Sensex Stays Flat; Metal Stocks Tank

Tue, 7 Mar 01:30 pm

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After opening the day on a flat note, share markets in India have remained range bound and are trading marginally below the dotted line. Sectoral indices are trading on a mixed note with stocks in the consumer durables sector and stocks in the power sector leading the gains, while stocks in the metal sector are trading in red.

The BSE Sensex is trading down by 68 points (down 0.2%), and the NSE Nifty is trading down by 23 points (down 0.3%). Meanwhile, the BSE Mid Cap index is trading up by 0.2%, while the BSE Small Cap index is trading flat. The rupee is trading at 66.64 to the US$.

In news about the economy. Global rating agency Fitch, in a report said the Indian economy will grow by 7.1% in the current fiscal before stepping up to 7.7% in the next two financial years.

The US-based agency, however, termed the 7% GDP growth for the October-December quarter as "surprising", a tad lower than 7.4% in the previous quarter.

According to the report, the GDP growth number is surprising as real activity data released since notebandi pointed to weak consumption and services activity because these transactions are cash-intensive. By contrast, official data suggest that private consumption was strong in the fourth quarter of 2016, although services output growth moderated quite substantially.

Fitch expects Indian GDP to grow by 7.1 per cent for 2016-17, before picking up to 7.7 per cent in both 2017-18 and 2018-19. It said the December quarter GDP number suggests that economic activity was "hardly hit" by the cash crunch after the government's move to remove 86% of currency in circulation overnight.

On this discrepancy, Fitch said it could be the inability of official data to capture the negative effects of notebandi on the informal sector.

According to data released by the government's Central Statistics Office (CSO) India's Gross Domestic Product (GDP) grew at a rate of 7% in the December quarter, despite effects of notebandi in November 2016.The Q3 numbers meant that India kept its place as the fastest growing large economy in the world.

GDP Grows at 7% Post Notebandi

The numbers also led the CSO to retain its projection that the economy will grow 7.1% in 2016-17, slowing from 7.6% in the previous financial year.

Consensus estimates of GDP growth have reduced considerably in the last two months. The government on the other hand, believes that GDP growth for FY17 will be 7.1%. Mind you, this would still be below the 7.6% growth recorded in FY16. We believe, FY17 GDP growth could be significantly lower than 7.1%.

Here is what Dr Jim Walker, founder and chief economist of Asianomics Group, had to say about the government's estimates in his latest Asianomics Macro update.

• The government's new growth forecasts are not only optimistic but downright bizarre. The market is concerned that even with the new (still optimistic) growth forecast of 7.1%, the government's budget deficit target of 3.5% of GDP will be overshot.

A while back, in an interview with Vivek Kaul and Rahul Goel, CEO of Equitymaster, Dr Jim Walker had shared his views on a variety of topics including the Indian and Chinese economies. It's worth revisiting.

Moving on to news from stocks in the auto sector. Mahindra & Mahindra (M&M) share price was trading lower by as much as 0.9% today as the company announced a decline in total vehicle production for February 2017.

The total vehicle production fell by 1.2% Year on Year (YoY) in February, to 44,401 units as compared to 44950 units in the same month last year.

M&M produced 11 compact cars and 354 super compact cars in February.

The passenger vehicles sales for M&M fell by 13% YoY to 20,605 units, while commercial vehicle sales were up by 18% YoY, and stood at 16,383 units.

In related news, the company looks to leverage its proficiency in the tractors business (Subscription required) by expanding it to international markets.

The company plans to expand its tractors and farm machinery business to international markets, with an objective to generate 50% of its revenues from the foreign markets in the coming years.

The global farm equipment market is estimated at US$ 156 billion, of which the tractor business contributes just US$ 60 billion. Currently, tractors' sales contribute to 85% of M&M's sales for the farm segment. The company aims at reducing this share to 79% by FY19.

At the time of writing M&M share price was trading down by 0.7%.

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