Fall in Auto Sales, Rising Crude Oil Prices, and Top Cues in Focus Today

Thu, 11 Jul Pre-Open

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India share markets witnessed selling pressure yesterday.

At the closing bell yesterday, the BSE Sensex stood lower by 173 points (down 0.5%) and the NSE Nifty closed down by 57 points (down 0.5%).

The BSE Mid Cap index ended the day down 0.7%, while the BSE Small Cap index ended the day down 0.8%.

Sectoral indices ended on a negative note with stocks in the capital goods sector and realty sector witnessing most of the selling pressure.

Top Stocks in Focus Today

From the IT sector, Tata Consultancy Services (TCS) share price will be in focus today as the company on Tuesday posted a net profit of Rs 81.3 billion, a 10.8% rise over the corresponding period of the previous financial year.

Sequentially, the rise was marginal. During the April-June period, the Mumbai-based firm reported an 11.4% rise in revenue at Rs 381.7 billion on a year-on-year (YoY) basis while it was 0.4% higher over the preceding quarter.

In dollar terms, revenue was US$5.5 billion, up 8.6% YoY, while the rise in constant currency terms was 10.6%.

From the aviation space, shares of InterGlobe Aviation (IndiGo) will be in focus today. The stock of the carrier witnessed huge selling pressure yesterday as one of the promoters Rakesh Gangwal approached markets regulator over alleged corporate governance issues at the airline.

As per an article in The Economic Times, Gangwal alleged that a shareholders' agreement gave Rahul Bhatia unusual controlling rights over the company. Gangwal held 36.7% stake in the airline as of the latest filing. Co-promoter Rahul Bhatia, on the other hand, owned 38% stake in the airline.

He suspected that the rights and a lack of diversity and paucity of independent directors may be at the root of why governance matters have taken a back seat at IndiGo.

From the banking sector, market participants will be tracking State Bank of India (SBI) share price as the state-run lender has lowered its lending rates by 5 basis points (bps) across all tenors, with effect from July 10, 2019.

Auto Sales Decline in June

Data released by the Society of Indian Automobile Manufacturers (SIAM) showed domestic passenger vehicle (PV) sales declined by 17.5% last month on a year-on-year (YoY) basis. PV sales stood at 2,25,732 units in June from 2,73,748 units in the year-ago period.

Domestic car sales were down 24.9% to 1,39,628 units as against 1,83,885 units in June 2018.

Motorcycle sales last month declined 9.5% to 10,84,598 units as against 11,99,332 units a year earlier.

Sales of commercial vehicles were down 12.2% to 70,771 units in June against 80,670 units in the same period a year ago.

Total two-wheeler sales in June declined 11.6% to 16,49,477 units compared to 18,67,884 units in the year-ago month.

Vehicle sales across categories registered a decline of 12.3% to 19,97,952 units from 22,79,186 units in June 2018.

In fact, all vehicle categories witnessed decline in sales during the month.

Note that the past months have been difficult for the auto sector owing to weak demand and liquidity issues. The sector expected some sops from the Union Budget on Friday. The Budget did address liquidity concerns in the system but failed to impress the industry with specific measures.

Auto manufacturers are now hoping for a normal monsoon and expect revival in sales as the liquidity crunch gets addressed.

Notably, the Indian auto sector is in the middle of a storm.

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.

Only the ones adapting their business models to the rapidly changing environment will survive and thrive.

Crude Oil Continues Momentum

Oil prices witnessed buying interest yesterday after an industry group reported that US stockpiles fell for a fourth week in a row.

Gains were also seen as market participants turned their attention to the tension around Iran and OPEC's extended cuts.

The market has been concerned that Russia wouldn't fully comply with the extended cuts.

In the coming days, market participants will be tracking OPEC and the International Energy Agency's (IEA) monthly reports on the state of the oil market this week.

Also, in other news for crude oil, India's crude oil production in May year fell 7% to 2,800 thousand metric tonne (TMT) due to fall in production from fields operated by Oil and Natural Gas Corporation (ONGC), Oil India, and private operators.

The fall in domestic crude oil production pushed the country's crude oil import dependence to 85% in the month as compared to 83.8% recorded in the corresponding month a year ago.

As per the data, cumulatively, domestic crude oil production decreased 7% to 5,519 TMT during the first two months (April-May) of the current financial year (2019-2020), as compared to the corresponding period a year ago.

Note that rising crude oil prices coupled with decreasing production has a big impact on the Indian economy as it imports most of its energy needs.

Rise in crude oil increases input costs for dependent firms. It also means rising inflation. Rising inflation means rising interest rates.

It also puts pressure on the government to cut excise duty, thereby impacting its revenues. We have already seen that happening.

How this all pans out in the coming months remains to be seen.

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

To know more on crude oil, you can read one of Vijay Bhambwani's recent articles: Is OPEC Dying?

And 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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