Indian Markets Inch Upwards

Tue, 10 May 01:30 pm

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The Indian stock markets are trading on a positive note in the post-noon trading session. Sectoral indices are trading on a mixed note with stocks from the pharma and capital goods sectors leading the gains. Auto stocks are however trading in the red.

The BSE Sensex is trading up by 70 points (up 0.3%) and the NSE Nifty is trading up 12 points (up 0.2%). The BSE Mid Cap index is trading up by 0.2% while the BSE Small Cap index is trading up by 0.3%. Gold prices, per 10 grams, are trading at Rs 29,831 levels. Silver price, per kilogram is trading at Rs 40,802 levels. The rupee is trading at 66.69 to the US$.

Energy stocks are trading on a mixed note with Cairn India and Oil India leading the losses. As per a leading financial daily, state-owned Oil and Natural Gas Corporation (ONGC) has recorded an increase in crude oil production for the second consecutive year in 2015-16. The company produced 22.37 million tonnes (MT) of crude oil in FY16, marginally higher than 22.26 MT recorded in the previous fiscal.

One shall note that the company announced last month that it is planning to explore as many as 17 shale gas and oil wells in both east and west coasts. The company is going to invest around Rs 7 billion for the same.

This is the first time that the company has taken up shale gas exploration over such a large scale. Also, it is the first time that the company has taken up shale gas exploration in the Krishna-Godavari basin.

Furthermore, the company has sought permission for drilling 11 exploratory wells for shale oil/shale gas in Cambay basin at Mehsana, Ahmedabad and Bharuch districts of Gujarat, one well in Cauvery basin at Nagapattinam in Tamil Nadu and five wells in KG Basin at East and West Godavari districts of Andhra Pradesh.

ONGC is India's largest government-run corporation and produces about 70% of India's crude oil and natural gas. The above developments will aid in reducing India's dependence on crude oil imports.

India's import dependence on oil rose to 81% in 2015-16 from 78.5% in the previous year. One shall note that last year Prime Minister Narendra Modi had set a target of bringing this down to 67% by 2022.

The increasing import dependence does not bode well for India in the longer term. This is because the increasing oil imports will put pressure on the Indian rupee and could have major implications in terms of managing trade balances. Having said that, we believe that India now needs to focus on becoming self-reliant as far as its energy needs are concerned.

At the time of writing, crude oil was trading up by nearly 0.5% at Rs 2,924 per barrel. To keep a regular tab on the movements in crude oil prices, you can read weekly market commentary from the Daily Profit Hunter team. Their weekly commentary tracks the developments in the global economy as well as equity, currency and commodity markets.

Stocks in the steel sector are also trading mixed with Bhushan Steel and Tayo Rolls leading the gains. In another news update it was reported that Steel Authority of India (SAIL), the country's largest steel producer, is targeting to produce 17 million tonnes (MT) of steel in FY17 and 20 MT in FY18.

The company is targeting 70% of its sales in the northern and eastern regions. It is also aiming to increase its presence in the 'Make in India' sectors like defence, aerospace and nuclear power.

The company intends to sell idle assets, and reduce inventories of steel. It also aims to reach coal production target of 2 MT for FY17 and open new mines allotted by the government.

The above measures, if implemented properly, will provide some relief to the dampened growth in steel sector. One shall note that the steel industry has been depressed for a while. Weak global demand, cheap imports and falling prices have dented the financials of the domestic steel producers.

The flood of imports prompted the government to impose safeguard taxes in September 2015 and set a minimum import price (MIP) in February 2016.

On February 5, 2016, the Directorate General of Foreign Trade imposed a MIP on 173 steel products. The prices range from US$352 per tonne to US$752 per tonne of steel. This move has been labeled as a 'game changer' for steel companies. Reportedly, MIP has led to improvement in the prices of steel and improvement in the financials of the industry players.

However, do these initiatives by the government makes sense? It does for the steel companies. But not for the overall Indian economy as a whole. One of our editions from The 5 Minute WrapUp titled 'Govt Fixing Steel Prices: Is Make in India Just a Slogan?' answers why a MIP can hurt the Indian economy.

SAIL is India's largest steel producing company. Presently its stock is trading down by 0.5%.

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