Trendlyne Blog: The Baseline, Latest on stock market and finance in India and the world.

25 Nov 2016

Real, fake, overhyped? The power of viral stories

Does important news always trend? We are learning that this does not happen: social media optimizes for engagement, and the result is that clickbait and dramatic headlines get maximum value. Social media is defining the headlines people see and read, especially at a time when over half of all Indian users online use Facebook, and 60% use Whatsapp.

Forwarding and sharing content on these platforms is extremely easy, and the result is that the news you see is what is amplified by everybody else. Facebook favors some items over others in the newsfeed, with its algorithm deciding what goes on top based on clicks and interactions. Whatsapp has what your friends are sharing.

The result is three major effects:

Missing out on important news: People tend to share news that they can personally relate to. For example, since demonetization Facebook feeds have been filled with news about queues at ATMs and banks, but there was little attention on social media to the news of the sinking rupee.

The first news item is something users are seeing and directly experiencing, while the headline about the falling rupee - and the RBI intervening to halt its tumble - gets little notice beyond market watchers. It's too abstract, and there is no hook. It doesn't directly impact most people's lives today, even though the news is ringing alarm bells about money flows out of the country, and broader pessimism about India's economic health. Policy and economic news in particular gets the short shrift in the 'viral news' environment.

Overhyped accurate news: A few weeks ago pharma stocks took a significant beating in the stock market, based on news that Indian generics had been named in investigations by the US Justice Department on price-fixing. Stocks like Sun Pharma fell as much 11% during trading, a reaction that was probably unwarranted on close reading of the news and reports: none of the Indian pharma were directly named for collusion, but received a sub poena to testify on pricing along with many others.

The investigation was being pushed by the Democrat senator Bernie Sanders in the midst of a heated Presidential election campaign, a season during which one of the big news headlines was the rising price of an certain essential anti-allergy drug, the EpiPen. Price-fixing is notoriously difficult to prove in the best of circumstances, and in this case pharma companies pointed out that price hikes responded to competitor hikes because patients receiving such medication were price-insensitive, since these drugs are subsidized/insured. The headlines emphasized none of these, and the words investigation, 'Justice Department' and so on were enough to send Indian pharma stocks reeling.

The worst of all, active misinformation: Times like demonetization and election campaigns - whether in India or the US - are most effective for the spread of viral, fake news. There was for example, the fake news item that Modi was a 'sweeper' during his youth, and more recently rumors shared across Whatsapp that the government was going to bring back old 500 and 1000 notes, or that the 'government' was confiscating gold people took to jewelry shops to sell. Another trend particularly on Whatsapp, has been fake stock tips, driven by unscrupulous entities looking to make a quick buck on a penny stock by convincing other people to buy in.

It's hard to address the first two problems. Tabloid journalism is here to stay for a reason: celebrities, sports events, cats doing somersaults and relatable news will always get the most eyeballs. Media competition means aggressive headlines, and markets will react accordingly.

The third, most venal form of news however, needs serious consideration and action, because it systematically undermines fact in favor of farbicated headlines and propaganda. SEBI recently released a consultation paper suggesting that stock tips and trading discussions be banned on social media entirely, a blunt system that also endangers free speech. Addressing the issue of fake news successfully would require measures taken by the big internet firms - Google and Facebook. Few people check to verify the news they receive, so the only way to limit the sharing of such items is to make it less financially viable - by removing such news from services such as Google Adsense - and deleting/flagging such news items.

This brings to the fore what exactly, counts as 'fact' versus 'fiction'. This is complicated to assess - websites like Snopes have a grading system that is not black and white - including estimates like 'mostly false' and 'mixed'. But this would still help with the Pants On Fire stories - the ones that come with a damaging agenda, are highly polarizing, mislead readers, and in the worst situations, scam them out of their money.

