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Of Depreciating Rupee, India's Factory Output, and Top Cues in Focus Today

Tue, 14 Aug Pre-Open

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Indian share markets traded on a negative note yesterday with losses largely seen in the energy sector and banking sector.

At the closing bell yesterday, the BSE Sensex stood lower by 224 points (down 0.6%) and the NSE Nifty closed lower by 74 points (down 0.7%). The BSE Mid Cap index ended lower by 0.7%, while the BSE Small Cap index ended the day down by 0.8%.

Top Stocks in Focus Today

From the engineering sector, market participants will be tracking L&T share price as the company's construction arm, L&T Construction's Buildings & Factories Business has bagged an Engineering, Procurement and Construction (EPC) order worth Rs 30.3 billion from GMR Hyderabad International Airport (GHIAL).

Notably, diversification continues to help L&T negotiate and get better terms and margins for projects. To know more about the company, you can access to L&T's latest result analysis and L&T's 2017-18 Annual Report Analysis on our website.

From the pharma space, Cipla share price will be in focus today as the company yesterday received final approval for its abbreviated new drug application (ANDA) for Atazanavir Caps 100mg, 150mg, 200mg, and 300mg from the United States Food and Drug Administration (USFDA).

From the banking space, Andhra Bank share price will also be in focus today as the lender yesterday reported a loss of Rs 5.4 billion in June quarter against a profit of Rs 404 million a year ago.

Rupee Hits Record Low

In the news from currency markets, the Indian rupee weakened to a record low against the US dollar yesterday. It lost around 1.59% to the dollar to hit a record low of 69.93 despite the Reserve Bank of India's (RBI) intervention.

Losses were seen amid weakness in other emerging market currencies due to concerns of a spill-over from a crisis-hit Turkey. The depreciation for rupee was also seen on the back of a strong month-end dollar demand from importers and banks.

Note that the rupee has been witnessing selling pressure against the US dollar since the start of this calendar year.

What does the fall in rupee mean for the Indian economy?

A depreciation in rupee means importers buying goods and services at a higher rate that earlier. This doesn't bode well for a developing economy that relies heavily on imports.

Also, India imports most of its oil requirements. So, a fall in rupee leads to a consequent rise in the import bill. The depreciation of the rupee will also add to crude oil's rising cost.

On the corporate side, companies who have taken foreign loans from abroad will be impacted. The repayment obligations in terms of principal and interest will rise, leading to a dent in the cash flows and financials.

Further, companies who import a majority of their raw material requirements will get impacted provided they have not hedged their foreign currency exposure.

Looking at the brighter side, rupee depreciation brings a cheer on the exports front.

A depreciating rupee will provide a much-needed cushion to falling exports. However, a falling rupee will not be the only factor to boost exports. There are certain structural issues too which the government needs to address.

Ankit Shah has explained how the depreciation in rupee is linked to foreign investor outflows and forex reserves in one of his editions of Equitymaster Insider. You can read the entire article here (requires subscription).

India's Factory Output Grows at Fastest Pace in Five Months

In the news from macroeconomic space, India's factory output grew at its fastest pace in five months at 7% in June.

The above growth was seen on the back of a lower base last year due to destocking by businesses ahead of introduction of the Goods and Services Tax (GST).

Consumer goods, which was the worst affected sector in the run up to the introduction of GST, grew at a 21-month high of 13.1% in June. While capital goods maintained a positive growth rate at 9.6% during the month.

However, consumer non-durables continued their dismal performance, growing at 0.5% in June, reflecting poor rural demand conditions. This is expected to change with the India Meteorological Department (IMD) last week predicting favorable distribution of rainfall during August and September, the reports noted.

From the IPO Space...

In the news from initial public offering (IPO) space, auto-components manufacturer Sansera Engineering has filed draft papers with capital markets regulator to float an initial public offering.

As per the draft red herring prospectus filed by the company, the IPO is said to see sale of up to 1,72,44,328 equity shares by existing shareholders as well as promoters.

Note that the stock market is gearing up for a burst of IPO activity over the coming months.

We believe a merit-based selection, primarily including valuation, business, and management quality, is the logical way to go about investing in IPOs. If it means going against the herd, so be it. And going by recent past, this strategy has been proven to be successful more often.

To know how to safely profit from the ongoing IPO rush, download this FREE report now and discover How to Get Rich with IPOs.

Want More Share Market Updates?

To know what's moving the Indian stock markets today, you can check out the most recent share market updates here.

And by the way, in the latest edition of our stock market podcast, we talk to Tanushree Banerjee, Co-head of Research, about how to invest in volatile markets like these. Have a question for Tanushree? Write in. Don't miss it! Sign up for our free podcast today. Visit SoundCloud, iTunes or Stitcher.

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

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