Sensex Ends Over 280 Points Lower; IT and Healthcare Stocks Witness Selling

Tue, 23 Oct Closing

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After trading on a negative note throughout the day, share markets in India continued their downtrend during the closing hours and ended the day in red. Sectoral indices traded in red, with stocks in the IT sector and healthcare sector leading the losses.

At the closing bell, the BSE Sensex stood lower by 287 points (down 0.8%) and the NSE Nifty closed down by 98 points (down 1%). The BSE Mid Cap index ended the day down 0.9%, while the BSE Small Cap index ended the day down by 1.2%.

The rupee was trading at Rs 73.53 against the US$.

Asian stock markets finished on a negative note. As of the most recent closing prices, the Hang Seng was down by 3.1% and the Shanghai Composite was down by 2.3%. The Nikkei 225 was down by 2.7%. Meanwhile, European markets were also trading on a negative note. The FTSE 100 was trading down by 0.9%. The DAX was down by 2%, while the CAC 40 was down by 1.5%.

Bajaj Finance share price was in focus today after the company reported 54% rise in its September quarter profit at Rs 9.2 billion as compared to Rs 5.9 billion in the same quarter previous year.

Consolidated net interest income (NII) for the company came in at Rs 27.3 billion for the above quarter, up 42%. This was against Rs 19.2 billion reported in the same quarter last year.

Bajaj Finance share price ended the day down by 1.2% on the BSE.

In the news from commodity space, crude oil was witnessing selling pressure today after Saudi Arabia said that it would play a responsible role in energy markets.

As per an article in a leading financial daily, Saudi energy minister Khalid-al-Falih said that it will keep markets supplied despite the increased isolation over the killing of Saudi journalist Jamal Khashoggi, and there are signs that crude exports from the Middle East will rise.

Also, in another news, Saudi Arabia plans to sign deals worth more than US$ 50 billion in the oil, gas, industries and infrastructure sectors.

Speaking of crude oil, almost every time a rise or fall in the stock markets is invariably linked to crude oil prices.

Logically, it seems right too. Rise in crude oil increases input costs for dependent firms. It also means rising inflation. Rising inflation means rising interest rates.

It also puts pressure on the government to cut excise duty, thereby impacting its revenues. We have already seen that happening. After all, there is an election year coming up.

But has it really affected the stock markets?

Are Stock Market Returns Really Linked to Crude Oil Prices?

Here's what Girish Shetty wrote about it on one of the recent editions of The 5 Minute WrapUp...

• In the short-term: Yes.
  
  But in the long run, as we can see, Sensex returns have been independent of crude oil prices or even positively co-related!
  
  Crude oil prices doubled from US$ 41 in December 2008 to US$84 in April 2010. In the same time, Sensex also doubled from 8,800 levels to 17,600 levels.
  
  So, please don't fret unnecessarily about crude oil.
  
  Check if your business has a moat that helps it pass on input price increases to its customers. In the long run, they will survive and also gain market share from those that can't pass on prices. Short term pessimism due to rising crude oil prices provides a buying opportunity in these stocks.

As per him, focusing on quality stocks rather than crude oil will matter more in the long run.

Moving on to the news from the finance space, as per a leading financial daily, the new board of debt-laden Infrastructure Leasing and Financial Services (IL&FS) took the first big step and appointed two financial and transaction advisors and a restructuring advisor.

Financial advisors, Arpwood Capital and JM Financial Consultants will help the board with transaction and monetization decisions.

Note that this month the government, in a court-led process, replaced IL&FS's board with six industry professionals to tackle the debt crisis at the company which has triggered fears for the stability of India's financial sector.

Note that the complete collapse of IL&FS group will mean a huge default of Rs 910 billion. This is a big mess.

However, the government has taken over and new board is now in place. This is a bit of silver lining to this problem.

But guess what - there are way more cockroaches then initially thought.

As per IL&FS's annual report, there were group companies in the range of 176-251. However, the new board has clarified that there are more than 340 group entities. That means more pain than anyone initially thought.

In fact, the new board believes the actual liabilities could be understated and has appointed the Serious Investigation Office (SFIO) for forensic audit. This will also help to identify if there was any fraud involved.

There are concerns that the defaults by IL&FS could cause a contagion in the Indian financial sector.

It would be interesting to see how this pans out. Meanwhile, we will keep you updated on all the developments form this space.

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