Photo: The recently concluded election season in the US saw more engagement for fake news than real news on Facebook. Buzzfeed

The Baseline

25 Nov 2016

Government wants state owned companies to take on bad loans, RBI keeps intervening to halt rupee slide

The RBI has continued to intervene in morning trading to shield the rupee from a further slide against the dollar. Sentiment in markets has turned against the rupee, the pessimism driven by the trifecta of a rising dollar, outflows as FIIs move money back to the US, and worry around the effects of demonetization on the economy. The rupee had fallen to a near record low of Rs. 68.86 yesterday against the dollar, reviving as the RBI came into the market, selling dollars to boost the rupee.
Regulations implemented in the last couple of years by the RBI have forced banks to disclose the large NPAs on their balance sheets. In 2014, RBI Governor Rajan had remarked, 'An NPA by any other name smells as bad', while compelling bankers to make greater disclosures. Now the government is scrambling to address these disclosed bad loans weighing on the banks, and is according to Reuters, pushing state-owned companies like SAIL in sectors like steel, shipping and power to take up the bad loans of private companies that are weighing on the banks and limiting bank ability to lend. So far, the scheme has yet to find takers.
Stock in spotlight: Berger Paints, which is among the top gainers, up 12.4% this week after falling by 18% over the past month.
Photo of the day: A demonstration by workers from the Opposition in Ahmedabad against demonetization, where they poured milk on the street. Reuters/Amit Dave

The Baseline

24 Nov 2016

Shares take a dive, today is the last day old notes can be used at utilities

Indian shares have dropped today, as a fall in the rupee to well below 68 per dollar has hurt stock market sentiments, especially at a time when investors are already worried about how demonetisation will affect economic growth. The rupee fell to as low as 68.8 per dollar, nearly surpassing its record low of 68.85 that it hit in August 2013 until the RBI intervened.

Today - November 24 - is the last day to use old Rs.500/Rs.1000 notes at utilities like medical stores, railway stations, electricity and water bills, and airline counters.

Stock in spotlight: Hindalco is now in strongly bullish territory, with a technical score of 89.3.

Photo of the day: A 3,800 year old jug discovered in excavations in Israel. Ammar Awad/Reuters

The Baseline

23 Nov 2016

Sun Pharma acquires Russian company OJSC Biosintez for $60 million

Sun Pharma has announced the acquisition of 85.1% of the Russian Pharma company OJSC Biosintez for $60 million. The company is based out of the Russia and CIS region. Sun Pharma would also assume the Russian company's debt of approximately US$ 36 million. Biosintez had annoual revenues of approximately US$ 52 million for 2015, and a manufacturing facility in the Penza region.

Sun Pharma has been working to expand its reach to the US, Europe and emerging markets, but recently ran into speed bumps in the US after being named in a Justice Department investigation into price manipulation and collusion. Sun Pharma and other companies have denied the charges but may have their day in court as the federal agency proceeds with the investigation. In December last year the company had also received a warning from the US FDA for violations in its Gujarat manufacturing plants.

The company has however, also been receiving product approvals this year for its generics in the US market, which will boost revenues as its price points remain extremely competitive compared to US drug makers. Sun Pharma also saw stellar Q2 results, with net profit doubling with some partner payments coming in, and net revenues rising 13.2%.

The Baseline

23 Nov 2016

Rupee slides sharply as investors, spellbound by Trump, move funds out of India

The rupee takes a tumble, even with the RBI's intervention

The rupee has been on a sharp downward slide against the dollar, now at a nine month low of 68.5. The fall has been propelled by money rapidly exiting Indian stocks and bonds - over $2.7 billion has already moved out of the stock markets. The US markets have become for now, where all the action is happening: the upcoming Fed interest rate hike as well as the new Trump government's big spending promises, is driving investors back to the dollar.

It is rumored that the 'Big Daddy' - what traders call the RBI - is intervening in Indian markets to stem the rupee's decline, selling millions of dollars to offset rupee sales by traders. The RBI now has enough cash to do this: Indian banks have received more than Rs 5 lakh crore in deposits as people queued up to deposit and exchange old notes, giving the RBI liquidity to stem the rupee fall. Still, some grey market currency dealers have been selling dollars for anywhere between Rs 85 and Rs 115.

