednesday in Asia after a worldwide rally spurred by hopes that a COVID-19 vaccine will help the global economy return to normal. Benchmarks advanced in Tokyo, Seoul and Sydney but edged lower in Hong Kong and Shanghai, where new Chinese regulations focused on technology companies prompted selling in that sector.

The proposed regulations issued Monday for public comment give guidelines on how China’s 2008 anti-monopoly law will be applied to internet companies. The announcement gave no indication operators are accused of wrongdoing but cited areas where regulators might look for problems including sharing of information and alliances or pricing services below cost to keep out new competitors.

Midday, e-commerce giant Alibaba’s shares had fallen 7.3% and Tencent, owner of the popular WeChat social media platform, had lost 5% and online retailer JD.com was down 6.2%.

In Hong Kong, the Hang Seng lost 0.2% to 26,241.52 and the Shanghai Composite index declined 0.2% to 3,356.88.
But other regional markets were mostly higher. Japan’s Nikkei 225 index gained 1.2% to 25,197.68 and the S&P/ASX 200 advanced 1.3% to 6,419.50. South Korea’s Kospi rose 0.7% to 2,470.11.

On Wall Street, stocks downshifted on Tuesday after a powerful worldwide rally the day before. It was the second straight day that rising hopes for a COVID-19 vaccine pushed investors to reorder which stocks they see winning and losing.

Treasury yields and oil held onto their big gains from a day earlier or added some more amid strengthened confidence in the economy. The S&P 500 dipped 0.1% to 3,545.53, after erasing most of an early loss. The Dow Jones Industrial Average gained 0.9% to 29,420.92 and the Nasdaq composite dropped 1.4%, to 11,553.86.

The flashpoint for all the moves was Monday’s announcement from Pfizer that a potential COVID-19 vaccine it’s developing with German partner BioNTech may be 90% effective, based on early but incomplete test results.

Stocks of smaller U.S. companies, which tend to move more with expectations for the economy than their bigger counterparts, rallied again. The Russell 2000 index of small-cap stocks gained 1.9% to 1,737.01, finally returning to where it was in January. It’s just 0.2% below its record high set in 2018.

Several areas of the market that have been beaten down through the pandemic and whose low prices make them look like potentially better values led the way. Energy stocks in the S&P 500 rose 2.5% for the best gain among the 11 sectors that make up the index, for example, though they’re still down nearly 44% for 2020.

Big Tech stocks that carried the stock market through the pandemic, meanwhile, are suddenly facing more scrutiny for their high prices. Their stocks soared through 2020 on expectations they’ll continue to thrive if the economy is in lockdown mode. But that’s left their prices looking expensive even after accounting for their huge profits.

Amazon, which is one of those Big Tech stay-at-home winners, fell 3.5%. It also is facing antitrust charges filed by European Union regulators on Tuesday that accuse it of using its access to data to gain an unfair advantage over merchants using its platform.

Microsoft fell 3.4%, and Facebook lost 2.3%. Those drops have outsized effects on the S&P 500 because they’re some of the largest companies in the index by market value. The S&P 500 is already up 8.4% in November, helped by hopes for a coronavirus vaccine and clearing uncertainty about U.S. leadership after Democrat Joe Biden clinched the last of the 270 electoral votes needed to become the next president. Republicans, meanwhile, appear likely to keep control of the Senate.

Some analysts are speaking of a Goldilocks scenario where low tax rates and other pro-business policies remain while a more stable and predictable set of policies comes out of the White House. Many risks remain, and the biggest may be whether investors have become too convinced about a potential COVID-19 vaccine.

Coronavirus counts continue to surge at worrying rates across the U.S. and Europe. prompting some governments to restore restrictions on businesses. ”The biggest downside risk remains COVID and how severe this wave is going to be,” Craig Erlam of Oanda said in a commentary. ”COVID is impossible to ignore, particularly with cases soaring once again and deaths on the rise.” With fresh help for the U.S. economy from Congress still undecided, pressure is on central banks to step up support for markets.

”In fact, the end of this year could provide the perfect cocktail of widespread monetary and fiscal easing, combined with one or more vaccines,” he said. President Donald Trump’s refusal to concede and cooperate with Biden’s transition team is another source of uncertainty, especially as some Republicans including Senate Majority Leader Mitch McConnell rally behind Trump’s efforts to fight the election results. Still, optimism remains across markets.

The yield on the 10-year Treasury rose to 0.98% from 0.95%, close to its highest level since March. Benchmark U.S. crude oil gained 33 cents to $41.69 per barrel in electronic trading on the New York Mercantile Exchange. It rose 2.7% to settle at $41.36 per barrel on Tuesday. Brent crude, the international standard, picked up 28 cents to $43.89 per barrel.

