Sensex Opens Flat; Tata Motors Surges 4%

Tue, 19 Sep 09:30 am

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Majority of Asian stock markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.11% while the Hang Seng is up 0.03%. The Nikkei 225 is trading up by 1.45%. The US stock markets ended slightly higher on Monday as financial stocks rose ahead of a Federal Reserve meeting, but the Nasdaq pared gains sharply as technology stocks lost ground late in the session.

Back home, share markets in India have opened the day on a flattish note ahead of the US Federal Reserve meeting. The BSE Sensex is trading lower by 11 points while the NSE Nifty is trading lower by 8 points. The BSE Mid Cap and BSE Small Cap index opened the day up by 0.4% & 0.1% respectively.

Except, information technology sector, all sectoral indices have opened the day in red with stocks from power sector and metal sector witnessing maximum selling pressure. The rupee is trading at 64.04 to the US$.

Tata Motors share price surged 4.2% on the reports that Tata Sons has offered to buy nearly 1.7% of Tata Motors shares in a block trade worth Rs 20 billion at a premium of 4% over Monday's closing price.

As you may know by now, our team of Equitymaster analysts have been working on a project to track the smartest minds in value investing. He has compiled a special report on them, called The Superinvestors of India.

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Now, because of insights from these interactions, the team has glued their eyes on insider activity and bulk and block deals...

As per them...

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Automobile stocks opened the day on a mixed note with Tata Motors & Maharashtra Scooters leading the gains. As per an article in a leading financial daily, Ford Motor Co and Indian vehicle maker Mahindra and Mahindra Ltd announced that they will launch a strategic alliance to counter challenges posed by fast-changing technology and global competition.

Apart helping each other get better markets within and outside India, the two car companies - Mahindra & Mahindra and Ford Motor Company - will cooperate in endeavours like mobility programs, connected vehicle projects, and product development.

One pivotal avenue in the partnership between Mahindra Group and Ford Group will be developing electric vehicles. This will be a crucial step forward in times when other auto companies are also looking to make a mark in the emerging electric vehicle segment.

Reportedly, the initial partnership is for a period of three years which might be renewed or discontinued at the end of the period.

Ford has less than a 3% market share in India, although its exports from India are expanding rapidly. Near term, Mahindra could help Ford lower its distribution costs or send production work to Ford's Indian plants, the reports noted.

At the same time, regional automakers such as Mahindra with ambitions to grow need access to technology, strong brands and global distribution networks that established companies like Ford can offer.

Going forward, whether this collaboration helps the companies build powerful synergies and allow rapid exploitation of the new opportunities will be the key thing to watch out for.

Mahindra & Mahindra share price opened the day up by 0.2%.

Moving on to the news from aviation sector. India's domestic air passenger traffic registered a growth of 15.6% in August over the same period last year as the local airlines managed to fill larger proportion of aircraft seats to produce an average 83.9% seat factor in the month.

According to the monthly traffic data released by the Directorate General of Civil Aviation (DGCA), all Indian carriers together flew 9.7 million passengers in August this year as against 8.4 million passengers in the same month last year, thereby registering a growth of 15.6% over August 2016.

Notably, the 15.6% growth in traffic was up from 12.4% growth registered last month, over July 2016, when India lost the tag of the highest growing aviation market in the world to China.

According to the data, low-cost carrier SpiceJet had the highest passenger load factor (PLF) - a measure of capacity utilisation of the airline - at 94.5% during August.

SpiceJet was followed by budget passenger carriers AirAsia India with PLF at 85.8%, GoAir at 85.4%, IndiGo at 83.6% and Vistara at 83.4%.

Further, passengers carried by domestic airlines during January-August 2017 were 75.4 million as against 64.5 million during the corresponding period of previous year thereby registering a growth of 17%.

Though IndiGo remained the market leader by having flown the maximum number of passengers at 3.7 million, its market share further declined to 38% in August as against 38.7% in the previous month. IndiGo was followed by full service carrier Jet Airways with 15.38 lakh passengers and no-frills SpiceJet.

Market Share of Domestic Airlines in August

Notably, 2017 started off on a brilliant note for aviation stocks. Crude prices had crashed. And lower cost of air turbine fuel suddenly changed the economics of the aviation business.  Lower costs therefore meant the possibility of the companies reporting profits at least at the operating level.

To add to that, Buffett did something in the last quarter of 2016 that Buffett aficionados would consider unimaginable. He poured upwards of US$ 2 billion a piece into the four largest US airline stocks.

The interest in aviation stocks has dimmed since then.

As per Rahul Shah, Co-head of Research, it is important to note that certain industries have relatively dull economics compared to others. And investors would do well to keep this in mind, particularly in the case of aviation. Investors need to understand the industry dynamics before buying up aviation stocks.

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

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