Sensex Opens Up Over 65 Points; Automobiles Stocks Witness Buying

Wed, 11 Sep 09:30 am

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Asian share markets are higher today as Japanese and Hong Kong shares show gains. The Nikkei 225 is up 0.9% while the Hang Seng is up 1.39%. The Shanghai Composite is trading flat.

Back home, India share markets opened marginally higher. The BSE Sensex is trading up by 66 points while the NSE Nifty is trading up by 22 points. Both, the BSE Mid Cap index and BSE Small Cap index opened up by 0.2%.

Except IT stocks and FMCG stocks, all sectoral indices have opened the day on a positive note with automobiles stocks and metal stocks witnessing maximum buying interest.

The rupee is currently trading at 71.81 against the US$.

From the banking sector, Yes Bank share price is in focus today as the lender is close to securing a deal to sell a minority stake to a global technology company to help boost its capital.

Ravneet Gill, Chief Executive and Managing Director of the corporate and retail bank said that the bank is in fairly advanced level of talks right now.

Gill said the stake sale was likely to be less than 10% initially but could rise, describing the buyer as one of the world's top three technology companies.

Yes Bank later said in a stock exchange notice that news about stake sales was "speculative", adding that the it looks to raise funds as a normal part of its business.

Note that the board has given India's fourth largest private lender the go-ahead to raise more growth capital. The bank has approval to raise US$ 1.3 billion but aims to bring in an additional US$ 1 billion to US$ 1.2 billion via a preferential allotment.

The bank has said the tech investment would help restore investor confidence in Yes Bank shares, which have been witnessing selling pressure of late.

We will keep you updated on all the news from this space.

In the news from the macroeconomic space, addressing media on the 100 days of Modi 2.0 in Chennai, Finance Minister Nirmala Sitharaman said the government was taking steps to increase confidence in financial markets and that the government would try to frontload infrastructure spendings as much as possible.

She further added that the government will soon come out with decisions for the realty sector. There is a need to work with other ministries too for resolution of home buyers' issues.

Commenting on the recent announcements of merger of public sector banks, she said the effective date of bank mergers would be decided by the boards of respective banks. Each bank board will decide on PSU merger dates individually.She said the idea behind bank mergers was to help benefit from each other.

Here's what Tanushree Banerjee wrote about the above bank mergers in a recent edition of The 5 Minute WrapUp...

• Needless to say, most investors would be worried about the level of NPAs and current and savings accounts (CASA) of the merged entities.
  
  Lower NPA ratio and sustenance of high CASA, in the future, could signal the banks' fitness levels to lend more.
  br>But what could go unnoticed is the efficiency potential of the merged entities.
  
  Post merger, the employee per branch ratio of the consolidated PSU entities could be in the range of 7 to 9 per branch. This would be almost half that of their private sector counterparts like HDFC Bank and Kotak Bank.
  
  Leaner operations would mean use of technology to support growth.
  
  So, I would not be surprised if the PSU entities leverage technology at a much bigger scale than their private sector peers, in a few years.

In the news from the auto sector, Finance Minister Nirmala Sitharaman said the slowdown in the automobile sector was due to many factors like the change in mindset of millennials, who now prefer taxi aggregators like OLA and UBER instead of committing for monthly installments to own a car.

The minister said the sector had been affected by several things, including movement towards BS-VI norms and registration related matters and change in mindsets.

She noted that while a whole lot of factors are influencing the automobile sector, the government is all seized of the problem and will try to solve it.

On August 23, in a bid to address the slowdown in the auto sector, Sitharaman had announced lifting the ban on purchase of vehicles by government departments and allowed an additional 15% depreciation on vehicles acquired from now till March 2020.

Also, the government clarified that BS-IV vehicles purchased up to March 2020 would remain operational for the entire period of registration, while also considering various measures, including scrappage policy to boost demand.

How these decisions pan out in the coming months remains to be seen. Meanwhile, we will keep you updated on all the developments from this space.

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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