Share Markets in India Open Marginally Up; All Eyes on Monetary Policy Move

Wed, 2 Aug 09:30 am

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Asian indices are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.41% while the Hang Seng is up 0.43%. The Shanghai Composite is trading flat. US markets closed higher on Tuesday. Stocks gained on buying in shares of banking and financial services firms.

Back home, share markets in India have opened the day on a positive note. The BSE Sensex is trading higher by 87 points while the NSE Nifty is trading higher by 13 points. The BSE Mid Cap and BSE Small Cap index both opened the day up by 0.2%.

Barring metal stocks, all sectoral indices have opened the day in green with realty stocks and consumer durable stocks leading the gains. The rupee is trading at 64.07 to the US$.

Automobile stocks opened the day on a mixed note with Maharashtra Scooters and Eicher Motors leading the gainers. As per an article In a leading financial daily, Car and two-wheeler sales advanced in July as manufacturers dispatched more vehicles to their dealers to build stocks after the goods and services tax (GST) came into force on 1 July.

Reportedly, Maruti Suzuki India Ltd's domestic sales rose 22.4% to 154,001 units in the month from a year ago. Further, sales at Hyundai Motor India Ltd, the second largest car maker by sales, rose 4% to 43,007 units from a year ago.

Passenger vehicles sales in June declined 11.2%, the sharpest fall since March 2013, as dealers stayed away from buying stock because of GST-related ambiguities.

Passenger vehicles sales at Mahindra and Mahindra Ltd rose 21% to 20,962 units, the reports noted.

Ahead of the rollout of GST, companies curtailed dispatches to dealers to minimize losses on account of transition to the new indirect tax regime.

Meanwhile, India is the fastest growing market for passenger vehicles (PV) among the top seven car markets. China continues to be the world's biggest auto market by volume.

Key World Markets During the Week

During January- May 2017 period, India's PV sales expanded by 11.3% YoY. This came when the top two markets, China and the US saw a declining trend where volumes declined by 2.6% YoY and 9.8% YoY respectively. India's double-digit growth was led by companies like Maruti Suzuki, Hyundai, Honda and Tata Motors.

The overall automotive industry witnessed some volatility during the first quarter of FY18, as the market experienced uncertainty post the BS-IV transition issues and prior to GST implementation, and automakers, besides offering pre-GST discounts, made efforts to re-align inventories.

However, companies and dealers are building up stocks ahead of the festive season. As Rahul Shah, writes in The 5 Minute WrapUp:

• "Nevertheless, the blip is expected to be temporary. With vehicle prices coming down post GST, low interest rates, attractive discounts and expectation of good monsoons will provide support to the industry."

In another development, according to the Nikkei Manufacturing Purchasing Managers' Index, manufacturing activity in July slowed to 47.9, the lowest level since February 2009 due almost entirely to the introduction of the Goods and Services Tax on 1 July.

Consequently, companies purchased fewer quantities of inputs for use in the production process, leading to an overall decline in holdings of raw materials and semi-finished items.

The reading was significantly lower than the 59.9 seen in June. A score above 50 implies an expansion of activity while one below 50 denotes a contraction.

According to Indian manufacturers, higher tax rates sparked greater cost burdens in July.

However, the outlook remained positive in July because companies are expecting clarity on the GST, which will support growth, the report stated.

As we pointed out earlier in The 5 Minute WrapUp that the positives will far outweigh the negatives in the long term:

• "All of this is formalisation in action. Formalisation is good for the economy, good for consumers, and good for the government too. In fact, it is a long-term positive for all stakeholders. And if everyone benefits, stock markets can't be far behind."

The process, however, certainly won't be glitch-free. There will be pain in the short term as the informal economy could see job losses and decreased demand.

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