Of Falling Crude Oil Prices, Auto Sector, and Top Cues in Focus Today...

Thu, 25 Oct Pre-Open

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After opening the day in red yesterday, share markets in India witnessed volatile trading activity and ended the day above the dotted line. Sectoral indices traded mixed, with stocks in the energy sector and stocks in the banking sector, leading the gains.

At the closing bell yesterday, the BSE Sensex stood higher by 187 points (up 0.6%) and the NSE Nifty closed up by 78 points (up 0.8%). The BSE Mid Cap index ended the day up 1%, while the BSE Small Cap index ended the day up by 0.7%.

Top Stocks in Focus Today

From stocks in the steel sector, Tata Steel share price will be in focus today as the company announced it has decided to sell off an iron ore mine in South Africa. The company's subsidiary, TS Global Minerals entered into an agreement to divest its entire stake in its wholly owned step down subsidiary Black Ginger 461 Pty Ltd.

Note that while Tata Steel is scaling down its operations in South Africa, IMR, a leading supplier of raw materials to the steel industry and an international trading company is increasingly looking at widening its presence in India. IMR has bid for assets undergoing the auction process under the National Company Law Tribunal, including FACOR.

From the IT sector, Wipro share price will also be in focus today as the company yesterday reported a 13.8% YoY (year-on-year) drop in its profit at Rs 18.8 billion for September quarter. The company had reported Rs 21.9 billion profit in the same quarter last year. Net sales of the company rose 8.3% to Rs 145.4 billion compared with Rs 134.2 billion in the corresponding quarter last year.

Market participants will also be tracking Bajaj Auto share price, IDFC Bank share price, InterGlobe Aviation share price, Jubilant Foodworks share price, and Indiabulls Real Estate share price as these companies announced their quarterly results yesterday.

Hero MotoCorp to Expand its Two-Wheeler Offerings

In news from stocks in the auto sector, Hero MotoCorp share price will be in focus today as the company announced detailed plans for expansion of its two-wheeler offerings.

The company is planning to have half a dozen scooters in its product portfolio in the next 8-12 months, as the nation's largest two-wheeler maker seeks to expand its presence in a fast-growing segment where its presence is rather small.

The company had earlier this year announced its intent to enter the premium motorcycles and scooter space. It launched the Extreme 200 motorcycle in July, and recently introduced a new 125 cc scooter, Destini. With this, it has four scooter models in its portfolio.

Hero MotoCorp believes that the scooter market is witnessing a shift towards products with higher engine capacity. The 125cc segment, which accounts for 20% of the scooter space, has been expanding at a rapid pace, witnessing growth of more than 75% since April this year.

Hero MotoCorp plans to next launch the Maestro Edge 125 before the end of the fiscal year and a 110 cc model next financial year.

The company has a share of more than 60% in India's mass-market motorcycle segment. However, it has just a 10.4% share in the scooter space and is as good as inexistent in the 150cc-plus motorcycle market. The company had lost the No. 2 spot in scooters a few years ago to TVS Motor. Honda is the segment leader with an almost 60% market share.

Speaking of Auto Sector...

2018 hasn't been good for stalwart auto and auto ancillary companies. No wonder the BSE Auto index is down 23% this year.

The biggest losers are Tata Motors (down 57%) and Motherson Sumi (down 34%).

Others like Maruti Suzuki, Hero Motocorp, Bajaj Auto have fallen between more than 20%.

So, is this a good time to buy select auto stocks?

Kunal and Sarvajeet at Smart Money Secrets certainly think so.

Richa Agarwal, editor of Hidden Treasure, agrees with us.

With the recent correction in the entire auto space, she initiated a coverage on engine manufacturer this month. This company enjoys the benefits of a strong brand and a supportive parent.

Also, one of Richa's earlier 'buy at lower level' recommendations has now become a 'Buy' recommendation.

As per her forecast, there is an upside potential of more than 50%.

She sent a special update in this regard. Hidden Treasure subscribers can access it here.

If you haven't signed up for Hidden Treasure, you can do so here.

Crude Oil Continues its Downtrend

In the news from the commodity space, crude oil crude oil witnessed selling pressure yesterday and fell towards US$ 75 per barrel. This was the lowest level seen since late August.

Prices extended their fall from the previous day, when crude slumped as much as 5%, after Saudi Arabia said it would make up for supply disruptions from US sanctions that are targeting Iran's petroleum exports from next month.

Saudi Energy Minister Khalid al-Falih yesterday said that despite expected supply disruptions from the US sanctions against Iran that kick in from November 4, Saudi Arabia would step up to meet any demand that materializes to ensure customers are satisfied.

Losses were also seen after the American Petroleum Institute (API) reported a huge build of 9.88 million barrels of United States crude oil inventories for the week ending October 19. This compared to the analyst expectations of 3.69 million barrels.

Note that buyers are seeking alternatives ahead of the start of the US sanctions on November 4 and creating a challenge to other OPEC oil producers as they seek to cover the shortfall.

Market participants are worried that Iranian sanctions could severely undersupply the oil market in 2018 and that will mean further rise in crude oil prices.

Speaking of crude oil, 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.

Also, it's interesting to note that whenever oil prices have surpassed US$ 100/barrel, they didn't stay there for very long. In technical term, it is sort of 'resistance level'.

This is what we wrote about this in one of the editions of The 5 Minute WrapUp...

• Oil prices have collapsed thrice because of demand destruction: in 1979, 2008, and 2014.
  
  In 1979, the trigger for oil price increase was the Iranian Revolution and the Iran-Iraq war. Due to this, oil prices rose from US$ 50/barrel to above US$ 100/barrel between January 1979 and April 1981.
  
  Then, new production from the North Sea, Mexico, Alaska, and Siberia flooded the market. By March 1986, prices had fallen to US$ 27/barrel.
  
  In 2008, when oil touched US$ 150/barrel, it was quickly followed by the financial crisis and recession.
  
  Then, between 2011 and 2014, when oil was above of US$ 100/barrel, several years of triple-digit oil prices led to a near doubling of shale production in the US, a volume that helped trigger the crash in 2014.

In fact, as per the media reports, even Saudi officials think US$ 60 is a reasonable price for oil in the long term.

It would be interesting to see how Iranian sanctions will influence crude oil prices. Meanwhile, we will keep you posted on all the updates from this space.

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

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