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Sensex Cracks 300 Points in Opening Trade; Small Cap Plummets 2.5%
Fri, 11 Aug 09:30 am

Asian indexes are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 1.12%, while the Hang Seng is down 1.60%. The Nikkei 225 is trading lower by 0.05%. US stocks closed lower amid a persistent war of words between the US and North Korea. The S&P 500 had its biggest one-day drop in almost three months.

Back home, share markets in India have opened the day on a weak note. The BSE Sensex is trading lower by 304 points, while the NSE Nifty is trading lower by 97 points. The BSE Mid Cap and BSE Small Cap index both opened the day down by 2.5% & 1.8% respectively.

All sectoral indices have opened the day in the red with realty stocks and capital goods stocks leading the losses. The rupee is trading at 63.94 to the US$.

Tata Motors share price slumped over 5% the auto major and Volkswagen-controlled Skoda Auto aborted plans to work jointly on future products and technologies after months-long discussions.

Aviation stocks opened the day on a mixed note with Jet Airways and Indigo witnessing maximum selling pressure. SpiceJet on Thursday recorded a profit of Rs 1.8 billion in the quarter ended June, a jump of 18% from Rs 1.5 billion in the corresponding period last year.

On an EBITDA basis, the airline reported a profit of Rs 2.5 billion as against Rs 2.2 billion reported in the first quarter of fiscal 2017.

Further, operating revenues in the period under review stood at Rs 18.7 billion, a 23% growth over the same period a year ago. The airline reported a 9% increase in passenger yields, while its average load factor was 94.1%.

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One must note that higher passenger yields and robust load factor numbers enabled SpiceJet to report its tenth successive quarterly profit in the April to June period of the ongoing fiscal.

Spicejet's financial performance follows IndiGo highest-ever net profit of Rs 8.1 billion for April-June, up 37% from Rs 5.9 billion a year earlier. Both Indigo and SpiceJet registered improvement in average fares during the quarter.

Notably, 2017 started off on a brilliant note for aviation stocks. Crude prices had crashed. And lower cost of air turbine fuel suddenly changed the economics of the aviation business. Lower costs, therefore meant the possibility of the companies reporting profits at least at the operating level.

The stock of Spicejet, in particular, soared on the expectations of a turnaround in profitability.

A Good Year For Aviation Stocks

To add to that, Buffett did something in the last quarter of 2016 that Buffett aficionados would consider unimaginable. He poured upwards of US$ 2 billion a piece into the four largest US airline stocks.

The interest in aviation stocks has dimmed since then.

As per Rahul Shah, Co-head of Research, it is important to note that certain industries have relatively dull economics compared to others. And investors would do well to keep this in mind, particularly in the case of aviation. Investors need to understand the industry dynamics before buying up aviation stocks.

Spicejet share price opened the trading day down by 3.3%.

Moving on to the news from oil & gas sector. As per an article in The Economic Times, Oil and Natural Gas Corporation (ONGC) is planning to tap the debt market for the first time, an opportunity that may be hard to pass up for bond bulls.

Reportedly, ONGC may sell bonds and take out loans of as much as US$4 billion to pay for the purchase of the government's US$5.2 billion stake in Hindustan Petroleum Corp. and bankroll US$4.5 billion of projects.

One must note that the appetite for India's corporate debt is so strong that Hindustan Petroleum's US$500 million offering in July attracted bids for six times the amount.

Moreover, Moody's Investors Service has a Baa2 score on ONGC's debt, making it the nation's highest rated state-run company. Going forward, whether this provides the company with a strong access to funding will be the key thing to watch out for going forward.

ONGC share price opened the day down by 2%.

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