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Sensex Up Over 190 Points; Oil & Gas Stocks Witness Buying
Mon, 11 Sep 11:30 am | Monish Vora, TM Team

After opening the day firm, stock markets in India continued their momentum. Sectoral indices are trading on a positive note with stocks in the capital goods sector and oil & gas sector witnessing maximum buying interest.

The BSE Sensex is trading up 184 points (up 0.6%) and the NSE Nifty is trading up 57 points (up 0.6%). The BSE Mid Cap index is trading up by 0.9%, while the BSE Small Cap index is trading up by 0.8%. The rupee is trading at 63.85 to the US$.

Stocks from the automobile sector are trading on a positive note today. This comes as the GST Council raised the vehicle cess by less than the maximum possible limit on Saturday.

The GST Council on Saturday left untouched the rates on small cars and hybrid vehicles. But mid-sized cars will now attract a cess that's 2% higher, large sedans 5% higher, and SUVs 7% higher. Initially, the cess was proposed to be raised by a maximum of 10%.

The above increase on mid and high segment cars approved by the GST Council will come into effect from today.

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As per the news, the revised rates mean a partial reversal of the price benefits buyers enjoyed after the GST rollout.

The total tax incidence on vehicles in the midsized, large and SUV categories will be lower by 1.6%, 3.8% and 5.3%, respectively, as compared to pre-GST levels. However, luxury carmakers such as Audi, Mercedes-Benz and BMW will be more affected by the increase in the cess, as these companies had benefitted the most from the initial decline in total levies.

Automobile manufacturers may face some hiccups on the back of this development. Executives from auto industry have said that they may re-evaluate their business plans. Meanwhile, we'll keep you posted on the recent developments from this space.

One shall note that the new generation of first-time buyers in India is moving up the ladder to premium cars. This is evident from the chart below:

Changing Preference of First Time Car Buyers

As can be seen, first-time car buyers are now buying costlier models such as the Swift or the Dzire. First-time car buyers accounted for 31% of Swift sales in FY14. That number jumped to 52% in the June quarter of FY18.

The above trend is similar to what has happened in other consumer segments such as mobile phones and consumer electronics. It indicates a shift towards premiumization in India's car market. As we wrote in a recent edition of The 5 Minute WrapUp...

  • The growing preference for these feature-rich and costlier models as first cars indicates growing premiumization in India's car market. This trend indicates that first-time buyers are getting more aspirational. Interestingly, the age profile of first-time car buyers and higher disposable income are contributing to this phenomenon.

    If this trend continues, going forward, one would see compact SUVs becoming the preferred choice for first-time buyers. The trend is already under way. The percentage of such buyers for Brezza for instance stood at 37% in the first quarter of FY18.

With the above shift, premiumization will be an important growth driver for the auto industry in coming years.

In the news from commodity space, Iran is set to increase its crude oil output in the coming years.

As per a leading financial daily, Ali Kardor, the MD of the National Iranian Oil Company said that Iran will reach an oil production rate of 4.5 million barrels per day (bpd) within five years.

The country has been producing around 3.8 million bpd in recent months.

The above development will add to the supply glut seen in crude oil markets.

One shall note that crude oil has also been witnessing losses lately on concerns regarding the rising output from OPEC. Owing to the supply glut, crude oil prices have been remarkably silent over the last two years. Prices have remained within a tight range, rarely dropping below US$40 or rising above US$60. Volatility has crashed.

To keep a tab on the movements in crude oil and other commodities, you can read the stock market commentary from the Daily Profit Hunter team. Their commentary tracks the developments in the global economy as well as stock, currency and commodity markets.

On the domestic front, falling oil prices bode well for the Indian economy. This is because India is hugely dependent on petroleum imports.

India is the world's third-largest oil consumer. And energy consumption in India is set to grow as our economy remains one of the few 'bright spots' in a slowing, aging world economy. And India could face a potent risk with a rise in crude oil prices.

The only way out for India is to reduce its dependence on oil imports and achieve fuel-sufficiency.

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