Sensex Ends 147 Points Higher; Metal and Auto Stocks Witness Buying

Tue, 27 Aug Closing

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Indian share markets witnessed buying interest during closing hours today and ended their trading session marginally higher.

On the sectoral front, gains were seen in the metal sector and auto sector.

At the closing bell, the BSE Sensex stood higher by 147 points (up 0.4%) and the NSE Nifty closed higher by 48 points (up 0.4%).

The BSE Mid Cap index ended up by 0.5%, while the BSE Small Cap index ended the day up by 1.6%.

Asian stock markets finished on a mixed note as of the most recent closing prices. The Hang Seng stood down by 0.06% and the Nikkei was trading up by 0.96%, while the Shanghai Composite was trading up by 1.35%.

European markets were also trading on a mixed note. The FTSE 100 was down by 0.33%. The DAX was trading up by 0.19%, while the CAC 40 was down by 0.01%.

The rupee was trading at 71.64 to the US$ at the time of writing.

In the news from the macroeconomic space, Former Deputy Governor of the Reserve Bank of India (RBI) said the surplus transfer to government for next year will depend on whatever surplus RBI has for 2019-2020 and then they will have to look at the reserves.

At that point in time, if the proportion in balance-sheet is less than 5.5%, then it has to retain part of the surplus so that the minimum 5.5% is maintained.

It can also transfer more if it wants to increase the reserves to the limit of 6.5%. But that will depend on the Reserve Bank board. So, that decision will be taken next year.

Note that the RBI is going to transfer a surplus of Rs 1.8 trillion to the government as it has approved the recommendations of Bimal Jalan committee at the central board meet held in Mumbai on August 26.

The transfer sum comprises of Rs 1.2 trillion of surplus for the financial year 2019 and Rs 526.4 billion of excess provisions identified under the revised Economic Capital Framework (ECF) that was adopted at the central board meet.

Reportedly, the Central Board accepted all the recommendations of the Committee and finalised the RBI's accounts for 2018-19 using the revised framework to determine risk provisioning and surplus transfer.

The Central Board decided to maintain the realized equity level at 5.5% of the balance sheet as recommended by the committee, down from existing 6.8%. The resultant excess risk provisions of Rs 526.4 billion were written back, RBI said.

As per Tanushree Banerjee, co-head of research at Equitymaster, this is a positive step if the above transfer is measured and goal oriented.

As per her, it could be a catalyst for the economy's turnaround. Tune in to find out the impact of surplus transfer by RBI on the economy:

Moving on to the news from the auto sector, Maruti Suzuki India Chairman RC Bhargava said that Modi government's ambition of reaching US$ 5 trillion economy in the next five years can get derailed if states don't realise their role in promoting manufacturing.

Bhargava said it is time for state governments to become partners in making manufacturing industry grow and recognise the importance of its role in the overall automobile industry.

Earlier this month, Bhargava said that the Modi government is finally looking to step in and take some action to help the beleaguered auto sector.

He had said he believes that despite several prior requests and demands of the sector having fallen on deaf years, the industry can now look forward to an intervention. And it is likely to come from the highest echelons of the government.

He added that the Prime Minister has become aware and taken cognizance of the things that are happening and the Finance Minister has also become fully aware of the crisis, and she knows it affects the economy, the budget, tax revenues and everything.

As per Bhargava, the auto industry should expect government intervention and the government also has to become aware of all the factors that have happened, like the states imposing (higher) road tax, insurance, banks doing something.

Note that 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.

Automobile sales have fallen every month for almost a year now, except for October when the numbers were flat. In June, nine out of India's 11 main passenger vehicle makers reported a double-digit decline in sales.

Reports state that many dealers who have recently entered the auto industry are finding it difficult to manage their repayment obligations. Banking industry experts estimate the total outstanding loans to automobile dealers to be in the range of Rs 700-800 billion.

However, it is interesting to note that despite the slowdown in the auto sector, the sales volume of electric vehicles (EVs) are growing at a robust pace.

Have a look at the chart below:

Electric Vehicle Sales on a High Growth Trajectory!

Electric-2 wheelers sales volume registered 130% YoY growth in FY19. 4-wheeler EVs grew by 200% YoY.

Similarly, electric three-wheelers reported the highest sales volume of 630,000 units. It is important to note that the electric three-wheeler industry has been growing without government support.

The base is quite low compared to the internal combustion engine (ICE) vehicle sales. However, you cannot ignore the growing momentum in EV sales.

The recently announced government incentives will give a further boost to EV sales.

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.

In our view, companies in the sector adapting their business models to the rapidly changing environment will survive and thrive.

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

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