Sensex Opens Flat; FMCG and Healthcare Stocks Drag

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Asian share markets are lower today as Chinese and Hong Kong shares fall. The Shanghai Composite is off 0.8% while the Hang Seng is down 0.2%. The Nikkei 225 is trading down by 0.7%. US stocks managed modest gains on Tuesday after holding near the unchanged mark for much of the session as enthusiasm over the US-China trade truce faded after the United States threatened tariffs on additional European goods.

Back home, India share markets opened the day on a flat note. The BSE Sensex is trading down by 52 points while the NSE Nifty is trading down by 6 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 FMCG stocks and healthcare stocks leading the losers. Oil & gas stocks and realty stocks have opened the day in green.

The rupee is currently trading at 68.83 against the US$.

The Indian rupee on Tuesday ended almost flat at 68.95 against the US dollar in a lackluster trade as participants preferred to sit on the fence ahead of the Union Budget due on Friday.

At the interbank foreign exchange, the domestic unit opened at 69.02. During the day, the domestic unit witnessed a high of 68.93 and a low of 69.07 against the US dollar.

The domestic currency finally settled at 68.95 against the US dollar, down 1 paisa over its last close.

The Indian rupee Monday had closed at 68.94 against the US dollar.

Steady buying in domestic stocks and easing crude oil prices also supported the domestic unit, the reports noted.

Speaking of currencies, Vijay Bhambwani, editor of Weekly Cash Alerts, tells you the main reasons why not to trade commodities and currencies the same way you would trade equities. Here's an excerpt of what he wrote...

• Currencies are traded in pairs and the most liquid is the USDINR. Currencies are traded in four decimal points just as bonds are. The international derivative trader's association has indicated that forex may be traded in 6 decimals in the coming few years.
  
  It takes months sometimes for the currency pair to pass the next round figure, say from 70 to 71.
  
  Can you really trade commodities and currencies alike or for that matter, equities and currencies alike? Definitely not!

To know more, you can read Vijay's entire article here: Is Trading in Equities, Commodities, and Currencies the Same?

Moving on to the news from the economy. Finance Industry Development Council (FIDC), the industry body for non-banking financial companies (NBFCs), said the current liquidity crisis is not a solvency issue, but is more of a growth-related problem.

At a press conference held on Tuesday, FIDC said that while funds were available at a higher cost, there was a need for a special liquidity window through banking channels, which will provide growth capital for NBFCs on a sustainable basis.

The industry body has also sought other short-term measures such as allowing refinance for all small and medium NBFCs from the Pradhan Mantri Mudra Yojana.

This is not the first time that the industry body has raised the demand for a special liquidity window to help NBFCs tide over the crisis following the default by IL&FS.

The government, too, had requested the Reserve Bank of India to provide a window for NBFCs to keep the economy chugging along. However, the central bank shot down the proposal, saying system-wide liquidity is in surplus and it remains committed to infusing liquidity when required.

Among long-term measures, FIDC has called for a permanent window for NBFCs along the lines of the National Housing Bank, which provided refinance to housing finance companies (HFCs).

It also sought setting up an alternative investment fund (AIF) to channelize institutional funds to NBFCs and allowing non-convertible debentures (NCDs) to be subscribed to by the AIF for onward lending to NBFCs.

As per the reports, the asset-liability mismatch is largely an issue for long-term lenders like HFCs and infrastructure NBFCs, but the entire NBFC sector is being painted with the same brush and are finding it difficult to raise funds.

Bank borrowings, debentures and commercial papers are the major sources of funding for NBFCs.

The Reserve Bank of India's recent financial stability report says bank borrowings as a share of total borrowings increased from 21.2% in March 2017 to 29.2% in March 2019.

During the same period, dependence on debentures declined from 50.2% to 41.5%.

Speaking of NBFC crisis, a slew of corporate defaults, and the bloodbath in many stocks has left investors in deep fear and panic.

But this blanket approach doesn't work too well.

In the chart below, you can see top three NBFC gainers and losers (in terms of market capitalisation) over the last one year.

NBFC Crisis - Top Gainers and Losers

While several NBFCs have suffered badly and destroyed investor wealth, there have also been quality NBFC stocks that have been wealth creators.

So, the key takeaway here is to never write off an entire sector and to always stay on the lookout for quality stocks in sectors going through temporary headwinds.

Amid this NBFC crisis and other macroeconomic uncertainties, co-head of research, Tanushree talks about the Rebirth of India phenomenon and how 3 specific trends are racing ahead even in these gloomy times...

You can read more on these 3 opportunities here: Defence boom, Infrastructure sector reforms and Electric Vehicle Disruption.

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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Indian Share Market Update: Top Gainers and Losers