Indian Indices Open on a Negative Note; Metal & Auto Stocks Drag

Wed, 2 Jan 09:30 am

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Asian shares are trading on a negative note today. The Nikkei 225 is down 0.3%, while the Hang Seng is down 2.4%. The Shanghai Composite is trading down by 1%.

Back home, India share markets have opened the day on a negative note. The BSE Sensex is trading down by 155 points (down 0.4%) while the NSE Nifty is trading down by 49 points (down 0.5%). The BSE Mid Cap index and the BSE Small Cap index have opened the day on a flat note.

Sectoral indices have opened the day on a mixed with IT stocks witnessing maximum buying interest. While metal stocks, auto stocks and energy stocks have opened the day in red.

The rupee is trading at 69.63 to the US dollar.

In the news from currency space, the rupee has kicked the year 2019 on a strong note. This comes as it built up gains on the previous session and closed on a positive note yesterday against the US dollar.

Indian rupee closed stronger on Monday following gains in its Asian peers but remained worst performer in Asia for 2018 in eight years.

The currency closed at 69.77 a dollar, up 0.2% from previous close. It opened at 69.79. The 10-year gilt yield closed at 7.369% from its previous close of 7.385%. Bond yields and prices move in opposite directions.

So far this year, the rupee was Asia's biggest depreciated currency, down nearly 8.5%.

Last time the home currency was weakest in Asia in 2011, down by nearly 15.8%.

Foreign investors have pulled out over US$11 billion from local equity and debt market, year to date.

Since start of 2011 till date, the rupee has depreciated 36% and has been weakening every year, except 2017. The rupee appreciated nearly 6.3% in 2017, its biggest yearly jump since 2007.

The depreciation in the rupee is more or less in line with the trend across emerging market currencies. Most emerging market currencies have depreciated over the eight-year period between 2011 and 2018 end.

It would be interesting to see how this trend follows in 2019. Meanwhile, we will keep you updated on all the developments from this space.

Apart from the above, as we enter the year 2019, in the latest edition of our stock market podcast, we talk about the investment strategy for 2019 and Richa Agarwal's 4 small cap stocks that we need to watch out for. Listen in to find out. Just visit SoundCloud, iTunes or Stitcher.

Moving on to the news from the macroeconomic space, according to a Gazette notification, the government has exempted rupee payments made to Iran's national oil company NIOC towards the purchase of crude oil from payment of any tax.

The finance ministry in a December 28, 2018 Gazette notification said the National Iranian Oil Company (NIOC) will not have to pay any withholding tax on payments it gets from Indian refiners.

Note that India on November 2, 2018 had signed an agreement with Iran to pay for crude oil it imports from the Persian Gulf nation in rupees.

And any income a foreign company receives in an Indian bank account is subject to a withholding tax of 40%, which together with sundry cesses totals to 42.5%.

In the news from the automobile space, Tata Motors share price will be in focus today as the company has reported 8% year-on-year (YoY) decline in domestic sales to 50,440 units in December. This compares with 54,627 units in the same month last year.

Further, as the company said in a statement, its passenger vehicle sales in the domestic market rose 1% YoY to 14,260 units last month, compared with 14,180 units in December 2017.

Commercial vehicle sales in the domestic market stood at 36,180 units in December, down 11% YoY from 40,447 units in the same month last year.

The company stated that high-interest rates & rising costs impacted December sales.

Speaking of automobiles sector, India's auto sales slowed down in last two months due to weak consumer sentiment because of high interest rate, a spike in fuel price and insurance cost and liquidity crunch.

During H1 of FY18, the sector grew 11% in which CV & tractor segment expanding 34% and 13% while PVs grew by only 7%. On the other hand, higher rural participation has led the 2-wheeler & 3-wheeler segments to grew 36% and 10%.

Also, speaking of blue-chip automobile stocks, one out of every three household in India is a buyer of their products. They own some of the cult brands in Indian automobile space.

They have formidable R&D teams. They have been through several economic cycles over decades. Few have even visited near-bankruptcy in the past and come out successful.

Yet, some of the biggest passenger car, commercial vehicle, and two-wheeler companies in India have seen a huge dent in valuations in recent times. This is evident in the chart below:

Bluechip Auto Are Stocks Way Off Their Valuation Peaks

Tanushree Banerjee, Co-head of Research at Equitymaster believes, this could be the opportunity long term investors were waiting for.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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