Sensex Ends Flat; Banking and Power Stocks Witness Selling

Thu, 24 Oct Closing

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After opening the day on a strong note, Indian share markets traded on a volatile note throughout the day and ended their trading session on a flat note.

Sectoral indices ended on a mixed note with stocks in the realty sector and energy sector witnessing buying interest, while banking stocks and power stocks witnessed selling pressure.

At the closing bell, the BSE Sensex stood lower by 38 points and the NSE Nifty closed lower by 22 points. The BSE Mid Cap index ended the day down by 0.4%, while the BSE Small Cap index ended down by 0.1%.

Asian stock markets finished on a positive note. As of the most recent closing prices, the Hang Seng was up 0.9% and the Nikkei 225 was up 0.6%.

The rupee is trading at 71.01 against the US$.

In the news from the macroeconomic space, Fitch Ratings slashed India's GDP growth forecast in the current fiscal to 5.5% saying a large credit squeeze emanating from shadow banks has pushed economic growth to a six-year low.

The ratings agency said the recent government measures to boost economy including a cut in corporate tax rates will gradually nudge growth.

The projection is lower than 6.1% that the Reserve Bank of India (RBI) had forecast in early October.

GDP expansion will pick up to 6.2% in the next financial year (2020-21) and to 6.7% in the year after, Fitch said.

The Indian economy decelerated for the fifth consecutive quarter in April-June, with GDP expanding by a meagre 5%, down from 8% recorded a year earlier.

This is the lowest growth outturn since 2013.

Note that earlier this month, Moody's Investors Service slashed its 2019-20 GDP growth forecast for India to 5.8% from 6.2% earlier, saying the economy was experiencing a pronounced slowdown which is partly related to long-lasting factors.

Moody's had attributed the deceleration to an investment-led slowdown that has broadened into consumption, driven by financial stress among rural households and weak job creation and said the growth will pick up to 6.6% in 2020-21 and to around 7% over the medium term.

On October 15, the International Monetary Fund (IMF) slashed India's GDP growth rate projections to 6.1% from the 7% in July, while World Bank had its estimate for India's GDP growth for 2019-20 to 6%.

It would be interesting to see how these projections pan out. Meanwhile, we will keep you updated on all the developments from this space.

Moving on to the news from the automobile sector, Maruti Suzuki share price was in focus today as the company posted 39.3% year-on-year (YoY) decline in net profit at Rs 13.5 billion for the quarter ended September 2019.

Net sales of the company dropped 22.5% YoY to Rs 161.2 billion in Q2FY20. Sales volume fell 30.2% YoY to 3,38,317 units during the quarter under review.

The carmaker recorded its worst YoY decline in sales in the small car segment in the quarter ended September. During the period, it reported a 62% YoY decline in wholesales in the mini car category, which comprises the most affordable Alto.

Operating EBIT plunged 74.9% YoY to Rs 6.8 billion.

The company's net profit margin, however, rose to 8.4% during the July-September quarter from 7.7% in the previous quarter due to higher fair value gains on invested surplus, cost reduction efforts, and lower advertisement expenses.

The company said that the automobile industry has seen a significant decline in sales this year owing to several factors.

It added that one of the main factors is increase in the cost of acquisition of the car due to various reasons coming together like implementation of more stringent safety and emission (BS6) norms, increase in vehicle insurance expenses and hike in road taxes in many states.

Along with this, the lower availability of finance and increased down payment requirement have affected the affordability of customers to own cars.

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.

The industry's sales and production levels have plunged, leading to job losses. In August, all major OEMs consisting of passenger, commercial, two and three-wheeler manufacturers have reported a massive decline in domestic sales.

As per Society of Indian Automobile Manufacturers' (SIAM) August sales figures, the overall sectoral offtake in the domestic market has plunged 23.6% to 1,821,490 units, from 2,382,436 units sold during the corresponding month of the previous year.

On 20 September, the government had reduced corporate tax rates from 30% to 22% to boost consumer demand and increase spending by private companies. The effective tax to be paid by the companies, including surcharge and cess, will be 25.17%.

However, in the euphoria of the government's tax rate cuts, an important announcement went unnoticed.

The road transport and highways ministry has proposed a huge increase in re-registration of vehicles which are more than 15 years old.

The proposed hike will be implemented from July 2020. The policy change is aimed at reducing pollution by scrapping older vehicles on the road.

As per Co-head of Research, Tanushree Banerjee, this might come as a welcome relief for automakers who have seen severe fall in sales over the past 1 year.

Signs of Revival in the Auto Sector

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

• The upcoming festive season and the recent policy measures might just be the trigger needed to revive the sector.
  
  A leading auto player makes it to my list of 7 stocks to buy.
  
  I believe, rising disposable incomes and aspirations of India's youth, will be the key trends benefiting this market leader in the long run.

As per Tanushree, these are just some of the trends that will play a big part in the Sensex 1,00,000 journey.

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

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