Sensex, Nifty Trade Flat; Capital Goods & Realty Stocks Top Gainers

Wed, 29 Nov 11:30 am

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Indian share markets continue to trade flat with a positive bias during the morning trade. Barring bank stocks, all the sectoral indices are trading in green with realty sector and capital goods sector leading the gains.

The BSE Sensex is trading higher by 50 points and the NSE Nifty is trading higher by 16 points. The BSE Mid Cap index is trading up by 0.2% while the BSE Small Cap index is trading up by 0.6%. The rupee is trading at 64.42 to the US$.

In news from oil & gas sector, Minister for Petroleum and Natural Gas, Dharmendra Pradhan has said that if polluting coal can be included under GST, then the natural gas certainly deserves a place in the new regime making a strong case under the new indirect tax regime.

He added that natural gas is a cleaner fuel than coal. The minister's pitch came more than four months after the launch of the Goods and Services Tax (GST), though his ministry had previously written to the Finance Ministry to consider including natural gas in the GST.

Currently, crude oil, petrol, diesel, aviation turbine fuel (ATF) or jet fuel and natural gas are outside the purview of the GST, which has amalgamated over a dozen indirect taxes including excise duty, service tax and VAT since the new tax regime kicked in from July 1. Hence, while various goods and services procured by the oil and gas industry are subjected to GST, the sale and supply of oil, gas and petroleum products continue to attract earlier taxes like excise duty and VAT.

Unlike other industries which can take credit for any tax paid towards the furtherance of business, no credits on input GST is available to the oil and gas industry leading to the huge additional indirect tax burden.

Defending the government's target of doubling Indian oil refinery capacity to 600 million tonnes, he said that all major economies needed multiple sources of energy for growth. Earlier, industry body Ficci too has pitched for the inclusion of natural gas in the new indirect tax regime so as to help producers contain cost and aid in moving towards a gas-based economy.

Oil & gas stocks are presently trading on a mixed note with Gujarat Gas Ltd share price and GAIL Ltd share price leading the gains.

Moving on to news from auto ancillary sector. As per an article in The Economic Times, Motherson Sumi boosted its earnings 44% a year in the past five years on account of gradual increase in peripheral sales per vehicle and market-share gains across a range of products.

Through its European subsidiaries, Motherson Sumi gained market share in bumpers, instrumentation panels, door panels and exterior mirrors in the past two fiscal years. For instance, the EU subsidiary's market share in bumpers increased to 20% in FY17 as compared with 18% in FY15. Similarly, for another EU unit, the exterior mirror global market share reached 25% against 22% in the FY15.

As per the reports, the company is expanding its global presence with new plants in Hungary and the US to cater to new orders from Audi and Daimler. Also, higher utilization at the new plant in Mexico has the potential to add one billion euro to the company's revenues. Motherson Sumi is expanding its customer base, having added Scania, PSA, MAN, and Iveco to its list of revenue generators.

Besides the order book of 15.2 billion euros from carmakers, the likely global switch to electric vehicles and introduction of new emission norms could add more revenue streams. Beyond 2020, the company is reportedly also looking at new verticals such as aerospace, railways and defence.

The news comes at a time when the company is facing some disruptive changes. Recent rise in input costs has dented the long-term prospects for auto ancillary manufacturers. According to a report by credit rating agency ICRA, operating margins of the sector are expected to be around 12-14% over the next few years, down from 16% recorded by the top 48 companies in FY16.

Auto Ancillaries' Muted Growth Prospects

Also, the recent inclusion of Amtek Auto in the Reserve Bank of India's list for insolvency proceedings has brought the sector into the limelight. While Amtek Auto is the only auto company maker in the twelve-company list dominated by infrastructure and steel companies, it makes sense to look at the future of the sector overall.

Motherson Sumi share price was trading up by 1.2% at the time of writing.

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