Sensex Trades Flat; Rupee Hits Record Low

Wed, 29 Aug 12:30 pm

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Stock markets in India are trading flat after the Rupee hit a record low against the US dollar. Gains are largely seen in power stocks and bank stocks.

The BSE Sensex is trading down by 35 points and the NSE Nifty is trading down by 20 points. Meanwhile, the BSE Mid Cap index is trading up by 0.7% while, the BSE Small Cap index is trading up by 0.4%.

Notably, the Indian stock market has had a hard time of it in 2018.

But a look at the Sensex would suggest just the opposite. The BSE Sensex is up by more than 11% in the current year.

Sensex Return Skewed by Top 12 Stocks

The real picture can't be further from the truth. Only 12 stocks are responsible for Sensex touching their lifetime highs. TCS, Infosys, Reliance along with few other stocks have led to this outperformance.

The top 12 stocks have returned 25.5% on an average while the other 19 stocks in the Index have declined by 12% on an average.

Corporate governance issues at mid and small cap companies have led to their corrections from sky high valuations a year ago.

Even among Sensex stocks, Tata Motors, Vedanta, and Bharti Airtel have performed poorly due to structural issues in their businesses.

What happens when the top 12 fail to meet the market's expectations?

There is a strong possibility they might take down the other 19 stocks and the index further with them. In such a situation, despite the recent correction, mid and small caps won't be safe either.

And with so much happening in the markets these days, it is difficult for the aam investors to figure out the changing trends or to identify great managements and pick potential multibaggers at the right time.

It is always helpful to have a handy guide, guiding you towards the right direction.

In the latest edition of our stock market podcast, I talked to CEO of Equitymaster, Rahul Goel about our latest book launch, in which he shares Equitymaster's biggest secrets. Don't miss it! Sign up for our free podcast today. Visit SoundCloud, iTunes or Stitcher.

Moving on to the news from the pharma sector. As per an article in a leading financial daily, Glenmark Pharmaceuticals' subsidiary, Glenmark Pharmaceuticals Europe has entered into a strategic, exclusive licensing agreement for marketing generic Tiotropium Bromide dry powder inhaler (DPI) in Western Europe.

Reportedly, Tiotropium Bromide DPI is a generic version of Boehringer Ingelheim's Spiriva Handihaler.

The product is used in the treatment of chronic obstructive pulmonary disease (COPD). This is the second inhalation product in-licensed by Glenmark for the European market after Fluticasone/Salmeterol dry powder inhaler.

According to data from IQVIA, Boehringer Ingelheim's Spiriva Handihaler recorded sales of US$724 million in the EU in the 12-month period ended March 2018.

To know more about the company, you can access to Glenmark Pharma's Q1FY19 result analysis and Glenmark Pharma's Stock Analysis on our website.

At the time of writing, Glenmark Pharma share price was trading down by 0.2%.

In another development, the Indian rupee has hit a fresh record low of 70.4012 to the US dollar. The Rupee has fallen 9.3% year-to-date, making it the worst performing Asian currency. It has fallen 2.7% against dollar in August.

The currency had a weak start to the day as well, falling 22 paise to 70.32 against the US dollar, hurt by fresh demand for the American currency from importers.

Reportedly, besides fresh demand of the US currency from importers, dollar's strength against some currencies overseas weighed on the domestic unit.

Yesterday, the local currency had bounced back in a tepid fashion from the record closing low, gaining 6 paise to end at 70.10 against the US currency.

As per the reports, increased demand for oil as well as in the defence space is putting pressure on the currency.

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).

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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