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Indian Indices Continue Downtrend; Auto Stocks Witness Selling Pressure
Thu, 24 Nov 11:30 am

After opening the day on a weak note, the Indian share markets have continued to trade in the red. Sectoral indices are trading on a negative note with stocks from the power sector and the auto sector witnessing maximum selling pressure.

The BSE Sensex is trading down 107 points (down 0.4%) and the NSE Nifty is trading down 39 points (down 0.5%). Meanwhile, the BSE Mid Cap index is trading down by 0.3%, while the BSE Small Cap index is trading up 0.1%. The rupee is trading at 68.64 to the US$.

On November 8, PM Modi sent shockwaves through the country with the demonetization move. A lot of cash stopped being the currency. Thirteen days on, the queues at banks are still long. Most of the ATMs are out of cash by afternoon.

The opinion is still divided on if the demonetization will curb the demon of black money and punish the real culprits; since most of the black money has already been invested in assets like real estate.

Amid these questions, the government is bracing itself for a sharp decline in the manufacturing sector and the consumer demand in the coming months. The demonetization drive is said to have impacted the manufacturing costs and the consumer demand during the third quarter of FY17.

As per a leading financial daily, the government has assessed the effects of demonetisation to bring the gross domestic product (GDP) growth to 5.5% in the third quarter of FY17. This is recorded as a steep drop from 7.1% in the first quarter.

In our view, the demonetisation exercise will weigh on India's GDP growth. Reasons- India has a high cash usage as compared to the other countries. Most importantly, one of the worst victims of this decision has been the informal sector, that accounts for 48% of India's total output and 80% of the employment. It will take a long time and solid infrastructure to make this informal sector a part of formal economy. And in the meantime, there could be many permanent casualties.

The above situation is just a part of the problem. Amid all this, the poor fixed depositor has been ignored. While the cut in lending rates is much hyped, no one is bothered about the cut in the deposit rates. As Vivek Kaul suggests:

  • Actually, a fall in deposit rates hurts two sets of people. One is the section of the population which uses fixed deposits to build a corpus for future expenses like education and marriages of children. A fall in interest rates means that a greater amount of money needs to be saved if future expenses are to be met. It also hurts those who use fixed deposits to meet their regular monthly expenses, especially the senior citizens. If interest rates fall, they need to cut down on their expenses. Hence, a fall in interest rates on deposits can actually also have a negative impact on consumption in many cases, in contrast to what professional economists tell us.

You see, professional economists and the media are unlikely to tell you about what the fight against black money will mean for you and your money. To know more about its wide reaching implications, claim your special report authored by Vivek Kaul - Demonetisation : The Good. The Bad. The Ugly.

Moving ahead, as many as 54 BSE-listed companies are set to declare their September quarter results during this trading week. From this list, around 8 companies are going to announce their earnings today. The list includes Manpasand Beverages, Suven Life Sciences, Jindal Poly, etc. among others.

The effect of above result announcements would be seen in Indian markets today as well as during the trading week. You see, estimates and even the actual corporate earnings every quarter tend to be a major influence on investor sentiments. And in the end, these announcements put investors and stock markets into a frenzy.

However, we believe that it would be unwise to hit the panic button amid the volatility led by the above announcements. While the above developments will impact Indian stock markets, there will be businesses in India that will continue to do well. And that would create shareholder wealth in the long term when invested in at right levels. So our message to all value investors is this: Focus on the business fundamentals, and use short term corrections due to global economic events to add such businesses to your portfolio.

In fact, we are keeping a close watch and will use any crash opportunity such as above to recommend great businesses that look good but do not allow action due to valuation concerns. Meanwhile, you take care at your end to stay clear of profit killers, irrespective of how tempting the valuations look.

While we are on the topic, Asad Dossani at Daily Profit Hunter has recently come up with a successful trading strategy that can be highly profitable during these volatile times. You see, Asad has been working on a new trading strategy for months. One that fits the three criteria for trading success. As per Asad, trading is possibly the best secondary income you can find. If you're interested to know more about this strategy, you can learn more about the same here.

On the news from commodity markets, crude oil is witnessing volatility this week. While the commodity opened the trading week on a positive note, it failed to maintain the momentum ahead. Losses are seen on the back of worries that Iran and Iraq will not be ready for an OPEC output freeze.

The Organisation of Petroleum Exporting Countries (OPEC) has agreed on a long-term strategy that indicates the cartel's consensus on managing production. However, with the final verdict on the proposed output cut pending, there still remain much room for volatility in crude oil prices.

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

According to our friends at 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!

Read the latest Market Commentary

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Nov 23, 2017 (Close)