"Presents for Everyone!"

US markets in the meantime, are up, up, up. The US Dow has hit above 19,000 on expectations that Trump will cut regulations in the financial sector, introduce tax cuts and boost government spending. Bank stocks in the US have gained over 13% since Trump's election win. Investors don't seem perturbed that Trump has yet to explain how he will be funding these measures - the US President Elect has taken a "presents for everyone!" approach, promising both big government spending and steep tax cuts for everybody.

Indian companies on wait and watch mode

Markets are still waiting as demonetization works its way through the markets. Farmer struggles around crop planting after demonetization is threatening farm output months down the line, which would then impact food prices and consumer spending. The success of the government's steps to provide loans to farmers remains to be seen, with bank infrastructure aready burdened with long queues and notes exchanges.

Demonetization hit Indian companies just as many firms were beginning to see the earnings recover with bumper sales and Diwali spending, as well as better industry production and agri numbers. Now however, growth has hit a fence, with many expecting that the slowdown will continue for at least a couple of quarters.

One furniture and customer retail company's marketing head estimated that sales had fallen across outlets "at least by 50%. We used to see plenty of big-ticket purchases that were made all in cash," he said, 'Now that has almost disappeared." SME offices say that their business has fallen anywhere between 20-50%. 'The first week after demonetization was the worst," one SME businessman says, "Now we are still trying to recover, and had to delay salary payments."

Photo: Trump with his VP Mike Pence (Hilary Swift/NYT)

The Baseline

23 Nov 2016

Mistry challenges Ratan Tata's judgement, the richest 1% owns over half of India's wealth

The Indian government has announced a series of steps to ease the pain of demonetization. In addition to disbursing $3.07 billion worth of loans to farmers, the RBI has doubled the amount of money that can be kept in digital wallets to Rs. 20,000. This the bank says, would enable small merchants to accept more payments digitally, and merchants can also transfer up to Rs. 50,000 to their bank accounts per month.
Mistry continues to cast doubt on Ratan Tata's ability and his business decisions, saying that Tata had acquired the Anglo-Dutch company Corus at a steep $12 billion price tag and at the peak of a price boom, when it had been available for half that amount a year earlier. The acquisition, Mistry challenges, took place over the doubts of board members and executives, hurting the health of the acquisition because Tata Steel was strapped for funds and unable to invest significantly in the company. As a result, the recession put the acquisition at risk. Tata Steel had said earlier this year that it was looking to sell the UK business of Corus.
The world's wealthiest 10% own 89% of all global assets, while in India the richest 1% owns 58.4% of India's wealth, according to the latest Credit Suisse report. Switzerland continues to be the richest country in the world - an average Swiss is eleven times wealthier than an average world citizen.
Stock in spotlight: Vakrangee Limited, which leads the technical score gainers and has hit a new 52 week high this past week.
Photo of the day: A recreation of the Titanic ship's sinking, made with Lego blocks. Dan Peled/AAP

The Baseline

22 Nov 2016

New Rs. 2000 note threatens successful demonetization

One noticeable trend that has emerged since demonetization has been the frustration of ordinary people in finding willing takers for the new Rs.2,000 note. At this point, it is almost as unpopular as the old Rs. 500 note for hawkers, vegetable sellers and shopkeepers. Accepting a Rs. 2,000 note is accepting a burden: the burden of finding someone else who will take the note from you and give you change.

But there is another question that the Rs. 2000 note raises. A few days after the new note was introduced, a junior official at the Kolhapur Zilla Parishad was caught accepting a Rs. 35,000 bribe - consisting of 17 crisp new Rs. 2000s. In 2013, the country Sweden began a demonetization effort, and the first step it took was removing the highest denomination bill, the 1,000 krona note (worth approximately $110). This made it more cumbersome to conduct large transactions in cash, and Sweden noted that demand for the next highest note (500 krona) also fell by 60% after the move. By 2014, cash use had fallen considerably, and today most public infrastructure, including buses and trains, have card slots and only take cards. Many small shops voluntarily have signs saying, 'we don't take cash', preferring digital. While multiple countries, including Sweden's European neighbors, Finland, Belgium and Italty have tried demonetization, Sweden is the only country where cash holdings have actually reduced after the effort.

