Indian Indices Trade Marginally Higher; Consumer Durable Stocks Witness Buying

Tue, 19 Dec 11:30 am

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Stock markets in India are presently trading marginally higher. Sectoral indices are trading on a positive note with stocks in the auto sector and consumer durables sector witnessing maximum buying interest.

The BSE Sensex is trading up 118 points (up 0.4%) and the NSE Nifty is trading up 34 points (up 0.3%). The BSE Mid Cap index is trading up by 1%, while the BSE Small Cap index is trading up by 1.2%. The rupee is trading at 64.11 to the US dollar.

In the news from the macroeconomic front, the government has planned an additional expenditure of Rs 661 billion with a net cash outgo of Rs 333 billion.

As per the news, the government has presented the second supplementary demand for grants seeking nod for additional spending in the current fiscal.

From the above allocation Rs 34 bn has gone to the department of food and public distribution for food subsidy related spending, Rs 35.9 bn for the Mahatma Gandhi Rural Employment Guarantee Scheme and Rs 59 bn for meeting additional pension requirement following Seventh Pay Commission.

The development comes as a concern as it is said to have a negative impact on the fiscal deficit for the current financial year. Rising government expenditure will widen the fiscal deficit target for this year.

Also, it is worthwhile noting that this way of creating economic growth by the government spending its way out of trouble, cannot continue indefinitely.

As Vivek Kaul writes in one of his recent editions of the Vivek Kaul's Diary... 'At the end of the day the government has a limited amount of money at its disposal. Further, its expenditure tends to be terribly leaky and does not reach a major portion of those it is intended for.'

One must also note that in the last one decade, India is making serious efforts to reduce the fiscal deficit level. Ever since, the new government came in it has been in favor of fiscal consolidation and meet the long term fiscal deficit target of 3% by FY17-18. This will be the lowest target compared to the last couple of years, as can be seen from the chart below:

Fiscal Deficit target of 3% of GDP

That said, challenges remain. The notebandi exercise has resulted in a slowdown. Further, government has announced flurry of projects but execution is still pending. This means the government needs to relax its spending to spurt the growth again.

This means, once again, the government needs to fight dual challenge. First, maintaining its stance on fiscal consolidation and sticking it fiscal deficit target of 3% of GDP for FY17-18. Second, it must relax the deficit target for reviving the economic growth from the shock of demonetisation.

It would be interesting to see how the government tackles these challenges ahead.

In the news from crypto currency space, as per an article in the Economic Times, the Income Tax (IT) department in India is set to issue notices to 4 to 5 lakh high net worth individuals (HNIs) across the country who traded on the unregulated exchange of crypto currency.

The IT department had conducted surveys at nine such exchanges last week to check instances of tax evasion and found that out of the estimated 20 lakh entities registered on these exchanges, about 4 to 5 lakh were operational and indulging in transactions and investments.

The Indian government is in a hurry to find out how to create safeguards against crypto currencies being used as a medium for illicit and illegal activities and breach of laws against money laundering.

The above developments are seen on the back of a surge in bitcoin prices this year.

Time travel to 2013 and Bitcoin was trading at a mere US$100. In fact, even during August this year, the cryptocurrency traded at around US$4,000 levels.

Fast forward to today, Bitcoin is seen trading at its all-time high levels of around US$19,000.

Note that Bitcoin and cryptocurrencies are a curious bunch. They have no central bank backing and have not yet been regulated. Yet, these seem to have found favour among a large number of people, with demand growing every day. There are over 800 cryptocurrencies in existence today, with new ones being added to the list every day.

While the world of digital currencies is intriguing, it can get very confusing for the layman. Our team member, Ankit Shah, Research Analyst, has decided to study cryptocurrencies and help our readers understand them.

Here's Ankit's take in a recent edition of Equitymaster Insider:

• I've been studying and tracking bitcoin for a while, and though I still understand very little about it, I believe that it is a revolutionary technology that could transform a range of businesses and money itself. It would be naive to dismiss it as a passing fad.
  
  I want my readers to be on top of the biggest megatrends in the global economy. So, you can expect to hear about bitcoin whenever there is an important update or insight.

Ankit has also released a premium guide for Equitymaster Insider subscribers, titled Bitcoin 101 which contains everything you need to know about bitcoins and other digital currencies.

If you haven't been receiving Ankit's insights, get on the Insider's list now.

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

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