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Indian Indices Trade Marginally Lower; IT Stocks Witness Losses
Tue, 3 Apr 12:30 pm | Monish Vora, TM Team

Share markets in India are presently trading marginally lower. Sectoral indices are trading on a mixed note with stocks in the consumer durables sector and IT sector witnessing maximum selling pressure.

The BSE Sensex is trading down by 66 points (down 0.2%), while the NSE Nifty is trading down by 25 points (down 0.3%). The BSE Mid Cap index is trading up by 0.2%, while the BSE Small Cap index is trading up by 0.4%. The rupee is trading at 65.01 to the US$.

In the news from the steel sector, as per a leading financial daily, India has requested the US to exempt it from the hefty tariffs on steel and aluminum imports. It is also vetting other options to deal with the issue.

Last month, Trade Minister Suresh Prabhu had said that India will bilaterally discuss import curbs on steel with the United States.

The development comes as US President Donald Trump followed through on his pledge to impose stiff tariffs on imported steel and aluminium, while excluding Canada and Mexico and leaving the door open to sparing other countries on the basis of national security. Last month, he signed two proclamations that levied 25% tariff on steel and 10% tariff on aluminum imports from all countries except Canada and Mexico.

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He also warned there would be more tariffs coming, saying he plans to proceed with what he has called reciprocal taxes on imports from countries that charge higher duties on US goods than the US now charges on their products.

As for domestic markets, the above actions by Trump has led Indian metal stocks trade on a volatile note lately.

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. As Ankit wrote in one of the editions 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.

You can read the entire article here (requires subscription).

The above development would mean lower revenue and profitability for Indian metal companies as well and threaten the nascent recovery in the industry.

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 witnessing buying interest today as the Reserve Bank of India (RBI) allowed banks to spread out their bond trading losses over four quarters that would help them in meeting provisioning norms on bankrupt cases and also aid their profitability.

Under the change, lenders can spread bond-trading losses incurred in the December 2017 and March 2018 quarters equally over four quarters.

The move comes as a welcome breather for public-sector banks, which have been hard hit by trading losses from a spike in bond yields over recent months. To tackle this, major banks have recently increased their interest rates.

Note that the bond market in India is presently witnessing a strong revival.

Foreign debt raised by Indian companies has surged ten-fold to US$ 41 billion in 2017. This is the highest ever infusion of foreign funds in the domestic debt markets in the last 15 years.

At US$ 23 billion, foreign investments in government securities and corporate paper took the cake. This was followed by dollar denominated bonds that attracted around US$ 16 billion of foreign investments whereas funds of US$ 2 billion were mopped up by masala bonds. Masala Bonds are rupee-denominated borrowings by Indian entities in the overseas markets.

All this has made the Indian bond market flush with foreign debt investments lately.

Apart from the above, the recent sovereign rating upgrade by Moody's coupled with factors such as economic stability, abundant global liquidity and diversification needs of investors have stoked demand for Indian bonds in the overseas markets.

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