Indian Markets Extend Downtrend

Mon, 13 Jun 11:30 am

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After opening the day weak, the Indian indices registered losses and went on to trade further in the red. Sectoral indices are trading on a negative note with stocks from the power, banking and realty sector witnessing maximum selling pressure.

The BSE Sensex is trading down 324 points (down 1.2%) and the NSE Nifty is trading down 92 points (down 1.1%). The BSE Mid Cap index and the BSE Small Cap index are also trading on a negative note, both down by 0.9%. The rupee is trading at 67.07 to the US$.

Stocks in the steel sector are trading on a negative note with Jindal Steel & Power and Tayo Rolls leading the losses. As per an article in Economic Times, steel processing industry body Federation of Industries in India has alleged that protection provided by the government to domestic steel producers is one-sided. The industry said that the steel consuming industry sector has neither been consulted nor heard by the steel ministry before taking important decisions like imposing of MIP, Safeguard Duty, increasing customs duty and also while placing the steel imports under BIS Certification scheme.

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

However, as per the industry body, these measures have benefitted only a few large producers like SAIL, JSW and Tata Steel.

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.

As per our views, the above initiatives by the government makes sense 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.

Stocks in the automobile space are trading on a negative note with Tata Motors and Force Motors leading the losses. As per a leading financial daily, the Indian automobile industry has approached the government to consider a rupee-based payment mechanism for trading with African nations. This comes as automobile companies are facing a major hurdle in dollar-denominated payout.

Big export markets like Algeria and Nigeria cannot make payments in dollars. This is impacting the trade of domestic automobile industry with African markets. So to revive the trade, the industry has asked the Commerce Ministry to negotiate rupee trade with these countries.

Furthermore, with exports witnessing slowdown, the industry has asked the government to aggressively pursue free trade agreements (FTAs) with nations in Africa, Latin America and Asean region. The industry has proposed a list of inventories that can rev up the automobile exports in these nations. The industry has asked the Commerce Ministry to adopt a holistic approach to address tariff and non-tariff barriers in the potential export markets of the above nations.

One shall note that FY16 turned out to be a disappointing year for the Indian auto industry. The only segment that managed to grow in double digits was commercial vehicles (CVs). But this was largely led by medium & heavy CVs.

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