Sensex Trades in Red; Realty Stocks Top Losers

Fri, 12 Jan 01:30 pm

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After opening the day on a positive note, Indian share markets witnessed selling pressure and are currently trading in red. Sectoral indices are trading mixed, with stocks in the realty sector and stocks in the IT sector witnessing maximum selling pressure.

The BSE Sensex is trading down by 85 points (down 0.3%) and the NSE Nifty is trading down 36 points (down 0.3%). Meanwhile, the BSE Mid Cap index is trading flat, while the BSE Small Cap index is trading up by 0.3%. The rupee is trading at 63.56 to the US$.

In news from stocks in the IT sector. Tata Consultancy Services (TCS) share price is in focus today after the IT major bagged a US$ 2 billion deal from US insurance group Transamerica.

India's largest IT firm, TCS said that it bagged a multi-year agreement with Transamerica, and that the agreement will bring in more than US$ 2 billion in revenues. TCS added that the agreement is expected to be completed by the second quarter of 2018.

The announcement comes a day after TCS reported a 3.6% fall its net profit to Rs 65.3 billion in the December 2017 quarter. The IT bellwether had posted a net profit of Rs 67.8 billion in the December quarter of the previous financial year.

BSE IT Index vis-a-vis Sensex

The Indian information technology (IT) sector has been through the doldrums over the past few years. IT giants have seen flat to negligible growth in the past 3-4 years. However, going by the IT index performance in the past few months, there seems to be some fight left in the IT space.

This is in stark contrast to its performance over the past four years. The Indian IT Index has returned a meager 19% returns as compared to Sensex returns of 58% since 2013.

The sector has seen a major disruption in the business model. The shift from traditional IT services like application maintenance to analytics, cloud computing has hurt growth for almost all major IT companies.

Recent protectionist policies announced by the American government since Trump's appointment have further escalated their problems.

As a result, major Indian IT companies are trading at multi-year low valuations. Also, IT companies are moving towards an efficient business model whereby manpower for mundane tasks are being replaced by automation. It will be an interesting space to watch out for in the days ahead.

Moving on to news from the automobile sector. According to a leading financial daily, The Delhi Government plans to switch all the vehicles in the capital region to electric in the next 20 years. The government's deputy chief minister said that the state government is working with the centre to attain electric mobility.

Delhi plans to launch a bus terminal that will run 100% on electric mode.

Government think-tank Niti Aayog has outlined a vision to shift 100% of commercial vehicles used for intra-city transport and 40% of personal vehicles to an all-electric mode by 2030.

Currently, electric vehicle sales are low in India, rising 37.5% to 22,000 units in the year ended 31 March 2016 from 16,000 in 2014-15. Only 2,000 of these were cars and other four-wheelers, according to automobile lobby group Society of Indian Automobile Manufacturers (Siam).

The government wants to see 6 million electric and hybrid vehicles on Indian roads by 2020 under the National Electric Mobility Mission Plan 2020.

The government is targeting to have all cars propelled by electric engine by 2030. The target is more daunting than in many advanced countries.

According to the industry, the 2030 target would require eight to ten times the global stock of such vehicles. India would need to sell more than 10 million electric cars in 2030, compared to 5,000 electric vehicles India had on the road in 2016.

Another issue is the price of the lithium ion battery, which constitutes 30% to 40% of the cost of the car. For this plan to succeed, the price of the battery needs to come down.

The auto industry is already facing regulatory headwinds. The shift from BS-IV emission norms to BS-VI has been two years ahead of schedule without an intermediate stage. The government, if it is serious about such ambitious targets, should offer the necessary infrastructure support and do its bit for a smooth transition.

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