Consider in comparison, India's introduction of the new Rs. 2,000 note - incidentally, the Rs. 2000 note's PPP (purchasing parity) with the dollar is $106. This is a significant denomination in India, and retains high convenience for bulk cash transactions while making change difficult for ordinary folk. A sheaf of Rs. 2000 notes is high value and easily transportable.

If the government wanted to curb the 'suitcases of cash' model of doing business and reduce illicit cross-border cash flow, introducing an even higher denomination note is arguably not a good move.

Another aspect is the size of the note. The economist Peter Garber had noted that besides reducing the denomination of the highest currency, the physical size of the note is also a factor for smugglers and the black market - bigger notes are harder to move around easily. "The iron law for subverting illicit economies is as follows," he wrote, "a percentage increase in physical note size is equivalent to the same percentage increase in the price level." But the 2,000 note is smaller than the currency notes it has replaced.

Options to cash

The exhortation by the Indian government to move towards digital cash is a good one - cash does increase fraud, the black money economy, and aids illegal activity like the drug trade and terrorist groups. But people need many more options at scale that what is currently, easily available to successfully move out of cash. Solutions like PayTM and digital wallets and debit/credit cards are primarily available today to middle class and urban Indians.

Digital wallets require a smartphone, which is a big barrier for many millions of Indians. For small merchants, card transaction fees dent their profits. To make cash less attractive, the government needs to make low-cost card and card transaction options available with high penetration across urban and rural India. Unless this happens at high speed, using cash will remain attractive - and the existence of the new 2,000 note does not help matters.

Photo: Aish Gaba/Twitter

The Baseline

22 Nov 2016

Old money is legal tender for some, Sensex sees a rally but institutional investors still wary

The government has relaxed some rulesallowing farmers to pay for seeds with old cash, while RBI issued new guidelines for people to withdraw upto Rs. 2.5L for wedding expenses. Withdrawing additional money for weddings however, will require jumping through several hoops, including furnishing a wedding card, advance bills, names of people to whom money is being paid, and signed statements from vendors receiving that they lack bank accounts.
Asian stock markets including the Sensex are seeing a rally today, although the length of the recovery is still uncertain with signs that institutional investors are in a wait-and-watch mode until Trump announces his economic team. Trump had made a statement on Youtube, announcing among other things that the US would 'investigate abuses of work visas' - such a move would affect Indian IT companies like TCS and Infosys, which rely on H1B visas to send Indian workers onsite temporarily for US projects.
An investigation by India's IT department has potentially uncovered a Rs. 38,000 crore penny stocks scam, where trading in penny stocks of 84 BSE listed companies were used to launder black money. The brokers involved were posting fake capital gains for their clients, allowing black money to be documented as legitimate earnings.
Stock in spotlight: Cairn India has seen steady gains over the last three months, and with a rising Technical Score at 71+ is on the verge of moving into bullish territory.
Photo of the day: Professor Kevin Warwick has implanted a chip in his arm that allows him to control a bionic hand, using his nervous system. The Guardian/David Vintiner

The Baseline

21 Nov 2016

Stock research reports summary, and stock pick of the week

It's been a bumpy ride for markets last week, and 50 research reports also dropped from analysts. Multiple stocks received both upgrades and downgrades. Tata Motors for instance saw four new reports come in from ICICI Sec, HDFC Sec, Chola Wealth and LKP, two of which revised the price target upwards, and two revised them down.

Stock of the week from research reports: Petronet LNG, which saw impressive Q2 results with net profit up 82%. The company has gained 66% from its 52 week low.

