Indian Indices Continue Positive Trajectory, Metal Sector Spurts, and Top Stocks in Action

Fri, 20 Apr Pre-Open | Parth Parekh, TM Team

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On Thursday, share markets in India opened on a positive note and ended the day in green.

The BSE Sensex closed higher by 96 points to end the day at 34,427 mark. While the broader NSE Nifty ended the day higher by 39 points to end at 10,565.

Among BSE sectoral indices, metal stocks rose the most by 4.5%, followed by capital goods stocks at 1.1%. Tata Steel and Yes Bank were among the top gainers.

Top Stocks in Action Today

Tata Steel share price is likely to be in focus today after a leading financial daily reported that the Tata Group company is likely to acquire a 75% stake in debt ridden Bhushan Steel.

As per the news, the company will be paying Rs 1.8 billion to acquire 75% of the paid-up share capital by issuing 1.2 billion new shares as part of its plan to salvage the debt-laden steel company.

HPCL share price and BPCL share price are among the stocks to watch today as oil prices continue to rise unabated.

Aviation Sector Continues to Fly High

Data released by the Directorate General of Civil Aviation showed India's aviation sector witnessed its highest passenger growth in 32 months in March as more than 11.6 million Indians took air transport for their travels.

As per the data, airline passenger traffic grew 28%, compared with the same month last year. This was seen on account of strong capacity addition.

The growth in passenger traffic in the world's fastest-growing aviation market was led by Air India, GoAir, Air Asia, and Vistara. All the four airlines reported strong growth in passenger traffic by growing above the industry average of 28%.

However, the number of fliers for InterGlobe Aviation Ltd, the parent of IndiGo, fell 27% as the airline cancelled 935 flights due to instances of technical glitches in their Pratt & Whitney engines. While this was marginally below the industry rate, it stood higher compared to the previous month for the company.

Passenger load factor, a measure of capacity utilisation, increased for all the major airline companies last month. SpiceJet Ltd reported the highest passenger load factor of 95% and now has reported a PLF of more than 90% for the thirty-fifth consecutive month.

Note that India's aviation industry is on a high-growth trajectory. India's domestic air traffic has seen a prolific growth of 20-25% during 2015 and 2016. And in 2017, it tapered to 17.4%. However, for the first time, domestic air traffic crossed an important landmark of 100 million passengers in a calendar year. Air travel has recorded double-digit growth for 40 consecutive months, thanks to low fares, the addition of new flights/destinations, and overall growth in the economy.

What's foreseeable for India's aviation traffic in 2018 is some pressure on the back of the consistent rise in crude oil prices. Earlier this year, Brent crude oil briefly breached US$70 per barrel and touched its highest level since December 2014. Crude prices have been driven up by production curbs in OPEC nations and Russia, as well as by robust demand on the back of healthy global economic growth.

Oil prices are closely monitored by the Indian air carriers, as aviation turbine fuel is their single largest input cost. A sharp rise in the cost of fuel puts pressure on margins, and consequently an increase in air fares.

Although air travel is becoming the new normal, investors need to understand the industry dynamics before buying up aviation stocks.

Oil Prices Show No Signs of Slowing Down

Crude oil prices are witnessing buying interest today, and have remained close to highs touched the previous day that were last seen in late 2014. Gains are seen as US crude inventories declined and as top exporter Saudi Arabia is expected to keep withholding supply to prop up the market.

Last week too, crude oil was headed for its biggest weekly advance in more than eight months on speculation that tensions in the Middle East may lead to supply disruptions, reinforcing a buy call on commodities by Goldman Sachs Group Inc.

The risk of conflict in Syria, as well as ongoing tensions between Saudi Arabia and Iranian-backed rebels in Yemen, has raised concerns over supply security in the energy-rich region.

While OPEC said its output last month fell to the lowest in a year, with worldwide inventories set to decline significantly later this year, the International Energy Agency (IEA) sees a second wave of shale revolution in the US.

How this pans out remains to be seen. We will keep you updated on all the developments from this space.

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

As we wrote in one of the editions 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.

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