Sensex Opens Marginally Down; Metal and Realty Stocks Drag

Thu, 20 Feb 09:30 am

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Asian stock markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.2% while the Hang Seng is up 0.7%. The Nikkei 225 is trading up by 0.9%. Meanwhile, the S&P 500 and Nasdaq rose to record closing highs on Wednesday as optimism that China would take more measures to prop up its economy eased concerns about the economic impact of the coronavirus epidemic.

Back home, India share markets opened marginally lower. The BSE Sensex is trading down by 74 points while the NSE Nifty is trading down by 16 points. Both, the BSE Mid Cap index and BSE Small Cap index opened up by 0.2%.

Sectoral indices have opened the day on a mixed note with realty stocks and metal stocks witnessing selling pressure. Telecom and healthcare stocks are trading in green.

The rupee is currently trading at 71.78 against the US$.

In the news from mutual funds space. According to the data on the Association of Mutual Funds in India, the average asset under management (AUM) of overnight funds has grown five times over the last nine months.

In the last 10 months, the AUM of overnight funds has increased to Rs 525.2 billion as on 31 January 2020, from Rs 115.7 billion as on 30 April 2019.

Not only AUM, but even the number of investor folios under Overnight Funds has more than doubled to 46,763 as on 31 January 2020, from 21,363 as on 30 April 2019.

Meanwhile, mutual funds focused on investing in fixed-income securities saw an inflow of over Rs 940 billion in three months ended December 2019, driven by infusion in liquid and overnight funds.

This comes following an outflow of Rs 50.6 billion in September quarter and fund infusion to the tune of Rs 196.9 billion in June quarter, as per the reports.

In addition, overnight funds, which invest in securities with maturity of one day, received inflows of about Rs 175.3 billion, higher than Rs 39.1 billion in the three months ended September 2019.

Interestingly, co-head of research, Tanushree Banerjee recently wrote about an irreversible megatrend in the mutual funds space.

It is the growth in the AUM of the Indian mutual fund industry.

This is evident in the chart below...

New High for Mutual Fund AUM

Here's a snippet of what Tanushree wrote about it in one of the edition of The 5 Minute WrapUp...

• After a few hiccups in the first half of this fiscal, strong inflows into mutual funds have taken the industry's AUM to a new high.
  
  Can we call it a saturation point?
  
  Far from it!
  
  The total AUM of India's mutual fund industry is just about 13% of India's GDP.
  
  This megatrend of financialisation of savings has a long runway ahead of it.

This is one of the megatrends that will help what Tanushree calls the Rebirth of India.

She has identified the 7 best stocks that will profit from the Rebirth of India. You can read about these top 7 stocks here.

Moving on to the news from the automobiles sector. As per the Fitch Ratings, the slowing economy and weakening consumer sentiment will continue to weigh on auto sales and the marginal improvement seen in December quarter, driven by festive discounts, is unlikely to sustain.

The gross domestic product (GDP) growth slowed down to 6.1% in 2018-19 and is projected to hit a 10-year low of about 5% in 2019-20, primarily due to falling consumer demand and poor financing options for high-value items like automobiles.

Vehicle sales have been hampered by weak consumer sentiment and still-weak availability of financing following tighter liquidity at non-banking lenders since the middle of 2018. The sector also faces additional challenges from the adoption of stricter emission standards from April 1, the report said.

As per the reports, automakers could also face production disruptions if the novel coronavirus outbreak in China leads to a prolonged halt in supply of required auto components.

Now, how this pans out going forward remains to be seen.

Note that India's automobile industry is bracing itself for a unique challenge when the transition of BS-IV to BS-VI emission norms has to be made at the stroke of midnight on 31 March 2020.

No BS-IV vehicle could be sold from 1 April 2020, which means automakers would have to reduce their inventory on BS-IV models to zero by then.

The exercise is likely to see companies show extra caution in dispatching cars to dealers in the next few months, which may cause a continuation of the decline in wholesale numbers.

Meanwhile, electric vehicles are very much on their way to invading Indian roads. The threat of disruption in this era is something you cannot ignore.

This year will be a real test for India's auto companies.

It will also tell us if this slowdown is temporary or if there has been a structural change in the sector.

In our view, companies in the sector adapting their business models to the rapidly changing environment will survive and thrive.

We will keep you updated on all the trends shaping up in this space. Stay tuned.

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

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

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