Sensex Opens Flat; Power and IT Stocks Lag

Fri, 24 Jan 09:30 am

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Asian stocks made a barely positive start in early trade today after the world's health body called it a little too early to declare a coronavirus outbreak a global emergency. Meanwhile, the S&P 500 ended slightly higher and the Nasdaq eked out a record closing high on Thursday, helped by a jump in Netflix, while news about the coronavirus outbreak spreading from China and mixed earnings results kept a lid on the market.

Back home, India share markets opened on a flat note. The BSE Sensex is trading down by 65 points while the NSE Nifty is trading down by 21 points. Both, the BSE Mid Cap index and BSE Small Cap index opened up by 0.1%.

Sectoral indices have opened the day on a mixed note with power stocks and IT stocks witnessing selling pressure. Oil and gas stocks and realty stocks have opened the day in green.

The rupee is currently trading at 71.21 against the US$.

In the news from the commodities space. Gold prices in India continued to remain in a tight range yesterday.

On MCX, gold futures were up marginally at Rs 39,930 per 10 grams. Silver prices however edged lower.

Silver futures were down 0.3% to Rs 46,102 per kg.

Gold had hit a record high of Rs 41,300 per 10 grams earlier this month in India amid US-Iran tensions. After coming off highs, gold has remained in a tight range since then.

In global markets, gold prices were steady as fears over the spread of China coronavirus virus supported the safe-haven appeal of gold.

Speaking of gold, how lucrative has gold been as a long-term investment in India?

The chart below shows the annual returns on gold over the last 15 years...

Gold Has Been a Shining Long-Term Investment

As you can see, barring just two years - 2013 and 2015, gold has delivered positive returns in 13 of the last 15 years.

Here's what Ankit Shah, the editor of daily premium newsletter Equitymaster Insider (requires subscription) wrote about this in one of the editions of The 5 Minute WrapUp...

• "In fact, gold has delivered double-digit gains in 10 of the last 15 years.
  
  During the entire 15-year period, gold has shot up 555% (compounded annual return of 12.1%).
  
  During the same period, the Sensex surged 511% (compounded annual return of 12.0%). If you include dividends, the Sensex returns would be higher than gold by a couple of percentage points.
  
  One must note that the Sensex returns are not representative of the broader market returns. Moreover, gold was a no-brainer. You didn't have to study financial statements, business models and forecast future earnings growth to get a double-digit return on your investment."

Meanwhile, Vijay Bhambwani talks about how gold has been relied upon by humankind for 3000 years in one of his videos.

If you consider street inflation, your fixed deposits are giving negative yields. In times like these, Vijay considers gold as a safe haven.

So, is it the time to buy gold?

Tune in to find out...

Moving on to the news from the economy. As per India Ratings and Research's (Ind-Ra) latest report, with the help of strong policy push coupled with revival in demand, India's growth rate is expected to be marginally higher at 5.5% in FY21 against the estimated 5% for the current fiscal.

Citing an NSO report, it said the slowdown is a combination of several factors including an abrupt and significant fall in lending by non-banking financial companies (NBFCs) close on the heels of a slowdown in bank lending and reduced income growth of households coupled with a fall in savings and higher leverage.

Although some improvement in FY21 is expected, these risks are going to persist. As a result, the Indian economy is stuck in a phase of low consumption as well as low investment demand.

As per the report, a strong policy push coupled with some heavy lifting by the government is required to revive the domestic demand cycle and catapult the economy back into a high growth phase.

The government has announced a slew of measures recently to prop-up the economy, but Ind-Ra believes they will come to aid only in the medium term. It said the shortfall in the tax plus non-tax revenue to result in the fiscal deficit slipping to 3.6% of GDP (budgeted 3.3%) in FY20, even after accounting for the surplus transferred by the RBI.

Ind-Ra said a continuance of low GDP growth even in FY21 means subdued tax revenue and limited room for stepping-up expenditure.

It believes the government will have to construct the FY21 budget in a way that expenditure is rationalised and prioritised and all avenues of revenue generation are tapped. While rationalising, the focus of expenditure has to be on creating direct employment and putting more money in the pockets of the people at the bottom of the pyramid, and it added that since their marginal propensity to consume is close to one, they are likely to spend what they receive.

This will support the consumption demand. Therefore, it said budgetary allocation to heads such as rural infrastructure, road construction, affordable housing and MNREGA must be prioritised and allocation for non-merit subsidy/expenditure less critical for growth be rationalised.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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