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Sensex Opens Flat; Metal Stocks Down
Fri, 22 Jun 09:30 am | Rini Mehta, TM Team

Asian share markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.9% while the Hang Seng is down 0.1%. The Shanghai Composite is trading up by 0.5%. US stocks fell on Thursday as fears of an impending trade war between the US and China dragged investor sentiment lower.

Back home, India share markets opened the day on a flattish note. The BSE Sensex is trading down by 37 points while the NSE Nifty is trading down by 15 points. The BSE Mid Cap index and BSE Small Cap index both opened up down by 0.2%.

Barring bank stocks, all sectoral indices have opened the day in red with capital goods stocks and metal stocks witnessing maximum selling pressure. The rupee is trading at 68.20 to the US$.

In the news from the economy. India has hit back at US President Donald Trump's protectionist policies by hiking customs duty on 29 products. It includes farm products, steel and iron, which are imported from America.

This retaliatory action is in response to the US move to raise tariffs on steel and aluminium products earlier this year, which had a tariff impact of US$241 million on India.

India has said the duty imposed by the US had affected steel exports by US$198.6 million and aluminium shipments by US$42.4 million.

India's decision to hike duties comes a day after the European Union said it would charge higher import duties on a range of US products. Earlier, China too had raised duties on products imported from the US.

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These moves by various countries threaten to unleash a global trade war, that could hit world economic growth.

Interestingly, according to the list India submitted to the WTO, it had proposed to hike customs duty on specified motorcycles, that primarily include Harley Davidsons and Triumphs, to 50%. However, the notification does not mention any duty hike on motorcycles with engine capacity of over 800cc.

In February, India had slashed customs duties on imported high-end motorcycles like Harley Davidsons to 50%, but the move had failed to please Mr Trump, who had wanted it to be slashed to zero.

The government notification states that the duty hike will come into effect immediately for 28 products, while for artemia, a kind of shrimp, the hike would be effective from 4 August.

Last month, India filed a complaint at the World Trade Organisation against the US over steel and aluminium duties after it failed to win an exemption. India exports steel and aluminium products worth about US$1.5 billion to the US every year. India's exports to the US in 2016-17 stood at US$42.21 billion, while imports stood at US$22.3 billion.

Notably, India's steel industry was just coming out of a rough patch. Demand was picking up. Steel prices were on the rise. Buyers were lining up to pick up stressed assets. With the expected pick up in the investment cycle, the sector was on the upswing. And steel exports were on a roll, as can be seen from the chart below:

Is the Steel Sector's Recovery Under Threat?

However, Donald Trump has now spoiled the party with his plans to impose the above tariffs. India produces a lot of both commodities but internationally, we are not a big player. The US imports only 2.4% of steel and 2% aluminium from India.

But it's not that simple.

With the new US tariffs, major exporters like South Korea will look to sell in other countries. This would lead to a glut and as a result, lower prices across the industry. As Ankit wrote in one of the editions of the Equitymaster Insider...

  • If metal producers are deterred from selling their goods in the US, they will come looking for other markets to sell their produce. This is likely to create an 'excess-supply' situation in those markets.

    What happens when there's too much supply? Basic economics says that when supply increases more than the growth in demand, prices decline. So, Indian metal producers are likely to be faced with the possibility of lower metal prices. This will impact their revenues and profitability.

You can read the entire article here (requires subscription).

The above development would mean lower revenue and profitability for Indian metal companies as well and threaten the nascent recovery in the industry.

How exactly this trade war will unfold is something to watch out for. We'll keep you updated on all the developments from this space.

Moving on to the news from the IPO space. The initial public offering (IPO) of Railways consultancy firm RITES (Rail India Technical and Economic Services Ltd) was fully subscribed on the second day.

The three-day IPO, which closes today, received 52.4 million bids against the total issue size of 25.2 million.

RITES is the second railways public sector enterprise that is undergoing disinvestment and plans to raise around Rs 4.7 billion by divesting 12.6% from its stake. The IPO has been fixed at Rs 180-185 per share with lot size of 80 shares and in multiples thereafter.

Meanwhile, chemical manufacturer Fine Organic Industries' initial public offer was subscribed 39% on the second day of the bidding yesterday.

The IPO, to raise little over Rs 6 billion, received bids for 21,10,691 shares as against the total issue size of 53,65,497 shares.

The IPO is of 76,64,994 shares (including anchor portion of 22,99,497 shares). Price band for the offer, which is scheduled to close today, has been fixed at Rs 780-783 per share.

JM Financial and Edelweiss Financial Services are managing the issue.

To get more updates on share market, click here.

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