Sensex Remains Flat; Realty Stocks Witness Selling Pressure

Fri, 4 Nov 11:30 am

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After opening the day on a flat note, the Indian share markets have continued to trade near the dotted line. Sectoral indices are trading on a mixed note with stocks in the healthcare sector, realty sector and metal sector witnessing maximum selling pressure. FMCG stocks are trading on a positive note.

The BSE Sensex is trading down 24 points (down 0.1%) and the NSE Nifty is trading down 18 points (down 0.2%). The BSE Mid Cap index is trading down 1%, while the BSE Small Cap index is trading down by 2.1%. The rupee is trading at 66.71 to the US$.

Indian stock markets saw a host of macroeconomic data releases today. One was the finalization of GST tax rates, which was announced after market hours' yesterday. The development came as GST Council decided upon a multi-layered tax rate system. The Council finalised a four-tier tax structure, with the tax rate on items of mass consumption at 5%. Other slab rates decided by the Council are 12%, 18%, and 28%. To know more on this, please read our previous stock market commentary here. Also, to get a detailed view on the Goods and Services Tax (GST), you can read Vivek Kaul's report titled GST & You: What the Media DID NOT TELL YOU About the GST.

While market participants were busy gauging the effect of GST rates on the economy, there came another set of positive data for the private sector activity in India. Data released showed the Nikkei India Composite Purchasing Managers Index (PMI) - a gauge of private sector activity in the country - reaching its highest level since January 2013 in the month of October. The index, which reflects the activities both in manufacturing and service sector, came in at 55.4 for October 2016. This could essentially mean that a recovery is around the corner led by good monsoon and an increase in consumption.

Taking cues from the above announcements, Indian share markets went on to trade on a volatile note. Further impact of the above factors will likely be seen during the trading day ahead.

But that was not all. Another good news in the room came as the Centre announced the imposition of an antidumping duty on imports of steel wire rods from China. The duty is levied in order to protect domestic manufacturers from cheap inbound shipments.

Reportedly, the Department of Revenue notified that an anti-dumping duty is being imposed for six months on import of wire road of alloy or non-alloy steel from China.

The above move is also in line with government's efforts to reduce the onslaught of Chinese goods entering the local market by reducing and delaying duty concessions to China.

Earlier this week, news reported India planning for a new duty cut formula to reduce trade deficit with China. While nothing is finalised as of yet, it was 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 move, if implemented, will help India in containing its rising trade deficit with China.

In the news from global markets, the Bank of England (BoE) almost doubled its economic growth forecast for 2017. While doing so, it also warned that households face a sharp upturn in inflation over the next few months. As per the BoE, the rise in the cost of living is now predicted to shoot up to 2.7% next year, nearly three times its current level of 1%.

The new forecast was delivered as the BoE kept its interest rates at a record low of 0.25% and dropped plans to cut them further in the near future. However, the bank tempered the inflation warning with a projection that economic growth will be much stronger than previously forecast in the near-term.

While the short term projections made by the central bank seem favorable, there is still substantial uncertainty in the longer term as the economy is not forecast to recover its 2016 pace of growth.

One shall note that developed nations today are struggling through a period of low to no growth. The reasons are many- ranging from central bank policy measures to deleveraging and demographics. The average consumer is saddled with large debts and is looking to pay them off. This means a lower outlook for growth. This low growth scenario is one of the reasons for all the scrutiny we see over interest rates.

The global economic system is totally and utterly dependent upon more and more debt to achieve even a modest amount of growth. This is a giant Ponzi scheme, needing more debt at the base to support the apex. The cracks are starting to appear. European banks, US corporate defaults, a realisation that negative rates are not working, earnings downgrades in the US... The system is so unstable it may only take the flap of a black swan's wing to send it all crashing down. If you're interested in knowing what's really happening in the world of man and money, you can claim your free copy of Bill Bonner's latest book, Hormegeddon (just pay Rs 199 for shipping and handling).

We believe, one must be prepared to witness increasing volatility in the stock markets. Apart from the above development, several domestic factors are likely to influence the course of Indian stock markets in the coming times. Instead of fearing volatility and uncertainty one must use take advantage as increased volatility could throw up bargain buying opportunities.

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

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