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Sensex Registers Marginal Gains; Realty Stocks Gain
Wed, 28 Dec 01:30 pm

After opening the day on a flat note, the Indian share markets have managed to make marginal gains and are trading above the dotted line. All the sectoral indices are trading in the green, with stocks in the Realty Sector leading the gains.

The BSE Sensex is trading up 168 points (up 0.6%) and the NSE Nifty is trading 56 points (up 0.7%). Meanwhile, the BSE Mid Cap index is trading up by 1.3%, while the BSE Small Cap index is trading up by 1.5%. The rupee is trading at 68.18 to the US$.

India's largest car manufacturer Maruti Suzuki announced that it will invest an additional Rs 21 billion, at its state-of-the art research and development center in Rohtak, Haryana. Maruti said that the investment would be made over the course of three years.

The company had already invested substantially in the same R&D center, with an investment of Rs 17 billion as of March 2016. The current pledge would take the total investment to around Rs 38 billion.

The company said that it had already begun setting up testing and crash facilities, and plans to set up additional facilities through the planned investment.

The Rohtak facility is spread over an area of 600 acres and the additional investment would enable the company to design, develop and launch cars at a faster pace.

Separately, parent Suzuki would commission its fully owned manufacturing facility in Gujarat in February 2017. Maruti Suzuki will get around 10,000 vehicle produced in Gujarat for sale in the ongoing financial year. India is the biggest market for Suzuki, which owns 56 per cent of Maruti Suzuki India - the country's biggest automaker controlling nearly half of the market.

Auto stocks have taken a beating post demonetisation. Stocks from the automobile sector have fallen about 10% since the demonetisation scheme was announced on 8 November, 2016.

The Biggest Losers of Demonetisation

However, as my colleague Kunal Thanvi points out in a recent edition of the 5 Minute WrapUp, the current slump due to demonetisation is only a temporary setback.

Here's Kunal...

  • Even if sales take a big blow this year, the auto growth story won't break down. Individuals and businesses will buy cars, two-wheelers, and trucks irrespective of demonetisation. A one-year hit to profitability won't change the long-term earnings power of fundamentally strong auto firms.

    If anything, the recent correction in auto stocks is bringing valuations down to reasonable levels. The only thing a long-term investor has to do is wait for the market to finish 'voting'. Buying good auto stocks at the right price will likely result in healthy returns a few years later when the market begins 'weighing' them.

It remains to be seen how the auto giants tread on the path to recovery. However, additional investments in research and development shows an optimistic outlook in the auto sector.

In other news, according to an article in a leading financial daily, Foreign portfolio investors (FPIs) have withdrawn close to US$ 10 billion or almost Rs 680 billion from India's equity and debt markets since the demonetisation move announced on 8 November 2016. This is one of the largest sell-off in a two-month period since 2013.

While demonetisation may have impacted the short term sentiment. The withdrawal was further aggravated due to several factors including uncertainty over US ties after Donald Trump's victory, interest rate hike by the federal reserve, and a surge in oil prices.

Exchange traded funds (ETFs) have withdrawn from the Indian markets in large numbers, post the US Fed rate hike, on the expectation of a higher interest rate.

FPIs holding debt in India are bound to withdraw their holdings as the interest rate differential between the US and India has reduced post the rate hike by the US Federal Reserve.

On a year to date basis however, FPI's investment in Indian equities still remains positive as FPIs have invested a net sum of Rs 228 billion and sold stocks worth Rs 226.3 billion.

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Jan 17, 2018 02:11 PM