In currency dealings, the dollar weakened to 105.02 Japanese yen from 105.31 yen late Tuesday. The euro rose to $1.1825 from $1.1820.

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ITC shares fall after Q2 results; cigarette volumes still to recover, FMCG sales thrive

ITC Ltd was among the handful of 30 Sensex shares trading in red on Monday morning. ITC Ltd share price was down 0.75% at Rs 172.7 per share. Cigarettes-to-hospitality major ITC reported its July-September quarter results on Friday which saw the company’s profits drop on-year basis to Rs 3,232 crore. ITC reported higher expenses than last year. Cigarette business of ITC continued to record muted performance while FMCG segment was the White Knight in the second quarter of this fiscal year. Shares of ITC are down 27% year-to-date.

ITC’s cigarette segment sales declined 14.4%, with a volume decline of 12% during the quarter. “The recovery has been slower than expected due to localized lockdowns and slow recovery in key markets which has impacted both mix and realizations as well,” brokerage and research firm Emkay Global said in a note. Revenue from the cigarette business was down to Rs 4,327 crore from Rs 5,113 crore in the same period last year. Company’s management remains hopeful that the volumes will return to pre-covid levels soon.

Hospitality business continued to suffer in the quarter with revenue of just Rs 82 crore against Rs 426 crore in the same period last year. “ Hotels had another washout quarter with revenue down 81%; leisure locations are now seeing demand uptick, though,” said JM Financials. Agriculture related business of ITC recorded a strong year-on-year growth. Revenue from the agricultural sector was up Rs 2,985 crore against Rs 2,647 crore last year. “ The segment posted strong sales growth of 13% driven by trading opportunities in rice, mustard and coffee and higher wheat supplies for Aashirvaad Atta,” said Systematix Institutional Equities.

FMCG sales were up 15% on-year basis. “FMCG performance is best among peers with margin improvement beating expectations,” Emkay Global said. Staples, Convenience Foods and Health & Hygiene products, which account for 75% of the product portfolio in the segment, grew 25% during the quarter. We estimate that the Sunrise acquisition will add another Rs 600-700 crore to revenues and will be margin accretive, they added.

“With continued m-o-m recovery, cigarette EBIT should see steady growth from Q4. Valuations remain attractive with the cigarette business at less than 10x FY22E EPS,” Emkay Global said while giving a ‘Buy’ call on ITC with a target price of Rs 250 per share. Analysts at Systematix Institutional Equities too have a target price of Rs 250 and a ‘Buy’ call on ITC adding that valuations remain attractive. JM Financial noted that the stock is too cheap to ignore while they pinned a target price of Rs 270 on ITC shares.

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Fundraising via bonds on private placement basis climbs 28% to Rs 4.42 lakh cr in Apr-Oct

Companies garnered Rs 4.42 lakh crore through issuance of bonds on private placement basis in the first seven months of the ongoing fiscal, a surge of 28 per cent from the year-ago period, due to low interest rates. The funds were mopped up to strengthen balance sheets, retire existing debt and support working capital requirements, market experts said.

According to data available with markets regulator Sebi, companies listed on BSE and NSE garnered total Rs 4.42 lakh crore during April-October 2020-21.

In comparison, listed firms raised Rs 3.45 lakh crore in the first seven months of 2019-20. The appetite of institutional investors towards investing in bonds of listed companies via private placement issuances has increased in this fiscal year, especially in the last five months.

“Government schemes including production linked interest scheme in promoting companies to raise capital through private placement for bonds is a preferred method as the interest rates are low,” said Divam Sharma, co-founder of Green Portfolio.

“The low interest cost through bond issuances, reluctance of banks and NBFCs to issue high ticket loans to listed companies are inducing them to raise capital through private placement of bonds,” he added.

In addition, there is an increasing appetite from investors and mutual funds to participate in such issuances as the fund inflows in debt mutual funds have risen. More capital is chasing additional returns, as the interests on other fixed income securities have fallen, Sharma noted.

According to him, many companies in sectors including pharma, chemicals, automobile, electronics and textile are seeking to enhance their capacities as they are seeing uptick in results in the previous quarter. In terms of numbers, 1,157 issuances took place in the period under review as compared to 1,069 in the year-ago period.

In private placements, firms issue securities or bonds to institutional investors.

Overall, listed companies raised Rs 6.75 lakh crore through issuance of bonds on private placement basis in 2019-20.
Going ahead, Sharma said the outlook of raising capital through this route looks robust as the interest rates remain low, companies increasingly launch capex plans, and there is huge appetite from institutional capital to participate in such private placements.

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