Indian Indices Trade Marginally Higher; Energy Stocks Witness Buying Interest

Tue, 24 Apr 12:30 pm

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Stock markets in India are presently trading marginally higher. Sectoral indices are trading on a mixed note with stocks in the oil & gas sector and healthcare sector witnessing maximum buying interest. Metal stocks are trading on a negative note.

The BSE Sensex is trading up 79 points (up 0.2%) and the NSE Nifty is trading flat. The BSE Mid Cap index is trading flat, while the BSE Small Cap index is trading up by 0.1%.

The rupee is trading at 66.44 to the US$.

In the news from the automobile sector, as per an article in the Economic Times, the government is planning to double the mandatory local content in electric vehicles to 70% in three years and impose heavy duties on imports.

This is to ensure that domestic manufacturing of electric vehicles gets a big boost from the Rs 87 billion proposal to shift public transport to battery-operated vehicles.

The development is said to have huge implications for domestic car makers such as Tata Motors and Mahindra & Mahindra, which are facing competition from foreign players like China's BYD, which recently won tenders with low bids that seemed unviable to local rivals.

How this pans out remains to be seen. Meanwhile, we will keep you updated on the developments from this space.

Speaking of electric vehicles, note that the government is targeting to have all cars propelled by electric engine by 2030. The target is more daunting than in many advanced countries.

According to the industry, the 2030 target would require eight to ten times the global stock of such vehicles. India would need to sell more than 10 million electric cars in 2030, compared to 5,000 electric vehicles India had on the road in 2016.

As you can see from the chart below, India is barely visible compared to other developed countries when it comes to battery cars.

Is India Prepared to Meet the Ambitious Battery Car Target?

As an article in Business Standard suggests, such a big jump in scale for the auto industry in 13 years seems difficult. The basic infrastructure is missing. There are not enough charging stations. For this massive shift, the charging stations will need to be as ubiquitous as petrol pumps.

Another issue is the price of the lithium ion battery, which constitutes 30% to 40% of the cost of the car. For this plan to succeed, the price of the battery needs to come down.

The auto industry is already facing regulatory headwinds. The shift from BS-IV emission norms to BS-VI has been two years ahead of schedule without an intermediate stage. The government, if it is serious about such ambitious targets, should offer the necessary infrastructure support and do its bit for a smooth transition.

In the news from commodity space, the petroleum and natural gas ministry has estimated India's crude oil import bill may increase 20% to US$ 105 billion in this financial year from US$ 88 billion in 2017-18.

This is assuming average crude oil price of US$ 65 per barrel for the year, about US$9 a barrel less than the current rate.

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.

You can read the entire article here.

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