Sensex Opens in Green; Energy & PSU Stocks Witness Buying

Tue, 17 Jul 09:30 am

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Asian stocks sagged today in the early trade, weighed by a sharp decline in crude oil prices as Libyan ports reopened, while the dollar was on the defensive ahead of Federal Reserve Chairman Jerome Powell's first congressional testimony. In the US, major stock indices struggled for gains for most of the session on Monday as other large US companies released their quarterly results.

Back home, India share markets opened the day on a firm note. The BSE Sensex is trading up by 95 points while the NSE Nifty is trading up by 37 points. The BSE Mid Cap index opened up by 0.8% while BSE Small Cap index opened up by 0.5%.

The rupee is currently trading at 68.63 to the US$.

Barring FMCG stocks, all sectoral indices opened the day in green with energy stocks and PSU stocks witnessing maximum buying interest.

In the news from the economy. The International Monetary Fund (IMF) has trimmed India's growth projection by 0.1 percentage point for 2018-19 owing to high oil prices and a tight monetary policy regime.

The effect of the twin headwinds on the IMF's projection for 2019-20 was much sharper - 0.3 percentage points.

Now, the IMF has forecast India will grow by 7.3% in 2018-19 against the earlier estimate of 7.4%. The economy was projected to grow 7.8% by 2019-20 by the Fund earlier, but now the projection stood at 7.5%, according to the World Economic Outlook (WEO) Update.

Even then, the economy would be the fastest-growing one among large nations in 2018-19 and 2019-20.

India's economy grew at a four-year-low of 6.7% in 2017-18.

Though the IMF had slightly revised downwards India's economic growth rate for FY19, its projections are now in sync with what other agencies - the World Bank and Asian Development Bank - have predicted.

It said central banks in key emerging market economies - including Argentina, Mexico, Turkey, India and Indonesia - have raised policy rates, responding to inflation and exchange rate pressures (coupled with capital flow reversals in some cases).

The RBI had hiked the policy rate by 25 basis points in June 2018, for the first time in four and a half years, citing a major upside risk to inflation on the back of high crude oil prices.

The RBI will now come up with its monetary policy in August amid a five-month-high consumer price index inflation rate at 5% and more than a four-year high wholesale price index inflation rate at 5.8% in June.

The cut in India's growth rates comes even as the IMF maintained the world's growth rate at 3.9% for 2018 and 2019 respectively.

The IMF has scaled down economic growth in Argentina and Brazil, besides India, among emerging market economies.

This has come when India is eyeing the world's third-largest economy tag by 2030 after overtaking France as the sixth-largest economy and coming close to the UK in 2017.

Further, the 8% growth rate will not be possible for at least two more years - 2018-19 and 2019-20 - according to IMF estimates.

However, even if the economy grows by 7% a year, its gross domestic product may cross US$10 trillion by 2030 if inflation remains at least 4% a year and the rupee does not depreciate too much against the dollar.

Note that, the RBI monetary policy statement is one of the most tracked events in the financial world. The chart below shows how India's inflation and policy rates stand in comparison with other Asian economies.

India's Policy Rates Compared to Asian Economies

Rate cut or not, at Equitymaster, we do not attempt to predict how and when macroeconomic developments will unfold. Instead, we focus on the fundamentals and the underlying business strength of companies.

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Moving on to the news from FMCG sector. HUL share price opened on a negative note in the opening trade after the company reported net profit for the first quarter of Rs 15.3 billion, missing the street estimates.

The net profit for the company rose 19.2% on a yearly basis.

The company also also reported a rise in revenue to Rs 96.2 billion, up 3.1% on a year-on-year basis.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) also rose 21% to Rs 22.5 billion.

HUL's comparable domestic sales rose 16% during the June quarter.

Rising sales of herbal products and the lower base helped the company to report double-digit growth in volumes in this quarter.

Increasing competition in personal care categories, new product launches and the performance of herbal products were keenly watched by analysts.

Rural growth is still not back to historic growth rates, but rural is growing faster than urban on a low base, the company said.

In the first quarter of financial year 2018, the company had posted a net profit of Rs 12.96 billion.

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