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Sensex Opens Higher; Capital Goods and Power Stocks Lead
Fri, 22 Mar 09:30 am | Rini Mehta, TM Team

Asian stock markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 1.2% while the Hang Seng is down 0.4%. The Nikkei 225 is trading down by 0.2%. An Apple-led tech rally pushed Wall Street higher on Thursday as jitters over the Federal Reserve's forecast of an economic slowdown were calmed by upbeat economic data.

Back home, India share markets opened on a positive note. The BSE Sensex is trading up by 109 points while the NSE Nifty is trading up by 40 points. Both, the BSE Mid Cap index and BSE Small Cap index opened up by 0.2%.

Barring IT stocks, all the sectoral indices have opened the day in green with capital goods and power stocks leading the pack of gainers.

The rupee is currently trading at 68.80 against the US$.

Steel stocks opened the day on a mixed note with Adhunik Metaliks and Tayo Rolls leading the gainers. As per an article from a leading financial daily, German steel giant ThyssenKrupp on Wednesday said that it has applied for an eight-day extension to complete ongoing negotiations with the European Commission over its planned merger with Tata Steel.

The Commission had opened an "in-depth" investigation into the proposed merger in October last year and noted its concerns that the deal between the two steel majors may reduce competition in the supply of various high-end steels.

As part of the transaction announced in June last year, Tata Steel and ThyssenKrupp plan to combine their European carbon steel and electrical steel businesses in a joint venture.

The Commission said it is concerned that, following the transaction, customers would face a reduced choice in suppliers, as well as higher prices.

These customers include various European companies, ranging from major corporations to numerous small and medium-size enterprises (SMEs). Many compete with imported products in the EEA or export their products outside Europe and compete globally.

The Tata-ThyssenKrupp transaction was notified to the European Commission in September 2018 and had 90 working days to take a decision, a period which ended this Tuesday.

Now how this deal pans out going forward remains to be seen.

Tata Steel share price opened the day up by 0.3%.

In the news from the economy. As per an article in a leading financial daily, the latest move by the US Federal Reserve to keep its policy interest rates unchanged is likely to provide further leg-up to the rally at Dalal Street.

The US central bank's decision indicates it is not in a hurry to raise rates in the near-to-mid-term, which translates into a higher spread on earnings yield for foreign investors buying Indian equities.

After the Fed's announcement, the yield on the 10-year US government bond moved lower and settled at 2.51% against 2.54% a day before.

At current interest rates, the earnings yield for a portfolio that mirrors the broad-based BSE 500 index exceeds the US treasury yield by 48 basis points, which is the highest in a year.

In comparison, the spread was a paltry 6 basis points at the end of calendar year 2018, having earlier turned negative during the first quarter of CY18.

According to the reports, this widening of the spread largely explains the recent purchases of Indian equities in the secondary market by foreign portfolio investors (FPIs).

In contrast, FPIs were net sellers in the last calendar year, as an increase in US interest rates had made earnings yields in India unattractive for them.

Note that, FPIs have brought in a net investment of Rs 400 billion in the first three months of 2019 (so far) in Indian equity markets, against net sales of Rs 340 billion during the 12 months of calendar year 2018.

Look at the chart below...

The blue line plots the annual net equity investment by foreign investors, while the red line represents the net equity investments by mutual funds.

Between FY01 and FY15, the blue line (foreign investors) is consistently above the red line (mutual funds), except in the financial year 2008-09 (FY09). That was the only year in the 15-year period when mutual funds were net buyers in the face of an exodus by foreign investors in the aftermath of the global financial crisis.

Foreign Investors No More in the Driver's Seat

So, while the net inflows so far are a positive sign, whether the inflow will continue is contingent on several domestic and global macro factors.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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

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May 29, 2020 09:49 AM