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Of Rupee's Fall, China's Investment Growth, and Top Stocks in Focus Today

Thu, 16 Aug Pre-Open

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On Tuesday, Indian share markets ended the day on a positive note with gains were largely seen in the healthcare sector, realty sector and energy sector.

At the closing bell on Tuesday, the BSE Sensex stood higher by 207 points (up 0.6%) and the NSE Nifty closed higher by 79 points (up 0.7%). The BSE Mid Cap index ended the day up by 0.9%, while the BSE Small Cap index ended the day up by 0.5%.

Top Stocks in Focus Today

From the pharmaceutical sector, Sun Pharmaceutical Industries share price will be in focus today as the company reported a better-than-expected net profit for the quarter ended June 2018.

The company reported a consolidated net profit of Rs 9.8 billion in the first quarter ended June on the back of strong India and US sales. This compares with a Rs 4.2 billion net loss the company had reported in the same quarter last year. Revenues during the quarter rose 16.7% year-on-year (YoY) to Rs 74.2 billion from Rs 63.6 billion in the year-ago period.

To know more about the company, you can access Sun Pharmaceutical Industries' stock analysis on our website.

Cadila Healthcare share price will also be in focus today as the company has reported it will acquire 51% stake in Windlass Healthcare for Rs 1.6 billion. Reportedly, objective of this investment is to expand the company's pharma manufacturing footprint. To know more about the company, you can access Cadila Healthcare's result analysis and Cadila Healthcare's stock analysis on our website.

Page Industries share price and Vakrangee share price will also be in focus today on the back of announcement made this week that Page Industries will replace Vakrangee in the MSCI India Index. As per the news, the replacement will take effect as of the close of August 31.

From the banking space, market participants will also be tracking IDBI Bank share price as the state-run lender reported a seventh straight quarterly loss on Tuesday.

Rupee Hits Record Low; Breaches 70/Dollar Mark

In the news from currency markets, the Indian rupee on Tuesday breached the 70-mark and hit a new low of 70.08 for the first time against the US dollar.

Commenting on the above fall, a senior finance ministry official said any intervention from the Reserve Bank of India (RBI) may not do much to stabilise the rupee as the fall in the currency is due to global factors.

As per the news, the RBI has spent about US$ 23 billion in the currency markets so far to arrest the fall in the rupee.

The domestic currency had also recorded its biggest intra-day fall in five years during the start of this week. The fall was seen amid a global currency crisis and concerns over the risk of contagion from Turkey's financial-market turmoil.

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).

China's Investment Growth at Record Low

In the news from global financial markets, data showed that China's investment in the first seven months of the year slowed to a record low and retail sales softened.

As per the data, fixed-asset investment growth for China slowed to 5.5% during January-July. The data raised concerns about weakening domestic demand and faltering business confidence amid an ongoing US trade war.

Retail sales also stood below expectations and rose 8.8% in July from a year earlier. This was below an expected 9.1% increase and also 9% growth seen in June.

Industrial output rose 6% in July and was below expectations of a 6.3% increase.

All this comes at a time when the US is imposing retaliatory tariffs on China. Note that the Trump administration last week announced that it would impose 25% tariffs on imports of 279 items from China amounting to US$ 16 billion.

This is the second tranche of such tariffs and is set to come into effect on August 23.

US had already imposed tariffs on US$ 34 billion worth of goods on July 6.

How the growth in China and this trade war pans out remains to be seen. Meanwhile, we will keep you updated from all the developments from this space.

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