Helping You Build Wealth With Honest Research
Since 1996. Try Now

MEMBER'S LOGINX

     
Invalid Username / Password
   
     
   
     
 
Invalid Captcha
   
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Indian Indices Extend Losses; Metal Sector Down 1.9%
Wed, 7 Mar 11:30 am

After opening the day on a negative note, Indian share markets have extended their losses and are presently trading in the red. Sectoral indices are trading on a negative note with stocks in the capital goods sector and metal sector witnessing maximum selling pressure.

The BSE Sensex is trading down 202 points (down 0.6%) and the NSE Nifty is trading down 70 points (down 0.7%). The BSE Mid Cap index is trading down by 1.2%, while the BSE Small Cap index is trading down by 1.8%. The rupee is trading at 64.97 to the US dollar.

As per a leading financial daily, US President Donald Trump today said that the US, which has US$ 800 billion deficit with other countries, is ready for a trade war with them if they retaliated against his decision to impose an import tariff on steel and aluminum.

The comments follow Donald Trump's plan to impose across-the-board tariffs on steel and aluminum imports to which the European Union (EU) proposed to apply a retaliatory tariff of 25% on a range of goods imported from the US.

Trump proposes to slap a 25% tariff on imports of steel and a 10% tariff on imports of aluminum. The formal announcement is expected to be made this week.

As for domestic markets, the above announcement by Trump also sent Indian metal stocks in the red, with SAIL share price, NMDC share price, JSW Steel share price, and Tata Steel share price witnessing most of the selling pressure.

Note that India's steel industry was just coming out of a rough patch. Demand was picking up. Steel prices were on the rise. Buyers were lining up to pick up stressed assets. With the expected pick up in the investment cycle, the sector was on the upswing. And steel exports were on a roll, as can be seen from the chart below:

Is the Steel Sector's Recovery Under Threat?

However, Donald Trump has now spoiled the party with his plans to impose the above tariffs. India produces a lot of both commodities but internationally, we are not a big player. The US imports only 2.4% of steel and 2% aluminium from India.

But it's not that simple.

With the new US tariffs, major exporters like South Korea will look to sell in other countries. This would lead to a glut and as a result, lower prices across the industry.

Just Released: Multibagger Stocks Guide
(2018 Edition)

In this report, we reveal four proven strategies to picking multibagger stocks.

Well over a million copies of this report have already been claimed over the years.

Go ahead, grab your copy today. It's Free.

NO-SPAM PLEDGE - We will NEVER rent, sell, or give away your e-mail address to anyone for any reason. You can unsubscribe from The 5 Minute WrapUp with a few clicks. Please read our Privacy Policy & Terms Of Use.

This would mean lower revenue and profitability for Indian metal companies as well and threaten the nascent recovery in the industry. As Ankit wrote in a recent edition of the Equitymaster Insider...

  • If metal producers are deterred from selling their goods in the US, they will come looking for other markets to sell their produce. This is likely to create an 'excess-supply' situation in those markets.

    What happens when there's too much supply? Basic economics says that when supply increases more than the growth in demand, prices decline. So, Indian metal producers are likely to be faced with the possibility of lower metal prices. This will impact their revenues and profitability.

How exactly this trade war will unfold is something to watch out for. We'll keep you updated on all the developments from this space.

Banking stocks are trading in the red today with Karnataka Bank share price and Punjab National Bank share price witnessing maximum selling pressure.

Losses are seen as the Serious Fraud Investigation Office (SFIO) summoned top bankers, including ICICI Bank CEO Chanda Kochhar and Axis Bank CEO Shikha Sharma, in a case related to Rs 50 billion loan extended to Mehul Choksi's Gitanjali Gems.

As per the news, the SFIO was said to have summoned senior executives from 31 banks with business dealings with the firms promoted by Nirav Modi and Choksi.

As per an article in the Economic Times, the officials of the private banks were asked general questions on their loan disbursements, which they answered. The SFIO is now likely to send a more detailed questionnaire to banks asking for more information.

The PNB fraud case involves bank employees issuing unauthorized LoUs to three companies and four people, including Nirav Modi and Mehul Choksi.

The fraud is essential that Nirav Modi did not pay the security deposit needed to raise an LoU. These LOUs were used to obtain short-term credit from overseas branches of other Indian banks.

The detailed investigation found that Nirav Modi had not been putting in enough of security deposit since 2011; the value of LoUs without these deposits is now around Rs 114 billion.

The above scam has put the public-sector banks (PSB's) in the limelight for all the wrong reasons. PNB is defrauded to the tune of US $ 2 billion. That's the last thing these banks needed after the crisis they've had in the past few years. This has reflected in their stock performance too.

Note that the returns of PSBs over the last five years have underperformed at the Sensex. Barring State Bank of India, the margin of underperformance has been huge. This is despite the recent run in their stock prices post the government's announcement of the recapitalization plan.

While their bad loans struggle has been going on since a decade, there are other issues that have recently cropped up adding to their pile of misery. Bureaucracy and a lack of autonomy have ensured the sub-optimal profitability and asset quality of these state-run banks.

That's the reason we've been wary of PSU banks since 2014. This was well before the market had caught a whiff of the NPA problem. We've recommended just two large PSU banks in StockSelect since then...and already successfully closed both of them.

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

Read the latest Market Commentary


Equitymaster requests your view! Post a comment on "Indian Indices Extend Losses; Metal Sector Down 1.9%". Click here!