Sensex Opens Mildly Higher; PSU & Capital Goods' Stocks Gain

Thu, 4 Jan 09:30 am

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Asian stock markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 2.46% while the Hang Seng is up 0.43%. The Shanghai Composite is trading up by 0.37%. US stocks rose to all-time highs on Wednesday as a gain in chip stocks propelled the tech sector higher.

Back home, India share markets opened the day marginally up. The BSE Sensex is trading higher by 51 points while the NSE Nifty is trading higher by 20 points. The BSE Mid Cap index and BSE Small Cap index opened the day up by 0.3% & 0.5% respectively.

Barring automobiles sector, all sectoral indices have opened the day in green with capital goods stocks and PSU stocks witnessing maximum buying interest. The rupee is trading at 63.48 to the US$.

2017. What a year this has been for equity investors. The BSE Sensex is trading close to 34,000 mark. The Nifty is trading above 10,500 levels.

India was among the three emerging markets, which gained more than 35% in dollar terms. The other two are Hungary and South Korea.

India Outperforms Emerging Market Peers in 2017

The BSE Sensex earned a 35.1% return in the dollar terms and 28% in the local currency in 2017. However, this wasn't enough to beat the midcap and smallcap indices. The midcap and smallcap indices saw a sharp increase of 47% and 58% respectively in 2017.

With this, the market cap to GDP ratio is close to 100%, indicating market at its peak. So, how will 2018 turn out? Here's what Tanushree Banerjee, Co-head of Research thinks:

• "In 2018, the market would be more volatile and under pressure. Investors should brace themselves for the increasing volatility. Although, earnings are likely to recover, profit margins could get squeezed as companies face rising input cost pressures. Rising oil prices may prompt the government to abandon fiscal prudence at a time when GST collections have been lower than expected.
  
  2018 will, therefore, be critical for Indian companies to justify their valuations with earnings growth. If the earnings growth does not materialize, correction could be on the cards."

Automobiles stocks opened the day on a mixed note with Maharashtra Scooters and Ashok Leyland being the most active stocks in this space. As per an article in a leading financial daily, Tata Motors and Greaves Cotton entered into agreements with foreign companies to develop and supply less-polluting engines. This comes on the back of Indian automotive industry's preparation to meet Bharat Stage-VI emission standards before they come into effect two years from now.

Reportedly, Tata Motors has entered into a partnership with Canada's Westport Fuel Systems for the development and supply of 4-cylinder and 6-cylinder natural gas spark-ignited engines for commercial vehicles.

Greaves Cotton, a specialist in engines used in small commercial vehicles, has tied up with Italian automaker Piaggio to the supply of BS-VI diesel and alternative-fuel engines.

With emission rules getting stricter, the three-wheeler segment was expected to face significant challenges post 2020. The Greaves-Piaggio deal will address that problem in one of the most important last-mile connectivity solutions in the transportation market, the reports noted.

For Greaves Cotton, the Piaggio deal is part of its overall strategy to become a complete powertrain solution provider and be fuel agnostic.

Under the pact with Tata Motors, Westport Fuel Systems will supply critical natural gas components to the Indian automaker. These will include advanced gas-injection systems and control. Greaves Cotton is likely to also supply fully built engines to Piaggio.

Adding a BS-VI CNG engine to the portfolio is an attempt by Tata Motors to hold on to its leadership position in the commercial vehicle segment and expand its market share.

Westport had previously partnered with Tata Motors to develop and launch Tata Motors' current BS-IV certified natural gas spark-ignited engines for commercial vehicles.

Unlike the evolved markets, where it took almost a decade to transition from Euro IV to Euro VI, Indian vehicle makers have just five years from moving to the equivalent BS-IV standards to BS-VI. Given the short deadline, it has become necessary for local vehicle makers to partner with powertrain specialists to meet the 2020 deadline.

Tata Motors share price opened down by 1.2%.

Moving on to the news from the steel sector. As per an article in a leading financial daily, India has imposed antidumping duty on as many as 98 products, as on 27 December last year, imported from China.

Reportedly, the products on which the duty was imposed include flax fabrics, vitamin C, certain fibres and chemicals.

Further, trade deficit with China stood at US$ 36.7 billion during April-October this fiscal. Increasing trade deficit with China can be attributed primarily to the fact that Chinese exports to India rely strongly on manufactured items to meet the demand of fast expanding sectors like telecom and power.

One shall note that, countries initiate antidumping probes to determine if the domestic industry has been hurt by a surge in below-cost imports. As a counter measure, they impose duties under the multilateral WTO regime.

Antidumping measures are taken to ensure fair trade and provide a level-playing field to the domestic industry. They are not a measure to restrict imports or cause an unjustified increase in cost of products.

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