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Indian Indices Trade Flat; Realty Stocks Witness Selling Pressure
Thu, 17 Nov 11:30 am

After opening the day on a firm note, the Indian share markets clawed back some of their early gains and are trading near the dotted line. Sectoral indices are trading on a mixed note with stocks in the metal sector and healthcare sector witnessing maximum buying interest. Realty stocks are trading in the red.

The BSE Sensex is trading up 54 points (up 0.2%) and the NSE Nifty is trading up 10 points (up 0.1%). The BSE Mid Cap index is trading up by 0.1%, while the BSE Small Cap index is trading flat. The rupee is trading at 67.89 to the US$.

Indian markets are witnessing volatility today. The wide swings are seen on the back of announcements from the domestic as well as global financial markets.

On the domestic front, most of the headlines are cornered by recent developments in demonetisation and the GST draft circulated to states by the GST Council.

The demonetisation decision by the Indian government has created some short term chaos. Long lines, shortage of cash, frustration of money stuck in the bank has resulted in a rough week in India. Apart from the general public, stock markets are also seen reacting negatively to the demonetization move. There are two reasons for this. First is the short term pain across sectors due to currency shortages and second is the strengthening of the US bond yields and the US dollar.

The recent move in the demonetisation drive is the government's order to banks and post offices to report deposits exceeding specified limit to the Income Tax (IT) department. As per the news, the government has asked banks and post offices to report to the IT Department all deposits above Rs 2.50 lakh in savings accounts, and more than Rs 12.50 lakh in current accounts that are made during the 50-day window provided to tender the scrapped Rs 500 and Rs 1,000 rupee notes.

This indeed is a major move to curb black money and the effect of the same will be felt by the people hiding black money with them. We must commend the above decisions by the present government. Despite the overhanging fear of losing vote bank, the government has taken this massive step to curb black money.

To conclude, from a big picture perspective, the decision to ban Rs 500 and Rs 1,000 denomination notes is certainly a move in the right direction. Along with the GST roll out, it will certainly give a big fillip to the India's growth story.

Vivek Kaul has written an excellent piece explaining why Mr Modi banned the Rs 500 and Rs 1,000 notes. Vivek offers some economic as well as political logic to the decision. Also, to get a detailed view of the demonetization move, please read the recent issue of The Vivek Kaul Letter (requires subscription).

Apart from the economy, the above decision is a very positive one from a stock market perspective in the long term. Once taxes are paid on the unaccounted money, the money will become legal and a part of it will flow in financial instruments including equities.

So should one go out and buy every stock one can lay his hands on?

In our view, the above move should not have any marked change in your investment approach. The principles of stock selection still remain the same: buying fundamentally strong companies, run by a competent management team and available at reasonable valuations.

Moving on to the news from GST space. As per the news, the GST Council has circulated the Draft GST law with the states to seek their comments. Further, the council is going to meet next week to discuss the same and seek comments from the states regarding the draft.

The GST Council is going to meet on November 24-25 and finalize the draft bills. The developments are seen as the council will have to clear Central GST (CGST), Integrated GST (IGST), and the compensation bills before they can be introduced in the Winter Session of Parliament.

Reportedly, the Centre is working on multiple options apart from horizontal and vertical division for deciding on jurisdiction over tax assesses.

Earlier this month, the government finalised the tax rates for GST. The development came as GST Council decided upon a multi-layered tax rate system. The Council finalised a four-tier tax structure, with the tax rate on items of mass consumption at 5%. Other slab rates decided by the Council are 12%, 18%, and 28%. To know more on this, please read one of our previous stock market commentaries here. Also, to get a detailed view on the Goods and Services Tax (GST), you can read Vivek Kaul's report titled GST & You: What the Media DID NOT TELL YOU About the GST.

Moving forward to the news from global financial markets, investors are gauging the surprise bond buying plan by the Bank of Japan (BoJ). As per the news, the BoJ has offered to buy an unlimited amount Japanese government bonds at fixed rates.

The move comes as an indication from the central bank that it intends to take action to keep a lid on rising yields.

The above move has raised concerns for the Japanese economy. Economists and market participants were seen questioning the BoJ's policy measures. The BoJ still has plenty of work to do to reach its 2% inflation target.

The BoJ, in September, issued a plethora of fresh changes to its policy approach. The bank said it would introduce a new policy tool control the yield curve known as quantitative and qualitative monetary easing (QQE). The bank further announced it would expand monetary base until inflation gets stable above 2%.

Along with the BoJ, many central banks across the world are trying to prod growth with the help of stimulus measures and near-zero or negative interest rates. If you're interested in knowing what's really happening in the world of man and money, you can claim your free copy of Bill Bonner's latest book, Hormegeddon (only pay Rs 199 for shipping and handling).

On the news from the commodity markets, crude oil is witnessing volatility this week. This is seen as global financial markets have rebounded after Donald Trump's victory and turned their focus on oversupply concerns.

Another news that has weighed on crude oil is the speculation regarding OPEC's ability to implement the proposed production cuts.

All eyes are now set on the OPEC meet scheduled on 30 November. The meet is scheduled to discuss a planned output cut of around 1 million barrels per day (bpd) of crude oil.

As per our friends at the Daily Profit Hunter, OPEC is a major source of the turmoil we've seen in crude oil prices of late. Check out Asad Dossani's article - How OPEC Lost Control of Oil Prices, for more on this.

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.

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

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Mar 20, 2018 (Close)