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Indian Indices Continue Momentum; Energy and IT Stocks Witness Buying
Fri, 25 May 12:30 pm

Stock markets in India are presently trading on a positive note. Sectoral indices are trading on a positive note with stocks in the energy sector and IT sector witnessing maximum buying interest.

The BSE Sensex is trading up 160 points (up 0.5%) and the NSE Nifty is trading up 52 points (up 0.5%). The BSE Mid Cap index is trading up by 1.1%, while the BSE Small Cap index is trading up by 0.7%.

The rupee is trading at 68.24 to the US$.

In the news from commodity space, fuel prices in Mumbai crossed the Rs 85 per litre mark.

Note that petrol and diesel prices across the country have hit their all-time high levels. Fuel prices across the four metropolitan cities were raised around 30 paise on Tuesday. As per the news, the government is likely to come out with some steps this week to deal with the above situation of record high petrol and diesel rates.

Presently, the government levies heavy taxes which account for about half the cost of petrol and 40% of the diesel price. So, one of the possible ways for the government to reduce the rates is change the way in which pump prices are calculated.

The above rise in fuel prices is seen on the back of rising crude oil prices, which shot above US$ 80 per barrel. This is the highest level seen since November 2014. In the past one year alone, oil prices have surged more than 50%.

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Also note that rising crude oil prices not only affect fuel prices, but also has many other repercussions for the Indian economy.

They can be a big worry for the Modi government as well.

That's because the Modi government has been a big beneficiary of lower crude oil prices.

As Ankit Shah wrote in a recent edition of The 5 Minute WrapUp...

  • During the UPA II regime, India's average annual oil import bill was US$ 133 billion. In fact, in the last three years of Manmohan Singh's leadership, the oil import bill exceeded US$ 150 billion. Compare that with an average annual oil bill of US$ 95 billion during the four years of Modi's leadership.

    The actual savings would have been even higher, because I believe the consumption of crude oil and petroleum products would have been quite higher in the Modi era than the Manmohan era.

    Last Thursday, Brent crude oil prices shot above US$ 80 a barrel.

    This is the highest level since 2014. In the past one year alone, oil prices have surged more than 50%.

    Now, what if oil prices go back to the levels during the Manmohan Singh regime? What would happen to India's current account and fiscal deficit? What would happen to inflation and RBI's stance on interest rates?

    With the next general elections just a year away, rising crude oil prices are going to be a big worry for the Modi government.

How the government handles this situation of rising crude oil and fuel prices remains to be seen. Meanwhile, we will keep you posted on all the developments from this space. Stay tuned.

Banking stocks are trading on a positive note today. At the time of writing, the BSE Bankex was trading up by around 0.5%. Bank of Baroda (BoB) share price, IndusInd Bank share price, Yes Bank share price, and Federal Bank share price were among the top gainers in the index.

Speaking of banking sector, note that public sector banks (PSB) are in the spotlight for their growing bad loan problems and the painful issue of willful defaulters.

Most of the public-sector banks reported losses in their fourth quarter results on the back of higher provisions for non-performing assets (NPAs) and bad loans.

After the euphoria of recapitalisation, bad loans have come to haunt them. Post the Gitanjali Gems fiasco, PSBs are yet to fully recover from its impact.

PSBs Struggle Despite Government Help

The above underperformance was despite the huge boost they got from the government last year. On 24 October 2017, the government announced a Rs 2.11 trillion public sector bank (PSB) capitalisation plan. This move was aimed at reviving the PSBs from the bad loan mess.

The next day was a field day for investors in PSBs. PSB stocks went up between 30% and 47%. Despite this, the return in the year was way below average. PSBs like Punjab National Bank (PNB) have crashed more than 45% over the last one year.

With this sharp correction, the question now is: Have we reached the bottom? Or there are more Nirav Modi stories waiting to come out?

And here's what we wrote about in a recent issue of The 5 Minute WrapUp..."We believe, rather than bottom fishing, one should look at banks run by strong management and a differentiated lending strategy available at reasonable valuations."

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