Sensex Trades in Green; WPI Inflation Jumps to 1.8%

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After opening the day in green, share markets in India have continued the momentum and are trading above the dotted line. Sectoral indices are trading on a mixed note with stocks in the realty sector and stocks in the metals sector trading in green, while stocks in the IT sector are leading the losses.

The BSE Sensex is trading up by 252 points (up 0.8%), and the NSE Nifty is trading up by 90 points (up 0.9%). Meanwhile, the BSE Mid Cap index is trading up by 2.1%, while the BSE Small Cap index is trading up by 2.2% The rupee is trading at 64.01 to the US$.

In news from stocks in the automobile sector. Maruti Suzuki share price is in focus today after the auto major outlined plans to revamp its used car business strategy.

According to a leading financial daily Maruti Suzuki, as part of its 2020 sales target of 2 million units per annum, is cranking out a revamped strategy for its used-car business `True Value'.

The passenger vehicle market leader which sells second-hand cars under the True Value brand, will set up a network of 150 independent outlets across the country by March 2018, and increase it to 300 by 2020. New and used cars are sold from the same outlets at present.

The new business plan includes a dealer centric model that will see a network of independent True Value outlets being set up across the country. The new outlets, which will also be based on a franchise model, will be set up by Maruti's dealers.

In the fiscal year 2016-17, Maruti sold 350,000 used cars. Of this, 30% were procured from buyers who traded their used Maruti models for a new one

According to Maruti Suzuki, the market size of used cars in India is 1.2 times that of new cars.

Notably, India is the fastest growing market for passenger vehicles (PV) among the top seven car markets.

India Tops Growth in PV Sales

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 double-digit growth came despite the auto industry witnessing some turbulent time in the last six months as demonetisation put a pause on a great run. Towards the end of fiscal year, a Supreme Court order banning the sale of vehicles that don't conform to Bharat Stage IV emission rules saw some fire sale.

Nevertheless, the blip is expected to be temporary. Reduced vehicle prices post Goods and Service Tax (GST), low interest rates, attractive discounts and expectation of good monsoons, will provide support to the industry.

As per Market research firm JD Power, Indian passenger car segment is expected to grow by over four-fold in 2020 and expects India to grow into the third-biggest car market. This augurs well for the primary as well as the used car market as the volumes in passenger vehicles continue to rise.

At the time of writing, Maruti Suzuki share price was trading up by 1.5%.

Moving on to news about the economy. According to data released by the Central Statistics Office (CSO), retail inflation as measured by the Wholesale Price Index (WPI) rose sharply to 1.88% in July, as compared to steady decline from 0.9% in June 2017.

Wholesale inflation rate, measured by the wholesale price index (WPI), is a marker for price movements in bulk buys for traders and broadly mirrors trends in shop-end prices.

The index portrays new series of WPI data released by the government earlier this fiscal, with 2011-12 as the base year, replacing existing the base year of 2004-05.

Food articles turned out to be major drivers as the data showed that prices of food articles rose by 2.15% in July on a yearly basis. Vegetable inflation stood at 21.9%.

Fuel and power segment, however, saw a marginal decline in inflation at 4.37%, from 5.28% in June.

The Reserve Bank of India (RBI) in its monetary policy review meeting earlier this month, announced a cut its policy rate by a quarter of a percentage point.

The decision to cut rates is in line with the RBI's neutral monetary policy stance, tracking the rate of inflation.

The RBI's monetary statement in June had projected quarterly average inflation in the range of 2-3.5% in the first half of fiscal 2018, and 3.5-4.5% in the second half. Now it expects inflation to be about 4% by the year end. As long as inflation follows this track, the possibilities of rate cuts during this fiscal year remain slim.

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 understanding the underlying business strength of companies.

In fact, the ValuePro team is always on the lookout for all-weather stocks whose fortunes are not tied to economic cycles.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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