Date	Stock	Target	Upside (%)	Type	CMP	Broker	Change in past 6M
2016-11-18	Petronet LNG Limited	415.00	13.03%	Buy	367.15	HDFC Securities	1x Reco
2016-11-17	Indraprastha Gas Limited	850.00	4.22%	NEUT.	815.60	HDFC Securities and 1 other	1x Reco 2x Reco
2016-11-17	Talwalkars Better Value Fitn..	282.00	23.25%	Buy	228.80	Chola Wealth Direct and 1 other
2016-11-17	Motherson Sumi Systems Limited	342.00	21.93%	Buy	280.50	Chola Wealth Direct and 1 other
2016-11-17	GAIL (India) Limited	505.00	20.20%	Buy	420.15	ICICI Securities Limited and 1 other	1x Reco
2016-11-17	Apollo Hospitals Enterprise ..	1440.00	24.69%	Buy	1154.90	ICICI Securities Limited	1x Reco
2016-11-17	PTC India Limited	76.00	13.43%	Hold	67.00	ICICI Securities Limited
2016-11-17	JK Tyre & Industries Limited	145.00	28.38%	Hold	112.95	ICICI Securities Limited
2016-11-17	Divi's Laboratories Limited	1305.00	12.13%	Buy	1163.85	ICICI Securities Limited and 1 other
2016-11-17	Tata Motors Limited	595.00	30.23%	Buy	456.90	ICICI Securities Limited and 1 other	2x Reco 3x Reco
2016-11-17	Emmbi Industries Limited	150.00	33.93%	Buy	112.00	ICICI Securities Limited
2016-11-17	Sun Pharmaceuticals Industri..	847.00	22.62%	Buy	690.75	Angel Broking and 1 other	3x Reco 1x Reco
2016-11-16	MOIL Limited	445.00	46.38%	Buy	304.00	HDFC Securities	1x Reco 1x Reco
2016-11-16	Hindustan Petroleum Corporat..	515.00	16.58%	Buy	441.75	HDFC Securities and 1 other	1x Reco
2016-11-16	Aurobindo Pharma Limited	980.00	37.68%	Buy	711.80	HDFC Securities and 1 other	1x Reco
2016-11-16	Triveni Turbine Limited	146.00	26.96%	Buy	115.00	HDFC Securities and 1 other
2016-11-16	Suzlon Energy Limited	24.00	71.80%	Buy	13.97	HDFC Securities
2016-11-16	Atul Auto Limited	500.00	21.95%	Buy	410.00	Nirmal Bang Institutional	1x Reco 1x Reco
2016-11-16	KCP Limited	125.00	51.06%	Buy	82.75	Nirmal Bang Institutional
2016-11-16	La Opala RG Limited	-	-%	-	517.70	Nirmal Bang Institutional
2016-11-16	Natco Pharma Limited	-	-%	-	584.40	Nirmal Bang Institutional and 1 other
2016-11-16	Mahindra & Mahindra Limited	1319.00	9.93%	Hold	1199.85	Reliance Securities and 1 other	2x Reco 2x Reco
2016-11-16	State Bank of India	310.00	20.27%	Hold	257.75	ICICI Securities Limited and 1 other	1x Reco 1x Reco
2016-11-16	Bank of Baroda	180.00	11.49%	Hold	161.45	ICICI Securities Limited and 1 other
2016-11-16	PREMCO GLOBAL LTD.	825.00	45.50%	Buy	567.00	ICICI Securities Limited
2016-11-16	AIA Engineering Limited	1400.00	13.60%	Hold	1232.40	ICICI Securities Limited
2016-11-16	The Great Eastern Shipping C..	330.00	-6.49%	Hold	352.90	ICICI Securities Limited
2016-11-16	IPCA Laboratories Limited	605.00	12.84%	Buy	536.15	ICICI Securities Limited and 1 other	1x Reco 2x Reco
2016-11-16	Eros International Media Lim..	190.00	24.14%	Hold	153.05	ICICI Securities Limited
2016-11-16	CONTROL PRINT LTD.	300.00	22.08%	Buy	245.75	ICICI Securities Limited
2016-11-16	Tata Global Beverages Limited	130.00	11.97%	Hold	116.10	ICICI Securities Limited
2016-11-16	HeidelbergCement India Limited	124.00	19.17%	Hold	104.05	ICICI Securities Limited	1x Reco
2016-11-16	Navneet Education Limited	122.00	15.37%	Buy	105.75	ICICI Securities Limited	1x Reco 1x Reco
