Sensex Plunges as Trump Sparks Trade War Fears; Metal & Bank Stocks Fall

Fri, 23 Mar 0

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Asian stock markets plunged in morning trade tracking losses in the US markets after US President Donald Trump announced tariffs on Chinese goods stoking fears of a trade war. The Nikkei 225 is off 3.54% while the Hang Seng is down 2.97%. The Shanghai Composite is trading down 3.12%.

The US president instructed US Trade Representative to levy tariffs on at least US$50 billion in Chinese imports. Trump also directed Treasury Secretary to propose new investment restrictions on Chinese companies within 60 days to safeguard technologies the US views as strategic.

The US also stated that China engages in a range of violations, including policies that force American companies to transfer technology and the accessing of trade secrets through hacking.

Meanwhile, Indian share markets have opened the day deep in red. BSE Sensex is trading lower by 355 points and NSE Nifty is trading lower by 150 points. S&P BSE Mid Cap is trading lower by 1.7% and S&P BSE Small Cap is trading down by 1.8%.

Losses are largely seen in metal stocks, bank stocks and realty stocks. The rupee is trading at Rs 65.06 against the US$.

The Market cap to GDP ratio for Indian companies is close to dangerously high levels. While this is still some way off the peak of FY-08, when it had once reached close to 150, it's relatively high.

FY17 saw this ratio reach close to 80. It is also expected to increase further given the moderate growth expectations in India's GDP for FY18. Warren Buffett once considered this as one of the best valuation metrics to gauge the markets.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

Past history shows some correlation between the ratio and the share market. 2008 saw Sensex decline by 38%, when this ratio crossed the 100 mark. Also, the market has bounced back sharply when this ratio was low.

The basic assumption in this ratio is that whenever the GDP of the country grows, the market performance will reflect it. Also, when stocks do well, it can be extrapolated to assume the Indian economy is doing well.

In news from automobile sector, as per an article in The Livemint, Mahindra and Mahindra Ltd and Ford India Pvt. Ltd on Thursday said they have agreed to jointly develop connected vehicles, electric cars, drivetrains, compact SUVs and mid-sized SUVs.

Specifically, the two automakers will co-develop a small electric car. Reportedly, Mahindra would share its affordable EV technologies with Ford, which the American company plans to use in its small entry-level cars such as Figo and Aspire.

The report also said Mahindra was in early talks with Ford to procure a vehicle platform Ka on which the M&M aims to build an all-new electric sedan.

Aiming to leverage the benefits of Ford's global reach and Mahindra's scale in India, M&M will try to assess the possibility of increasing its support in global emerging markets via Ford's manufacturing and distribution network, in addition to evaluating future mobility needs.

M&M share price opened the trading day down by 0.5%.

In another development, as per a leading financial daily, Hero MotoCorp Ltd has raised its stake in its joint venture in Colombia from the existing 51% to 68%.

Hero MotoCorp opened its fifth overseas manufacturing capacity-its first in Columbia-to cater to demand from the neighbouring Latin American countries and to set up a base for exports outside India.

The Colombia facility was the first step by the firm to expand its footprints, especially in the South and North American markets.

Reportedly, the manufacturing capacity was built over a project cost of US$70 million, of which US$38million was used in capital expenditure and the rest as working capital.

Hero Motocorp share price opened down 0.8% on the BSE.

Moving on to news from banking sector. The Central Bureau of Investigation (CBI) registered a Rs 13.94 billion bank fraud case against Hyderabad-based Totem Infrastructure Ltd on a complaint by state-run Union Bank of India.

The number of bank fraud cases has been piling up after the Reserve Bank of India (RBI) directed banks to file complaints against erring companies. The latest case comes just a day after the investigating agency filed a case of loan fraud against Kanishk Gold Pvt. Ltd on a complaint by State Bank of India (SBI).

It was alleged in the complaint by Union Bank that the company had diverted funds by opening accounts outside the consortium and through payments of wages by showing excess expenditure and inflated stocks. The entire sale proceeds were not allegedly routed through the dealing branches of consortium banks.

Meanwhile, this comes after reports of about Rs 127 billion fraud at the country's second largest state-run lender Punjab National Bank.

Union Bank of India share price opened the trading day down by 7%.

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