Sensex Opens on a Negative Note; Banking Stocks Witness Selling

Wed, 16 May 09:30 am

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Asian shares are trading on a negative note today. The Nikkei 225 is down 0.2% while the Hang Seng is down 0.1%. The Shanghai Composite is trading down by 0.2%.

Back home, India share markets opened the day on a negative note. The BSE Sensex is trading down by 225 points while the NSE Nifty is trading down by 66 points. The BSE Mid Cap index is trading down by 0.4%, while the BSE Small Cap index has opened the day down by 0.3%.

Sectoral indices have opened the day on a negative note with energy stocks and banking stocks witnessing maximum selling pressure.

The rupee is trading at 67.88 to the US$.

ITC share price, TVS Motors share price, Tata Steel share price, and DB Corp share price will be in focus today as these companies are scheduled to report their results for the quarter ended March 2018.

In the news from the macroeconomic space, India's trade deficit witnessed a widening trend during the month of April.

According to the commerce ministry data, India's exports rose by 5.17% YoY (year on year) to US$ 25.9 billion in April on back of good performance by sectors like engineering, pharmaceutical and chemicals.

Imports during the month were valued at US$ 39.6 billion, up 4.6% over April 2017.

The gap between imports and exports or trade deficit was marginally higher at US$ 13.7 billion during April 2018 compared to US$ 13.24 billion in April 2017.

Note that India's trade deficit has been witnessing a widening trend. Here's how it looked during 2017:

Trade Deficit Widens

This does not bode well for the Indian economy. A wider current account deficit in the midst of a sharp rise in oil prices, fiscal slippage risks, and above-target inflation points to a weaker macro backdrop for the economy.

In the news from currency markets, the dollar is witnessing buying interest and is trading near a five-month high against a basket of major currencies.

The rise was seen on the back of surge in the benchmark 10-year Treasury yield.

The rise in dollar has also weighed on the already depreciating Indian rupee.

What does the fall in rupee mean for the Indian economy?

A depreciation in rupee means importers buying goods and services at a higher rate that earlier. This doesn't bode well for a developing economy that relies heavily on imports.

Also, India imports most of its oil requirements. So a fall in rupee leads to a consequent rise in the import bill.

On the corporate side, companies who have taken foreign loans from abroad will be impacted. The repayment obligations in terms of principal and interest will rise, leading to a dent in the cash flows and financials.

Further, companies who import a majority of their raw material requirements will get impacted provided they have not hedged their foreign currency exposure.

Looking at the brighter side, rupee depreciation brings a cheer on the exports front.

A depreciating rupee will provide a much-needed cushion to falling exports. However, a falling rupee will not be the only factor to boost exports. There are certain structural issues too which the government needs to address.

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