Indian Indices Witness Huge Selling, Faltering Economic Growth, and Top Cues in Focus Today

Mon, 24 Jun Pre-Open

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On Monday, India share markets witnessed selling pressure and ended their trading day deep in the red. Auto stocks, telecom stocks and energy stocks witnessed most of the selling pressure.

At the closing bell on Monday, the BSE Sensex stood lower by 407 points (down 1%) and the NSE Nifty closed down by 108 points (down 0.9%).

The BSE Mid Cap index ended down 0.4%, while the BSE Small Cap index ended up 0.1%.

Top Stocks in Focus Today

From the IT sector, Mindtree share price will be in focus today as the board of the company approved the appointment of Larsen & Toubro's (L&T) nominees as directors. In an exchange filing, the IT firm said its board had approved induction of five new directors into the company's board, which will come for shareholders' approval in its next annual general meeting on July 16.

In March, L&T had initiated a hostile takeover bid on Mindtree when it entered into a deal to buy Cafe Coffee Day owner V G Siddhartha's 20.3% stake.

As per the reports, the combination of the two companies will help create an entity with a higher turnover of close to Rs 120 billion, closer to larger rivals such as Wipro and TCS.

From the banking sector, market participants will be tracking Yes Bank share price as the stock witnessed huge selling pressure last week after credit agency Moody's put the company under review for a downgrade.

From the pharma sector, Aurobindo Pharma share price will be in focus today as the company has received a warning letter from the USFDA. The company in a BSE filing made last week said that it has received a warning letter dated June 20, 2019, from USFDA relating to Unit XI, API manufacturing facility situated at Srikakulam district in Andhra Pradesh.

Economic Activity Losing Traction: Shaktikanta Das

In the news from the macroeconomic space, Reserve Bank of India (RBI) governor Shaktikanta Das said that the Indian economy has been clearly losing traction and needs a decisive monetary policy to promote growth.

In the minutes of the June meeting released on Thursday last week, with inflation in India well within the monetary policy committee's (MPC) mandated target, it was noted that is crucial to give higher importance to faltering economic growth.

The MPC in June cut its key interest rate by 25 basis points, a third straight cut since the start of 2019, while also changing its stance to "accommodative," after data showed the economy growing at its slowest in more than four years.

As per the minutes, Asia's third largest economy grew at a slower-than-expected 5.8% in the last quarter, far below the pace needed to generate jobs for the millions of young Indians entering the labour market each month.

Members broadly suggested that inflation is expected to stay within the MPC's mandated medium-term target of 4% despite the upside risks.

Concerns of an uptick in inflation from a sustained rise in food prices, uncertainties related to the monsoon and volatility in international crude oil prices remain and will be monitored, most members said.

Though the minutes suggested that the committee may be open to more rate cuts, not all may be in favour if the budget, to be presented on 5th July, is expansionary.

We will keep you updated on all the developments from this space. Stay tuned.

Recent Developments in the Automobiles Sector...

Tata Motors share price will be in focus today. The stock of the company witnessed selling pressure last week after rating agency Moody's downgraded the stock.

Moody's Investors Service downgraded Tata Motors' corporate family rating (CFR) and senior unsecured instruments rating, citing sustained deterioration in the company's credit profile mainly on account of its British arm Jaguar Land Rover's weak performances.

Moody's also said the outlook on Tata Motors remains negative. Tata Motor's corporate family rating and the company's senior unsecured instruments rating have been downgraded to Ba3 from Ba2, the rating agency said in a statement.

In other news, Maruti Suzuki announced that Dzire is now compliant with "AIS-145 Safety Norms" (both Petrol and Diesel).

The company said this will result in a price increase in all variants of Dzire.

Speaking of automobiles sector, according to a report by the Federation of Automobile Dealers' Associations (FADA), retail auto sales in May that fell 7.5% from a year ago show that the overall consumer sentiment is poor. Latest data shows that production cuts will continue as retail demand continues to falter.

After the growth in January, auto sales growth has declined every month. Rating agency CRISIL share price pegs FY20 growth at 3% for passenger vehicles (PVs) and two-wheelers and 6-8% for commercial vehicles (CVs).

Note that, passenger sales fell 20.5% in May 2019 compared to May 2018. This follows a 17.1% year on year decline in April as well.

The decline in May was the worst seen since 2001.

Here's what Tanushree Banerjee wrote about it in one of the recent editions of The 5 Minute WrapUp...

• Multiple factors have affected the auto sector of late.
  
  The liquidity crisis faced by NBFCs, regulatory changes leading to increased costs, new emission norms... they have all taken their toll.
  
  Also, this sector is ripe for disruption with electric vehicles and ride sharing applications.
  
  Maruti, India's largest car maker announced it would stop making diesel cars from April next year.
  
  The coming one 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.
  
  There is one thing I know for sure, dear reader. Only the ones adapting their business models to the rapidly changing environment will survive and thrive.

Crude Oil and OPEC Meet

Crude oil witnessed buying interest last week. Gains were seen on the back of tensions in the Middle East after Iran shot down a US military drone.

Also, hopes of a drop in US interest rates by the Fed that may stimulate global growth fueled the momentum.

Market participants will be closely tracking crude oil prices in the coming weeks ahead of the OPEC meet.

The members of the Organization of the Petroleum Exporting Countries (OPEC) have agreed to meet on July 1, followed by a meeting with non-OPEC allies on July 2 where they will discuss whether to extend a deal on cutting 1.2 million barrels per day of oil production that runs out this month.

We will keep you updated on all the developments from this space. Stay tuned.

To know more about commodity and currency markets and which are the best counters to trade in this space, you can read one of Vijay Bhambwani's recent articles: Why Do I Recommend Trading Only Nickel, Crude oil, Gold, Copper, and USDINR?

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

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