Sensex Opens Flat; Oil & Gas Stocks Lead the Losses

Wed, 21 Dec 09:30 am

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Asian markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.16% while the Hang Seng is down 0.83%. The Shanghai Composite is trading down by 0.25%. Stock markets in the US closed their previous session on a negative note.

Meanwhile, Indian share markets have opened the day on a flat note with a negative bias. The BSE Sensex is trading lower by 62 points while the NSE Nifty is trading lower by 19 points. The BSE Mid Cap index and BSE Small Cap index both opened the day flat. The rupee is trading at 67.87 to the US$.

Sectoral indices have opened the day on a mixed note with realty and healthcare stocks witnessing maximum buying interest. While, losses were largely seen across infrastructure, oil & gas stocks.

As per an article in The Economic Times, India's oil imports from Iran fell 19% in November from a record high the previous month. This comes on the back of regional rivals Saudi Arabia and Iraq, raising sales to the world's third-biggest oil consumer, regaining their positions as the top two suppliers.

The November drop came before OPEC members and other global producers agreed to cut output in a bid to boost weak oil prices. Supplies from Iran to India more than doubled in January-November to 468,900 bpd from 205,900 bpd in the same period last year.

One must note that, India's daily oil imports from Iran in August had surged to their highest in at least 15 years. This rise was due to Iran's boost to its shipments to recoup market share ceded to rivals Saudi Arabia and Iraq under pressure from economic sanctions.

According to ship tracking data, Shipments from Tehran, western sanctions against which were lifted earlier this year, were about 620,000 barrels per day (bpd) oil in November. India's average Iranian oil imports in April-November rose 126% to 532,100 bpd. Altogether, India imported an average 4.28 million bpd of crude in the January-November period of 2016.

Apparently, the oil glut is a result of a clash between two titans battling for supremacy - OPEC led by Saudi Arabia and non-OPEC led by the US (with its shale revolution). Crude prices have fallen to decade lows. While the cost of production for economies like Saudi Arabia is much lower, these economies survive and thrive only on oil.

So with oil prices in a downward spiral, these economies have suffered the most. Huge surpluses are swinging into deficits. The chart below shows the price of oil required to balance the budget of these countries.

Can Arab nations balance their budgets?

As per the IMF (International Monetary Fund), most countries in the Middle East (which are largely responsible for the oil glut), including Saudi Arabia, will run out of cash within five years if oil stays below US$50 per barrel.

Moving on to the news from stocks in consumer durables sector. Titan Company Limited's sales, both in the jewellery and watches segments, took an immediate hit in the days following the government's demonetisation announcement on November 8.

The sales were impacted as much as 25% in the week following the decision of scrapping out higher denomination notes. For the entire month, the drop was around 5%. The impact has been felt more in smaller towns and on the network of around 800 dealers the company has, across the country. This was on account of cash being the preferred mode of payment.

Conversely, plastic card usage by customers had picked up at the retail stores. About 50% of the sales prior to demonetisation, card usage is over 70% now, the company stated.

Not surprisingly, sectors whose revenues have been hit the hardest by demonetisation have seen the biggest declines in their stock prices. The worst affected businesses are real estate, consumer durables and auto sectors.

However, the company expects to sustain the growth momentum in spite of some temporary setback due to demonetisation. Overall, Titan expects the growth in turnover to be in single digit this fiscal.

Speaking of demonetisation woes, Rohan Pinto has penned a very interesting piece in our latest edition of The 5 Minute WrapUp. Here's an excerpt:

"Even if the intentions were right and just, the execution has gone horrendously wrong. We as citizens of this country give full support to the idea of eradicating black money. And look forward to other methods of doing so apart from demonetisation.

However, we want to ask. Will our post demonetisation pain go in vain? Will the government stand up and take responsibility of its citizen's plight?"

Titan's share price opened the trading day down by 0.7%.

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