Indian Share Markets Open Flat; Realty & Metal Stocks Drag

Tue, 21 Aug 09:30 am

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Asian stock markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is flat while the Hang Seng is up 0.4%. The Shanghai Composite is trading up by 1.4%. Wall Street's major indices rose on Monday on optimism over trade talks between the United States and China, though they fell from session highs after President Donald Trump criticized the Federal Reserve's raising interest rates.

Back home, India share markets have opened the day on a flattish note. The BSE Sensex is trading up by 26 points while the NSE Nifty is trading up by 15 points. The BSE Mid Cap index opened up by 0.4% while BSE Small Cap index opened the day up by 0.3%.

The rupee is currently trading at 69.76 to the US$.

Sectoral indices have opened the day on a mixed note with automobile stocks and information technology stocks witnessing maximum buying interest. While, realty stocks and metal stocks have opened the day in red.

In the news from the economy. As per Fitch Ratings Ltd, the impact of the sharp fall in the rupee is likely to be limited on India's sovereign ratings.

The fallout is limited courtesy India's strong external finances, especially the low levels of external debt, the rating agency said. However, in a note of caution, Fitch said the currency depreciation could add to existing pressures in the corporate and banking sector.

The rupee has been one of the worst performers among Asian currencies, having depreciated by around 9% from the beginning of the year and crossed the psychological level of 70 to a dollar earlier this month.

Fitch said the rupee has been among the emerging market currencies affected by pressures from global monetary tightening and, more recently, contagion from the Turkey crisis.

Widening of the trade deficit in July 2018 to its largest gap since May 2013 and net portfolio outflows through mid-August totalling US$5.5 billion for the year, mostly in bonds, compared with inflows of US$27.9 billion over the same period in 2017 have also added to the pressure on the rupee, it said in a note.

However, India's vulnerability to currency risk and capital outflows is unlikely to translate into significant pressure on the sovereign credit profile or pose external financing risks.

The current account deficit has widened as global oil prices have risen, but at 1.9% of GDP in the first quarter of 2018-19 was still well below the 5% of GDP recorded around the time of the 2013 taper tantrum, Fitch said, adding that it expects the full year current account deficit to be below 3% of GDP in the fiscal year ending March 2019.

Further, foreign exchange reserves have declined by US$24 billion since mid-April 2018, but still cover 7.2 months of current account payments, compared with the 'BBB' median of 6.6, providing a buffer should the Reserve Bank of India (RBI) feel it necessary to intervene on a larger scale, it added.

The recent weakness in the rupee versus the US dollar indicates further trouble for the market ahead. As seen from the below chart, when the Sensex corrected to its multi-year lows in March 2009, the rupee had also weakened by 21% in the past 9 months. Similarly, when Sensex hit an all-time high in January 2018, the rupee had been gradually strengthening over the past year.

Change in the Rupee and Sensex in the Past 10 Years

Post January, the rupee has been on a constant decline versus the dollar.

Increase in US bond yields has made it attractive for foreign investors. This has resulted in capital outflows from the Indian market. Past history has shown that any further weakening of the rupee will adversely impact the market.

But for investors, is it a matter of concern? If you have a horizon of 10 or more years, it shouldn't. As we can see from the chart, despite the rupee weakening by over 60% in the past decade, Sensex has also been up in the same period.

By the way, in our latest edition of the stock market podcast, we have talked about the falling rupee, trade deficits and Turkish crisis can affect your portfolio of stocks. Just visit SoundCloud, iTunes or Stitcher and access our free weekly podcast. Happy listening!

Moving on to the news from the aviation sector. As per an article in a leading financial daily, Private equity firm TPG Capital is considering investing in India's Jet Airways. This plan that could raise money for the beleaguered airline.

Reportedly, the investment could be more than US$100 million. Further, TPG is looking to buy a stake in Jet Airways' frequent-flyer loyalty programme and has appointed Morgan Stanley to advise on the potential deal.

The deal with TPG could value the loyalty programme, Jet Privilege Private Ltd, at US$400 million, the reports noted, adding that Jet continues to engage with Blackstone Group for a similar deal.

Meanwhile, the Ministry of Corporate Affairs is probing allegations of fund siphoning at Jet Airways.

The inquiry comes in the backdrop of Jet Airways deferring its first quarter results. While as per the reports, the delay in announcing its result was attributed to differences with auditors, the airline denied any clash between the two. Subsequently, the company said it would declare the first quarter result on August 27.

Jet Airways share price opened the day down by 1.7%.

To know more about the company, you can access to Jet Airways' latest result analysis and Jet Airways' 2017-18 Annual Report Analysis on our website. Meanwhile, you can also check our recently released Q1FY19 result analysis of The Byke hospitality, Ruchi Soya Industries, Tata Steel among others.

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

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

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