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Sensex Tanks 300 Points; Capital Goods Stocks Down 3%
Fri, 18 May Closing | Parth Parekh, TM Team

After opening the day in red, share markets in India witnessed positive trading activity throughout the day and ended the day on a negative note. Sectoral indices traded in red, with stocks in the metal sector and stocks in the capital goods sector, leading the losses.

At the closing bell, the BSE Sensex stood lower by 301 points (down 0.9%) and the NSE Nifty closed down by 86 points (down 0.8%). The BSE Mid Cap index ended the day down 1.5%, while the BSE Small Cap index ended the day down by 1.6%.

The rupee was trading at Rs 68.03 against the US$ in the afternoon session. Oil prices were trading at US$ 71.67 at the time of writing.

Global financial markets this week closely followed the developments in the second round of U.S.-China trade talks in Washington. It was reported that China had announced it was rolling back an anti-dumping probe into U.S. sorghum imports. Earlier, Beijing had offered a proposal to reduce its trade deficit with the U.S. by US$200 billion, however China's foreign ministry later said that was not true. The uncertainties mean that global markets were on edge.

Asian stock markets finished in green. As of the most recent closing prices, the Hang Seng was up by 0.3% and the Shanghai Composite was up by 1.2%. The Nikkei 225 was up by 0.4%. Meanwhile, European markets, were trading on a positive note. The FTSE 100 was down by 0.1%, The DAX, was up by 0.1% while the CAC 40 was up by 0.2%. Whereas, the US benchmark, Dow was trading down by 0.2%.

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ITC share price, TVS Motors share price, and TCS share price were also in focus today as these companies recently reported their results for the quarter ended March 2018.

ITC Ltd's operating income fell 28.0% on a year-on-year (YoY) basis during the March 2018 quarter. The expenses were down by 40.1% YoY during the same period. Net profit for the quarter increased by 9.9% YoY. Net profit margins during the quarter increased from 17.3% in 4QFY17 to 25.9% in 4QFY18. To know more, you can read our complete analysis of ITC Ltd quarterly results.

TVS Ltd's operating income during the quarter grew 29.8% on a year-on-year (YoY) basis. The expenses were up by 23.8% YoY during the same period. Net profit for the quarter increased by 30.6% YoY. Net profit margins during the quarter increased from 4.0% in 4QFY17 to 4.1% in 4QFY18. To know more, you can read our complete analysis of TVS Ltd quarterly results.

TCS Ltd's operating income during the quarter grew 8.2% on a year-on-year (YoY) basis. Net profit for the quarter increased by 4.6% YoY. Net profit margins during the quarter declined from 21.6% in 4QFY17 to 20.9% in 4QFY18. To know more, you can read our complete analysis of TCS Ltd quarterly results.

In the news from the domestic macroeconomic space, the Supreme Court ordered the one-day old BJP government in Karnataka to face a floor test on Saturday and reduced the 15-day window the BJP had been given by the Karnataka Governor Vajubhai Vala to prove its majority in the House.

The development comes as Yeddyurappa's party was invited to form government, and is given 15 days to prove majority by the governor on Wednesday evening.

In response to the above move, the Congress, to ensure that does not happen, had approached the Supreme Court late at night and asked for the swearing-in to be stopped.

Three judges of the Supreme Court heard the petition in an unprecedented 2 am hearing, but refused to stay the oath taking ceremony.

Earlier on Wednesday evening, the Governor had met a delegation of the Congress and JD(S) leaders, who also staked claim to form government, claiming they have majority.

Note that the BJP has 105 lawmakers, including an Independent, in the 222-seat assembly and is seven seats short of majority.

There are high stakes involved as the final outcome will have a bearing on the stock markets too.

As Ankit Shah (Research Analyst) writes in a recent edition of Equitymaster Insider (subscription required)...

  • Dalal Street logic says BJP win will give a boost to the Indian stock markets. BJP's loss would spell bearishness.

    And now that the next general elections are just a year away, politics will remain a focal point of discussion in the context of the stock markets.

    Remember that the stock markets like Mr Modi. And currently, they're pricing in a Modi victory in 2019. If this premise starts developing cracks, it may weigh negatively on your stock portfolio.

The outcome of the floor test is likely to have a bearing on the stock markets next week, we'll keep a close watch on the developments in this space and keep you updated. Stay tuned.

