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Sensex Trades Flat; CPI Inflation Rises To 3.58% In October

After opening the day in green, share markets in India witnessed choppy trades and are presently trading marginally below the dotted line. Sectoral indices are trading on a mixed note, with stocks in the auto sector and stocks in the consumer durables sector witnessing maximum buying interest, while stocks in the capital goods sector are leading the losses.

The BSE Sensex is down up by 65 points (down 0.2%) and the NSE Nifty is trading down by 23 points (down 0.2%). Meanwhile, the BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading up by 0.2%. The rupee is trading at 65.48 to the US$.

In news about the economy. According to data released by the Central Statistics Office (CSO), retail inflation as measured by the Consumer Price Index (CPI) rose to a six-month high of 3.58 % in October 2017, up from 3.28% in September.

Retail inflation in India picked up in Oct. led largely by higher vegetable and fuel prices, lowering hopes of a rate cut ahead of the Reserve Bank of India's monetary policy review next month.

Higher inflation was driven by vegetable prices which rose 7.5% over last year. Onion prices in India have been on the rise due to tight supplies. The surge was likely driven by a drop in kharif onion crop sowing because of unseasonal rains.

CPI Inflation Continues Steady Rise

The food and beverages component of CPI saw a growth of 2.3% in October, the fastest pace since March, and up from 1.7% in September. This was mainly driven by a sharp uptick in vegetable prices.

Within the food segment, vegetable inflation quickened rapidly to 7.5% in October, from 3.9% in September

Core inflation, which excludes food and fuel inflation, eased marginally to 4.5% in October, from 4.6% in the previous month, breaking a three-month quickening streak. However, oil prices are continuing to firm up and this could lead to added inflationary pressures going forward.

Last month, the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) forecasted that retail inflation will hover around 4.2-4.6% between October-March this year, higher than the previous projection of 4-4.5%.

The RBI retained its neutral policy stance, citing uncertainty on the future trajectory of inflation because of several uncertainties, flagging possible return of inflationary pressures. However, it also kept the door ajar for a future rate cut if incoming data were conducive. While the government has been eyeing a sharp cut in interest rates, RBI has maintained its cautious stance.

Moving on to news from the IPO space. Khadim India made a weak debut on the bourses today.

The Kolkata based footwear company's shares opened at a discount of over 4% at Rs 727 compared to its issue price of Rs 750.

The initial public issue (IPO) of Khadim India, which ended on 6 November 10, was subscribed about 1.9 times. The price band for the offer was fixed at Rs 745-750 per share.

Khadim India would be utilizing the net IPO proceeds towards payment of loans and general corporate purposes.

The company is the second largest footwear retailer in India. It operates exclusive retail stores under the 'Khadims' brand with major presence in East India.

One space which tests the investor's contrarian philosophy is the IPO space. The demand for IPO's has reached sky-high levels. Avenue Supermarts was the first company this year to cross the 100-time subscription mark swiftly followed by CDSL and Dixon technologies lately, with MAS Financial Services being the newest entrant to the list.

The market euphoria is something similar to what was seen in 2007-08. When everyone around you is clamoring to get a piece of the IPO pie, it makes sitting tight difficult. And, why should you sit tight when stocks like Avenue Supermart lets you pocket a cool 100% gain from day 1 of the listing?

Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. ...


History suggests that these cases are few and far between. More than 70% of the IPOs listed in 2007 and 2008 are in the red, even today when the Sensex is at an all-time high.

This allows us to stay on the fence when it comes to investing in IPOs. But it doesn't make sense to completely ignore this space. For every Reliance Power-like issue, there have been issues like Maruti, TCS, and Jubilant Foodworks Ltd (with returns over 4,000%, 1,000% and 500% respectively) that have created immense wealth for shareholders.

A merit-based selection primarily including valuation, business, and management quality is the logical way to go about it. If it means going against the herd, so be it. And going by recent past, this strategy has been proven to be successful more often than not.

Disclaimer: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. ...