Sensex Opens Flat; Euro Drops after Italy's Referendum

Mon, 5 Dec 09:30 am

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The euro dropped to a 20-month low in Asia as investors assessed the implications of the resignation of Italian Prime Minister Matteo Renzi after he suffered a humiliating defeat in a referendum over constitutional reforms. Asian markets are lower in early trade as Chinese and Hong Kong shares fall. The Shanghai Composite is off 1.37% while the Hang Seng is down 0.22%. The Nikkei 225 is down 0.64%. Stock markets in US closed their previous session on a flat note.

Meanwhile, Indian share markets have opened the day on a flat note with negative bias. The BSE Sensex is trading lower by 14 points while the NSE Nifty is trading lower by 10 points. The BSE Mid Cap index opened up by 0.2% while BSE Small Cap index opened up by 0.1%. The rupee is trading at 68.37 to the US$.

Barring information technology stocks, all sectoral indices have opened the day on a positive note with metal, auto and infrastructure stocks witnessing maximum buying interest.

Steel stocks are trading mixed with Tayo rolls and leading the losses. As per an article in The Economic Times, the government has extended the minimum import price (MIP) for 19 colour-coated and galvanized steel products till 4 February 2017, without tweaking the price range. The MIP ranges between US$643 a tonne and US$752 a tonne. The 19 products include semi-finished products of iron or non-alloyed steel, flat-rolled products of different widths, bars and rods.

India has again extended the floor price of imports of steel products for a further two months. The move comes as the government is aiming to protect the domestic industry from cheap overseas shipments, especially from China.

Net Steel export by China

As you can see from the above table, China's exports zoomed post-2012. With tepid domestic demand, China began to export or rather dump their production to other countries, including India.

Accelerating imports at predatory prices from steel surplus countries like China, Japan and Korea have been a major concern area for the domestic industry since September 2014. Domestic steel makers such as JSW Steel Ltd, Tata Steel Ltd and Jindal Steel & Power Ltd had lobbied the government to take more measures to protect margins from cheap imports from these countries.

One must note that, the MIP was introduced for six months in February. To guard domestic steel producers against in-bound shipments that are sold at below-cost rate, the government in February had imposed MIP. It ranged between US$341 to US$752 per tonne, on 173 steel products for six months. It was extended from its initial expiry in August to October 4, and then till December 4. Shortly after the MIP was imposed, steel imports started falling and the domestic industry's sales and margins picked up. But after correcting positively till May, steel prices became very volatile and now are on the upswing, the reports noted.

According to Indian Steel Association, the industry has been able to marginally improve viability after a long period of subdued prices and eroded profit margins post the imposition of MIP in February. However, the most prominent question is if the market supply is higher than demand, whether the extension of MIP significantly help the steel industry? (Subscription Required). Sarvajeet Bodas, our research analyst is of the opinion that if demand doesn't grow in the coming months, we may not see a significant improvement in steel realizations despite the protection measures.

Moving on to the news from stocks in auto-ancillaries sector. As per an article in a leading financial daily, Bharat Forge has completed the acquisition of US-based Walker Forge Tennessee LLC (WFT) and PMT Holdings Inc, USA through its wholly-owned subsidiary Bharat Forge America. The deal is worth US$ 14 million (around Rs 1 billion).

As per the deal, WFT and PMT Holdings Inc, would become an indirect subsidiaries of the company. WFT is a supplier of complex, steel and high-alloy steel, engine and chassis components to a diverse group of customers across automotive and industrial sectors.

This move comes after the company announced the acquisition last month. Bharat Forge is aiming at expanding its product range in automotive and other industrial segments.

Post-acquisition, WFT has been renamed as Bharat Forge PMT Technologies LLC, while PMT Holding Inc has been renamed as Bharat Forge Tennessee Inc. Moreover, the firm is expected to record revenues of US$28 million this year with a balanced revenue mix across automotive and industrial sectors, the reports noted.

Considering the stocks in auto-ancillary space, how should you go about picking stocks from this segment? Tanushree Banerjee, Co-head of research has penned an interesting piece in our recent edition of The 5 Minute Wrapup. She is of the opinion that, besides healthy balance sheet, good growth prospects, sound management, one must look out for technological expertise, market position and strength of the aftermarket (Subscription Required) while picking stocks from this industry.

Bharat Forge's share price opened the day up by 0.3%.

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

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