Moving on to news from stocks in the steel sector. JSW Steel share price was in focus today after it was reported that the company has signed a deal to take over Italy's second largest steel plant Aferpi for Rs 6 billion.

The deal closure is expected to be announced by 19 May. Aferpi-formerly Lucchini SpA-is currently owned by Algeria's Cevital.

Originally owned by Russia's Severstal, Aferpi has an annual steel production capacity of about 2 million tonnes in Piombino and manufactures special steels used in railway, automobile and earth-moving vehicles, among others.

Aferpi is currently working on projects that involve production of 1 mt of long steel products and revamping of wire rod and bar mills, installation of one electric arc furnace of 1 mt capacity with two continuous casting machines, installation of a new rails- and beams-rolling plant and installation of the second electric arc furnace and the third continuous casting machine.

The acquisition will help JSW Steel to expand its reach in the specialised steel market, especially in the automobile sector.

According to a leading financial daily, JSW Steel has been in talks with Algeria-headquartered Cevital Group on the acquisition for the last six months and is expected to make an announcement soon.

The acquisition of Aferpi by JSW comes at a time when its group company, JSW Energy, is gearing up for electric car production in India.

A foothold in Europe, one of the largest electric car markets, will enable the group to gain technical knowhow in electric vehicle production and localise manufacture of components much faster, said an analyst.

JSW Energy plans to invest about Rs 40 billion to produce e-vehicles in Gujarat and is scouting for a joint venture partner.

The deal also comes at a time when JSW steel lost out on the race to acquire the stressed assets of Bhushan Steel and Bhushan Power.

Notably, JSW steel - the county's most profitable major steel producer was in the process of raising over US$1.5 billion through various sources for acquiring stressed assets in the industry.

JSW Steel share price ended the day down by 4%.

Is the Steel Sector's Recovery Under Threat?

JSW's latest acquisition comes at a time when the domestic steel industry is in a lurch.

India's steel industry was just coming out of a rough patch.

Demand was picking up. Steel prices were on the rise. Buyers were lining up to pick up stressed assets. With the expected pick up in the investment cycle, the sector was on the upswing.

India's Steel exports were on a roll.

Then Donald Trump spoiled the party. The US government plans to impose a 25% tariff on steel and a 10% tariff on aluminium.

India produces a lot of both commodities but internationally, we are not a big player. The US imports only 2.4% of steel and 2% aluminium from India.

But it's not so simple.

With the new US tariffs, major exporters like South Korea will look to sell in other countries. This would lead to a glut and as a result, lower prices.

This could threaten the nascent recovery in the industry.

And here's a note from Daily Profit Hunter:

The Nifty 50 Index ended the week on a negative note. On Monday, it opened the session higher but traded on a tepid note to end the session flat. Next day, the index traded with volatility on back of Karnataka election results. It touched a high of 10,929 and slipped lower to end the session in the red. The bearish momentum continued for the rest of the week. Finally, the index ended the weekly session 1.73% down.

Last week, we saw the index closing above the gap area placed near 10,800 which was an immediate resistance level. Although the Karnataka election buzz pushed the index to 10,929, it did not sustain up for long. It immediately slipped back below the gap area which indicated weakness in the Indian indices.

Now the index is approaching the support zone of 10,400 - 10,500. The zone which acted as a resistance on the way up might now act as a support.

So it will be interesting to see if the index can find ground near 10,400 - 10,500 zone or will the bearish momentum lead to break the support zone.

Nifty 50 Index Witnesses Selling Pressure
Nifty 50 Index Witnesses Selling Pressure 

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Read the latest Market Commentary

Equitymaster requests your view! Post a comment on "Sensex Tanks 300 Points; Capital Goods Stocks Down 3%". Click here!

1 Responses to "Sensex Tanks 300 Points; Capital Goods Stocks Down 3%"

A.Chandra Sekhar

May 20, 2018

Dear Sir/ Madam,
You should have also covered the most severely tanked stock, Strides Shasun, the reasons why it was down almost 25% on 18-5-2018, especially when it is one of your recommendation of Hidden Treasure.

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Stock Market Updates

MPHASIS LTD Plunges by 5%; BSE IT Index Down 2.8% (Today's Market)

Oct 19, 2018 02:56 PM

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HEIDELBERG CEMENT Plunges by 5%; BSE 500 Index Down 1.3% (Today's Market)

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