Indian equity markets remain lackluster

Tue, 18 Jun 01:30 pm

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Indian equity markets continued to trade below the dotted line during the post noon trading session. Most of the sectoral indices are trading in red, with banking and consumer durables stocks leading the pack of losers.

BSE-Sensex is down by 30 points and NSE-Nifty is trading down by 14 points. While BSE Mid Cap is trading down by 0.36%, BSE Small Cap index is trading down by 0.40%. The rupee is trading at 58.51 to the US dollar.

Majority of the automobile stocks are trading in the green with Eicher Motors and Escorts being the biggest gainers. As per a leading financial daily, Maruti Suzuki will increase its focus on the localization of auto components in the wake of the steep depreciation in the rupee. A weak rupee adversely impacts the company's costs on two counts viz. increased royalty to parent company for using the Suzuki brand name and technology and higher cost of importing components. The ratio of imports to sales has come down from 26% in FY12 to 19.5% in FY13. The company is targeting to reduce the import to sales ratio further by about 8-10% over the next three years. Maruti Suzuki has asked its 250 vendors to use more local materials such as alloy steel, machine tools as well as indigenously designed components and dies. The capability to design and develop tools and dies locally not only results in cost savings but also translates into development of new models at a faster pace. Reportedly, Maruti achieved cost advantage of 25-40% over imported dies in FY12. Maruti Suzuki stock is trading 0.4% down.

Most of the energy sector stocks Energy - Live Stock Quotes and Analysis Update from Equitymaster.com are trading in the red with Jindal drill and Gas Authority of India Ltd (GAIL) being among the major losers. As per a leading financial daily, Oil and Natural Gas Corporation (ONGC), GAIL and Oil India may be paying higher subsidy share of approx 45% in FY14. During FY13, oil exporters together had a subsidy burden of Rs 600 bn. However as these companies are making losses on sale of petroleum products, this is becoming a bigger worry for upstream companies than the oil marketers. Reportedly, Mr Sudhir Vasudeva, the Chairman and Managing director of ONGC, mentioned that the change in the subsidy share formula is impacting the company adversely. Currently, the government and the upstream companies each are paying approx 37.5% of the total under recoveries to oil firms like Hindustan Petroleum Corporation Ltd, Bharat Petroleum Corporation Ltd and Oil Corporation. Further, it should be noted that two years back, upstream firms paid 33% to oil firms toward their share and from FY12 onwards their share had gone up to 37.5%. The stock of GAIL and ONGC are trading 1.23% and 0.74% respectively.