Sensex Ends 262 Points Lower; Oil & Gas and Banking Stocks Witness Selling

Mon, 16 Sep Closing

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Indian share markets witnessed negative trading activity throughout the day and ended lower. At the closing bell, the BSE Sensex stood lower by 262 points (down 0.7%) and the NSE Nifty closed down by 72 points (down 0.7%).

The BSE Mid Cap index ended the day down by 0.3%, while the BSE Small Cap index ended the day up by 0.6%.

Sectoral indices ended on a mixed note with stocks in the banking sector, finance sector and oil & gas sector leading the losses, while consumer durable stocks and FMCG stocks witnessed buying interest.

The rupee was trading at 71.51 against the US$.

Asian stock markets finished on a mixed note. As of the most recent closing prices, the Hang Seng was down by 0.8% and the Nikkei stood higher by 1.1%.

In news from the realty sector, shares of real estate companies were in focus today as the government announced its fourth instalment of micro-boosters aimed at the housing sector.

The government on Saturday announced that a special fund worth Rs 200 billion will be set up to provide funding to housing projects for the affordable and middle-income segment that are not currently declared non-performing assets nor are part of insolvency proceedings.

Contributions to the fund are to be shared almost equally among the government and outside investors.

External commercial borrowing (ECB) guidelines will be further relaxed to facilitate financing of affordable housing projects. The interest rate on house building advances for government officials will be lowered and linked to the 10-year government securities yields.

Shares of DLF, Prestige Estates, and Sunteck Realty fell around 3% intraday even after the government announced measures and stimulus to boost the sector.

In the video below, Research analyst, Sarvajeet Bodas talks about how Modi's push towards affordable housing can revive the real estate sector and accelerate the economic activity:

In news from the economy, India's wholesale inflation remained at 1.08% in August, the same level as the previous month. In July, wholesale inflation as measured by the Wholesale Price Index (WPI) was at a 25-month low of 1.08%.

However, it eased on a year-on-year (YoY) basis. In August 2018, the WPI had risen to 4.62%.

Inflation in fuel and power declined 4% from a 3.64% fall in July and that in manufactured products was flat from a 0.34% growth in the trailing month.

In an official release, the commerce and industry ministry said, "the rate of inflation based on WPI Food Index consisting of 'Food Articles' from Primary Articles group and 'Food Product' from Manufactured Products group increased from 4.54% in July 2019 to 5.75% in August 2019."

Data released last week showed that India's retail inflation had climbed to a 10-month high of 3.21% in August but stayed below the central bank's 4% medium-term target, strengthening expectations of another rate cut next month.

This is the thirteenth month that retail inflation has stayed under the target of 4% set by the Reserve Bank of India. The central bank factors in CPI-based retail inflation while planning its monetary policy.

Moving on to news from the commodity space, Gold and silver prices in India jumped sharply today tracking higher global rates and a softer rupee.

On MCX, gold futures rose 1.7% to Rs 38,163 per 10 grams as compared to Friday's close of Rs 37,503. Silver prices also shot up by 3% to Rs 47,087 per kg.

In global markets, gold and silver prices shot up as Middle East geopolitical tensions boosted the demand of safe-haven assets like gold. Prices jumped as much as 1.6% to US$ 1,512.

Also driving gold prices higher were expectation of further rate cuts from the US Federal Reserve at its September 17-18 meeting. Earlier this month, global gold prices hit a six-year high above US$ 1,550 an ounce as slowing global growth drove expectations of central bank easing.

Speaking of gold, co-head of research, Tanushree Banerjee shares some interesting information on the Sensex to Gold (per 10 grams) ratio going back 15 years.

Have a look at the chart below:

Sensex versus Gold in Fairly Valued Zone

Here's what she wrote about it in one of the editions of The 5 Minute WrapUp...

• While the ratio has been quite volatile, the average ratio turns out to be 1.
  
  In other words, whenever the Sensex has risen at a much faster pace than gold prices, its fall has also been equally precipitous. The reason behind this volatility is not hard to find.
  
  Stock markets are more amenable to manipulation than gold prices are.
  
  Thus, if the Sensex to gold price ratio is way more than one, it could be a signal the Sensex is overvalued.
  
  Alternatively, if it is way below one, it could mean that Sensex is undervalued.
  
  The ratio stands at around 1.09 currently, indicating that the Sensex is trading pretty close to its fair value!

Thus, even though the market correction seems overdone in mid and smallcaps, the bluechips, particularly those in the Sensex, aren't undervalued yet.

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

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