Indian Indices Trade Marginally Higher; IT Sector Up 2.6%

Wed, 24 Jan 11:30 am

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Stock markets in India are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the IT sector and healthcare sector witnessing maximum buying interest. Telecom stocks are trading in the red.

The BSE Sensex is trading up 31 points (up 0.1%) and the NSE Nifty is trading up 10 points (up 0.1%). The BSE Mid Cap index is trading down by 0.4%, while the BSE Small Cap index is trading down by 0.5%. The rupee is trading at 63.63 to the US dollar.

In the news from the IT sector, the Nifty IT Index is the leading sector witnessing buying interest in today's trade. The Index has hit its 52-week high and is trading up around 2.7%.

Top gainers in the Index include Tata Consultancy Services, HCL Technologies, Tech Mahindra, Infosys, and Tata Elxsi.

While momentum is seen in the IT space lately, the sector has been one of the worst performing sector in FY17, as can be seen from the chart below:

Best & Worst Performing Sectors - S&P BSE Index

Note that the IT 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.

In the news from the commodity space, crude oil is witnessing buying interest today.

Most of the gains are seen on the back of ongoing support from healthy economic growth as well as from supply restrictions led by a group of producers around OPEC and Russia.

Spot Brent crude oil futures, the international benchmark for oil prices, were trading at US$ 70 a barrel, a level not far off the January 15 three-year high of US$ 70.37.

The rise in crude oil prices was also seen this week after Saudi Arabia, the world's top oil exporter and de-facto leader of the Organization of the Petroleum Exporting Countries (OPEC), said that major oil producers were in agreement they should continue cooperating on production after their deal on supply cuts expires this year.

Note that crude oil prices have been on a rising trend this year. However, this is not good news from India's perspective.

As we wrote in a recent edition of The 5 Minute WrapUp...

• Fiscal revenues are at risk. Particularly if the government is forced to consider a cut in fuel excise duties due to a rally in oil prices. In recent times, a sharp jump in excise collections has helped indirect tax collections. Any risk to revenues and subsequent threat to the fiscal deficit target at 3.2% of GDP would require tighter spending cuts.
  
  Secondly, the impact on inflation needs to be monitored. This narrowing the central bank's scope for further rate cuts.
  
  Lastly, low crude prices were a positive growth impetus through higher discretionary incomes for households and lower input costs for manufacturers and farmers. Part of this benefit is likely to be eroded as retail fuel costs rise. As for corporations, expansion in gross margins caused by falling commodity prices is also likely to wane, pressurising profitability.

You can read the entire article here.

To keep a tab on the movements in crude oil and other commodities, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency, and commodity markets.

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