Listless Gains for Indian Indices

Fri, 2 Sep 11:30 am

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After opening the day on a flat note, the Indian stock markets have continued to trade near the dotted line. Sectoral indices are trading on a mixed note with stocks from the <>auto, realty and consumer durables sectors leading the gains. Metal and energy stocks are trading in the red.

The BSE Sensex is trading up by 67 points (up 0.2%) and the NSE Nifty is trading up by 14 points (up 0.2%). The BSE Mid Cap index and the BSE Small Cap index are also trading positively, both up by 0.5%. The rupee is trading at 66.83 to the US$.

US factory activity contracted in August for the first time in six months. This was seen as new orders and production tumbled.

The Institute for Supply Management (ISM) said its index of national factory activity fell 3.2% to a reading of 49.4 last month. This was recorded as the first contraction since February. The index, however, remained above the 43.2 threshold that is associated with a recession.

A reading below 50 indicates a contraction in manufacturing, which accounts for about 12% of the US economy.

There are two primary reasons for this contraction seen in the manufacturing sector. One is the dollar's surge between June 2014 and December 2015. This coupled with weak global demand, which is weighing in most economies right now, have crimped export growth for the US. Second, a collapse in oil drilling activity followed by a plunge in crude oil prices has undermined business spending and led to weak demand for heavy machinery. This has also weighed on manufacturing sector in the US.

However, amid this dull data, low level of payoffs pointed towards a pickup in economic growth in the third quarter.

Also, in a separate report the Labor Department said that initial claims for state unemployment benefits increased 2,000 to a seasonally adjusted 2,63,000 for the week ended August 27. This was recorded as the 78th consecutive week when claims remained below the 3,00,000 threshold which represents a robust labor market.

While manufacturing remains constrained, sustained labor market strength could push the Fed closer to raising interest rates later this year. That said, all eyes are now set on the payrolls report for August that is going to be released later today. The report is said to determine whether the Fed raises interest rates again later this month or in December.

The Fed's stance on interest rate hike has fuelled much volatility in the global markets of late. And the question comes as: How can one avoid capital loss amid such volatility? Asad Dossani has tried to address this in his article -  Don't fight easy money. Further, I would strongly recommend you to read articles highlighting  trading principles from Warren Buffett and how traders can measure their trading performance authored by Apurva Sheth, editor at Daily Profit Hunter.

Moving on to the news from commodity space... Crude oil took most of the headlines this week. The commodity witnessed selling pressure on the back of a host of concerns.

First came the concerns from Iraq and Iran. Data released during the start of the week showed an increase in the production levels. Further, Iran said it would co-operate on the issue of freezing output if fellow exporters recognise its rights to fully regain market share. One must note that Iraq has planned to increase exports of Kirkuk crude by 1,50,000 bpd from its northern fields. This has raised concerns that the meeting ahead in September will conclude without any major changes.

Apart from this, high inventory levels also weighed on crude oil prices. Industry stocks data released during the week indicated a build in US crude inventories. US crude stocks rose 942,000 barrels in the week to August 26 to 525.2 million. Also, the Energy Information Administration (EIA), on Wednesday, reported a higher-than-expected build in US inventories.

All these concerns meant crude oil witnessing its worst weekly decline since January. The only positive side now is the higher growth anticipated for some major oil consuming economies. A higher growth will lead to higher oil consumption in coming months, particularly with the onset of winter.

With these triggers, does it make sense to bet on oil? Are crude oil companies a good long-term investment? One of our editions of The 5 Minute WrapUp titled 'This Could Be the Biggest Buying Opportunity Out There' answers these questions. Also, Vivek Kaul, editor of Vivek Kaul's Diary, has written on how the Indian government has captured most of the fall in crude oil prices.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

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