Sensex Ends Marginally Lower, Rising Crude Oil Prices, and Top Cues in Focus Today

Wed, 5 Dec Pre-Open

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Share markets in India ended their trading session marginally lower yesterday. Sectoral indices ended on a mixed note with stocks in the consumer durable sector and FMCG sector witnessing most of the selling pressure.

At the closing bell yesterday, the BSE Sensex stood lower by 106 points (down 0.3%) and the NSE Nifty closed down by 14 points (down 0.1%). The BSE Mid Cap index ended the day down 0.1%, while the BSE Small Cap index ended the day up 0.1%.

Top Stocks in Focus Today

HUL share price and GSK Consumer share price will be in focus today as Hindustan Unilever Ltd (HUL) is set to merge with GSK Consumer for a transaction valued at Rs 317 billion in India's largest deal in consumer goods space.

From the automobiles space, Tata Motors share price will also be in focus today. The stock of the company witnessing buying interest yesterday as the company's wholly owned subsidiary - Jaguar Land Rover (JLR) has launched a special edition of its Jaguar XJ model for Rs 11.1 million in India to celebrate 50 years of the company's flagship luxury saloon. The special edition, XJ50 will be available in long wheelbase with 3 litre diesel engine option.

To know more about the company, you can access to Tata Motors Q2FY19 result analysis and Tata Motors stock analysis on our website.

From the pharma space, market participants will be tracking Sun Pharma share price today as the company yesterday said it will work towards re-establishing credibility and corporate governance which could include the review of some past decisions.

Moody's Projects India's GDP to Grow 7.2% in FY19

Global rating agency Moody's Investors Services projected India's real GDP to grow 7.2% in the year ending March 2019 and 7.4% in the following year. As per the agency, the growth will be driven by investment growth and strong consumption.

It said that asset quality will be stable (but weak) as cleanup of legacy problem loans nears completion and corporate health improves. Banks have recognised the bulk of legacy problem loans and will start making recoveries from large resolved nonperforming loans.

It further added that banks' second quarter performance showed that fresh bad loan and will start making recoveries from large resolved nonperforming loans.

The rating firm, however, predicted improvement in banks' profitability but high credit costs would keep it muted. It said funding and liquidity profiles of public sector banks will remain resilient, notwithstanding their solvency challenges.

Speaking of the overall economy this year, recent woes of emerging markets seem to be never ending. Every day, a new country joins the 'fragile' list.

However, India has relatively fared better as compared to these countries.

The recent rally in crude oil has also not helped matters. We are seeing similar traits to the one seen five years back.

Back in 2013, India was a part of 'fragile five' emerging markets along with Brazil, South Africa, Indonesia, and Turkey.

Political uncertainty, high inflation, slower growth and large fiscal deficits had dented investor confidence in Indian markets.

While the Indian economy is on a comparatively strong footing, elections next year is a big risk. A fractured mandate combined with the weak rupee and rising crude oil prices could be a recipe for pain in the short-term.

But it wouldn't dent the long-term prospects of our economy or our market.

Crude Oil Rises on Expected OPEC Supply Cuts

In the news from commodity markets, crude oil is witnessing buying interest this week amid expected supply cuts by the OPEC.

Gains are also seen on the back of a mandated reduction in Canadian output.

As per the news, the Organization of the Petroleum Exporting Countries (OPEC) plus Russia and other allies are meeting on 6^th and 7^th December. Producers are discussing a supply curb of 1 million to 1.4 million barrels per day (bpd) and possibly more.

The OPEC meeting in Vienna will follow a gathering by the Group of 20 (G20) nations in Argentina, at which oil policy is expected to be discussed. The meet will also potentially lay the groundwork for an OPEC deal.

Note that OPEC's de-facto leader Saudi Arabia wants the cartel and its allies to cut output by about 1.4 million barrels per day (bpd), around 1.5% of global supply.

However, while OPEC is considering withholding supply, US crude oil production reached another record high last week at 11.7 million barrels per day (bpd), according to U.S. Energy Information Administration (EIA). So, this, on the other hand, is helping cap the sharp rise in crude oil prices.

Note that high crude oil prices can be a big worry for the Modi government as well as it has been a big beneficiary of lower crude oil prices.

Also, note that India's crude oil production was lower by 4.2% in September 2018 as compared to last year.

The worrying factor is this was the lowest production this year

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?

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.

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

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