Sensex Continues Downtrend; Realty Stocks Witness Selling Pressure

Wed, 2 Nov 11:30 am

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After opening the day weak, the Indian share markets registered further losses and are trading in the red. Sectoral indices are trading on a negative note with stocks from the energy sector and the realty sector witnessing maximum selling pressure.

The BSE Sensex is trading down 296 points (down 1.1%) and the NSE Nifty is trading down 95 points (down 1.1%). Meanwhile, the BSE Mid Cap index is trading down by 1.6%, while the BSE Small Cap index is trading down 1.5%. The rupee is trading at 66.84 to the US$.

Financial markets across the globe are trading on a volatile note ahead of some major economic decisions. Most of this volatility is fueled by two economic events: the US presidential elections and the outcome of the US Fed's interest rate meeting scheduled today.

In the news related to US presidential race, a new survey showed Democratic candidate Hillary Clinton with a 1 percentage point national lead over Republican rival Donald Trump. Also, the FBI's fresh investigation of newly-discovered emails that might relate to Hillary Clinton's use of a private email server when she was the Secretary of the State has weighed on the democratic presidential candidate's poll prospects.

Another major development that market participants are keeping tab on, is the Federal Open Market Committee (FOMC) meeting scheduled later in the day. Hopes are that the US Federal Reserve will keep interest rates unchanged in this meeting but set a stage for a hike in December. In their economic projections released last month, 14 of 17 Fed officials indicated they expected to raise rates before the end of this year.

Owing to the above developments, stock markets witnessed selling pressure and the US dollar extended its downtrend seen yesterday.

We believe, investors must be prepared to witness increasing volatility in the stock markets. Apart from the developments in the global economy, several domestic factors are likely to influence the course of the stock markets in the coming times.

Our message to investors is to not fear volatility and uncertainty. Instead, use it to your advantage as increased volatility could throw up bargain buying opportunities.

In the news from domestic stock markets, the government is said to steer clear the Tata-Mistry tussle. As per an article in the Economic Times, ousted Tata Group Chairman Cyrus Mistry has sought an appointment with Finance Minister Arun Jaitley, who also heads the Ministry of Corporate Affairs. However, the government has decided to stay clear of the boardroom tussle in Tata Group.

Earlier, last week, Cyrus Mistry had warned that the Tata giant may face US$ 18 billion in write-downs because of five unprofitable businesses he inherited. The Securities and Exchange Board of India (SEBI) is going to seek a detailed report from the Tata group companies to look into possible violation of corporate governance and listing norms referred by Cyrus Mistry.

Vivek Kaul, in a recent article, points out one basic lesson in investing from the Tata-Mistry spat. As per him, the fall in market capitalisation of Tata group of companies is not as much as is being made out to be. Also, one of the recent editions of The 5 Minute WrapUp offers some of the lessons from the Tata Group slowdown. While doing so, it explains why every stock from even the best business groups are not the best long term bets.

Owing to the above saga, shares of Tata Group companies have witnessed selling pressure in the past few days. ValuePro editor, Radhika has written a series about which Tata Group companies are investment worthy and which are not in  HYPERLINK "https://www.equitymaster.com/valuepro/?utm_source=submenu" \t "_blank" ValuePro Contenders.

Lastly, the good news is that India is planning for a new duty cut formula to reduce the trade deficit with China. As per the recent news, India is considering ways to reduce the onslaught of Chinese goods entering the local market by reducing and delaying duty concessions to China.

While nothing is finalised yet, it is noted that Indian will maintain a separate negative list of items on which it will give limited or no tariff concession to Chinese imports under the Regional Comprehensive Economic Partnership (RCEP) trade agreement.

The above move, if implemented, could help India in containing its rising trade deficit with China.

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