Indian Indices Open Marginally Higher; Metal Stocks Witness Buying

Wed, 29 Aug 09:30 am

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Asian shares are trading on a mixed note today. The Nikkei 225 is up 0.5% while the Hang Seng is up 0.2%. On the other hand, the Shanghai Composite is trading down by 0.35%.

Back home, India share markets opened the day marginally higher. The BSE Sensex is trading up by 71 points (up 0.2%) while the NSE Nifty is trading up by 13 points (up 0.1%). The BSE Mid Cap index is trading up by 0.4%, while the BSE Small Cap index has opened the day up by 0.3%.

Sectoral indices have opened the day on a positive note with oil & gas stocks, telecom stocks and metal stocks witnessing maximum buying interest.

The rupee is trading at 70.24 to the US dollar.

From the banking space, State Bank of India share price will be in focus today as the lender has said that the appropriate authority has gave it the approval to explore and initiate the process of divestment of up to 3.89% of stake in NSE through secondary sale.

From the airlines sector, Jet Airways share price will also be in focus today. This comes as the company has received liquidity assistance of US$ 300 million or Rs 20 billion in terms of advance lease incentives and debt from banks to repay costly loans and cover cash losses.

Note that Jet Airways reported a whopping Rs 13.2 billion of net losses for the June quarter due to higher fuel cost, falling rupee, and low fares. Commenting on this, the company said it will monetize loyalty programme JetPrivilege and wet-lease some of its small aircraft to mobilize urgent working capital.

This was the second straight quarter of losses for the airline, which had last month publicly admitted about cash-flow issues. The airline had booked net losses of Rs 10.4 billion in its March quarter results.

This second back-to-back quarterly loss has forced Jet Airways to announce a turnaround plan which includes a capital infusion by selling a stake in JetPrivilege and a massive cost-cutting to save around Rs 20 billion over the next two years.

To know more about the company, you can access to Jet Airways' latest result analysis and Jet Airways' 2017-18 Annual Report Analysis (Subscription required) on our website.

Speaking of airline sector, India's aviation industry is on a high-growth trajectory. India's domestic air traffic has seen a prolific growth of 20-25% during 2015 and 2016. And in 2017, it tapered to 17.4%. However, for the first time, domestic air traffic crossed an important landmark of 100 million passengers in a calendar year, as can be seen from the chart below.

Indian Aviation Spreading its Wings

What's foreseeable for India's aviation traffic now is some pressure on the back of the consistent rise in crude oil prices.

Oil prices are closely monitored by the Indian air carriers, as aviation turbine fuel is their single largest input cost. A sharp rise in the cost of fuel puts pressure on margins, and consequently an increase in air fares.

Although air travel is becoming the new normal, investors need to understand the industry dynamics before buying up aviation stocks.

In the news from commodity markets, crude oil is witnessing buying interest today. Gains are seen on the back of falling supplies from Iran ahead of US sanctions.

However, rising oil production levels outside the Organisation of Petroleum Exporting Countries (OPEC) capped the gains.

Note that crude oil prices rebounded from their lowest level in more than two months in mid-August as renewed US sanctions on Iranian oil sales threatened to limit supplies.

Still, a trade standoff between the US and China that could weaken energy demand continues to weigh on crude prices after negotiations in Washington last week failed to progress.

Oil prices have climbed steadily this year, helped by rising demand. However, rising crude oil prices doesn't bode well for the Indian economy, as it not only affects fuel prices, but also has many other repercussions on the macroeconomic level.

They can be a big worry for the Modi government as well as it has been a big beneficiary of lower crude oil prices.

Apart from that, what does rising crude oil prices mean for stock markets?

Richa Agarwal, editor of Hidden Treasure, tracks the oil and gas sector very closely. She believes the rise in crude oil prices is a bearish sign for stock markets globally. At the same time, any market correction, will throw up interesting buying opportunities in small-cap stocks.

Here's what she wrote...

• After hitting a low of US$ 30 per barrel in January 2016, prices have more than doubled this year.
  
  While the Hidden Treasure team looks for long-term wealth creators, such macro situations can help to recommend such stocks at a bargain. The ones who keeps calm, when everyone else is losing their heads, will gain the most when the tide turns.

How the above developments influence crude oil prices remain to be seen. Meanwhile, we will keep you posted on all the updates from this space. Stay tuned.

In other news, as per a leading financial daily, Life Insurance Corporation of India (LIC) will soon buy 7% equity stake in IDBI Bank through a preferential share issue.

The above development will take the total exposure of LIC for IDBI Bank to 14.9%.

Yesterday, it was announced that LIC will purchase 14.9% equity stake in IDBI Bank Ltd. as a first step towards taking majority ownership in the lender.

IDBI Bank will approach its shareholders for an approval on the above deal on August 31.

The above development comes as earlier this month, the Union Cabinet and the Insurance Regulatory and Development Authority of India (IRDAI) permitted LIC's proposed plan to acquire up to 51% stake in state-owned IDBI Bank.

However, for LIC to increase stake in the bank beyond 15%, approvals are needed from the insurance regulator. Also, the Reserve Bank of India's approval is needed for the transfer of majority ownership to LIC. Since these approvals are yet to come through, it was decided that LIC can first proceed with picking up to 15% in the state-owned lender.

On the back of above development, IDBI Bank share price will be in focus today.

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

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