2016-11-16	Garware Wall Ropes Limited	618.00	10.36%	ACC.	560.00	Angel Broking	1x Reco
2016-11-16	Mirza International Limited	107.00	53.96%	Buy	69.50	Angel Broking
2016-11-15	Bharat Petroleum Corporation..	680.00	7.32%	NEUT.	633.60	HDFC Securities and 1 other	2x Reco
2016-11-15	KNR Constructions Limited	830.00	14.01%	Buy	728.00	Reliance Securities	1x Reco
2016-11-15	Hindalco Industries Limited	128.00	18.68%	Sell	157.40	Reliance Securities and 1 other	1x Reco 2x Reco
2016-11-15	Ahluwalia Contracts (India) ..	330.00	29.95%	Buy	253.95	Reliance Securities	1x Reco
2016-11-15	Coromandel International Lim..	284.00	22.31%	Buy	232.20	Motilal Oswal
2016-11-15	Jain Irrigation Systems Limi..	99.00	18.00%	Buy	83.90	Motilal Oswal
2016-11-15	Triveni Engineering & Indust..	-	-%	Buy	53.40	Motilal Oswal
2016-11-15	Muthoot Finance Limited	530.00	83.55%	Buy	288.75	Nirmal Bang Institutional
2016-11-15	Thermax Limited	720.00	14.20%	Sell	839.15	Nirmal Bang Institutional and 1 other
2016-11-15	Apollo Tyres Limited	225.00	23.73%	Hold	181.85	ICICI Securities Limited
2016-11-15	Page Industries Limited	12000.00	5.51%	Sell	12700.00	ICICI Securities Limited	2x Reco
2016-11-15	Sun TV Network Limited	560.00	27.68%	Hold	438.60	ICICI Securities Limited
2016-11-15	NRB Bearing Limited	120.00	10.14%	Hold	108.95	ICICI Securities Limited
2016-11-15	Dish TV India Limited	90.00	6.13%	Hold	84.80	ICICI Securities Limited
2016-11-15	Tata Steel Limited	375.00	0.93%	Hold	371.55	ICICI Securities Limited
2016-11-14	Action Construction Equipmen..	75.00	76.89%	Buy	42.40	LKP Securities
2016-11-14	Balmer Lawrie & Company Limi..	980.00	21.05%	Buy	809.55	LKP Securities

The Baseline

21 Nov 2016

Indian companies reel from demonetization, TCS calls for an EGM to remove Mistry as director

Indian companies are reeling from demonetization effects as companies are struggling to pay suppliers and fund their distribution chains. Entire supply chains, according to corporates are breaking down due to the reliance on cash. Even when wages are being paid online staff need time off to stand in queues and withdraw money.
TCS made a statement to BSE calling for an extraordinary general meeting (EGM) on December 13. The meeting will consider a resolution to remove Cyrus Mistry as director from the TCS board, since he had made 'unsubstantiated' remarks that cast aspersions on the company and on Tata Sons. “Mr. Mistry’s conduct has caused enormous harm to the Tata group, TCSL and its stakeholders, including employees and shareholders”, the BSE filing said.
FIIs have continued their selling of Indian equities, and have dumped over $1 billion in the past six days of trading. Both an expected interest rate hike by the US Federal authority and demonetization have had a dampening effect on markets.
Stock in spotlight: Oil India Limited has hit a new 52 week high today. The company has gained 23.45% over the last six months, beating most stocks in its sector..
Photo of the day: Customers in Mexico fight over a television set during the season sale at a Walmart. Daniel Becerril/Reuters