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Indian Indices Continue Sell-Off; Sensex Down Over 550 Points

Mon, 10 Dec 12:30 pm

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Share markets in India are presently trading on a negative note. All sectoral indices are trading in red with stocks in the realty sector, banking sector and capital goods sector witnessing maximum selling pressure.

The BSE Sensex is trading down by 559 points (down 1.6%), while the NSE Nifty is trading down by 172 points (down 1.6%). The BSE Mid Cap and the BSE Small Cap index are trading down by 1.5%.

The rupee is trading at Rs 71.31 against the US$.

Ankit Shah offers an interesting observation around the falling stock markets in India.

Here's what he wrote in a recent edition of The 5 Minute WrapUp...

• The BSE Sensex closed at 34,057 at the end of 2017. It gained 14% to hit a life-time high of 38,897 on 28 August 2018. Thereafter, the Sensex has been in correction mode through September and October. However, after hitting a year-to-date low of 33,349 in the last week of October, the Sensex has reclaimed the 35k level.
  
  While the Sensex has shed most of its gains in 2018, it still doesn't appear so bad in Indian rupee terms. But for foreign investors, the fall in the Sensex has been worse, because they're also exposed the currency risk.

The below chart shows the difference between the performance of the Sensex and the Dollex 30 index (Sensex in US dollar terms).

Dollex-30 Is Down 10% in 2018

You can see how the trend between the Sensex and Dollex-30 diverged since February 2018.

The Dollex-30 index has declined 10% in 2018 so far.

No wonder that foreign investors have been dumping Indian stocks. Since April 2018, foreign investors have sold equities worth Rs 56,550 crores. What is worth noting is that Rs 27,623 crores worth of equities were sold in the month of October alone.

It would be interesting to see how this trend follows.

In the news from the pharma space, Jubilant Life Sciences is witnessing selling pressure today after the US health regulator recommended a regulatory or administrative action after the inspection of the drug firm's Roorkee manufacturing facility.

In response to the above news, the company said that the US Food & Drug Administration (USFDA) inspection conducted at its Roorkee facility of solid dosage formulations during August 2018 has informed to classify the inspection as "Official Action Indicated" (OAI) and that approvals of pending applications or supplements from this site maybe withheld.

The company also added that this will not have any impact on the existing revenues from operations from this facility.

Jubilant Life Science is presently trading down by 4.3%.

Speaking of pharma sector, note that the BSE Healthcare Index has been on a roller coaster ride in the past few years. The period from 2012 to 2015 saw the index go up more than three times.

We believe that pharma companies that invest in creating a pipeline of complex generics or building competencies in alternative dosage forms are better equipped to tackle the changing dynamics in the US generics market as well as in the overall industry.

Moving on to the news from the commodity space, oil prices are witnessing buying interest today, extending gains from Friday when producer club OPEC and some non-affiliated producers agreed a supply cut of 1.2 million barrels per day from January.

Prices surged on Friday after the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers including heavyweight Russia announced they would cut oil supply by 1.2 million bpd, with an 800,000-bpd reduction planned by OPEC-members and 400,000 bpd by countries not affiliated with the group.

Oil prices have been pulled down sharply since October by signs of an economic slowdown. Meanwhile the two world's biggest economies, the United States and China, are locked in a trade war which is threatening to slow global growth and battering investor sentiment.

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.

It's also interesting that 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 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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