After opening the day on a positive note, stock markets in India have continued their momentum. Sectoral indices are trading on a positive note with stocks in the metal sector and healthcare sector witnessing maximum buying interest.
The BSE Sensex is trading up 168 points (up 0.5%) and the NSE Nifty is trading up 45 points (up 0.4%). The BSE Mid Cap index is trading up by 0.7%, while the BSE Small Cap index is trading up by 0.6%. The rupee is trading at 65.24 to the US$.
From the automobile space, Ashok Leyland share price is witnessing buying interest today as the company informed bourses that it has won an order for 10x10 vehicles to carry the smerch rockets from the Ministry of Defence.
In the news from macroeconomy space, India's factory output remained strong in February. The index of industrial production rose 7.1% in February over the year, compared with a revised 7.4% growth in the previous month, according to data from the Ministry of Statistics and Programme Implementation.
The consumer durables and consumer non-durables segments recorded a growth of 7.9% and 7.4%, respectively. The pace of mining activity, however, declined 0.3%, which was seen on the back of a decline in coal production.
Note that the industrial production has been rebounding since October when it slowed to 1.8%, as can be seen from the chart below:
India's Industrial Production is Improving
How does IIP data affect the stock market in India?
Low consumer spending means low demand. Producers react to low demand by reducing their production. Lower industrial production means lower sales and profits for corporates.
On the other hand, strong IIP growth means higher demand which leads to higher production. This will ultimately result in higher corporate sales and profits.
These numbers though look better due to the low base of last year. Last year's production was disrupted due to the effects of demonetization.
Going forward, it will be interesting to see if India maintains this growth momentum.
In the news from commodity markets, crude oil is witnessing buying interest today. The commodity is headed for its biggest weekly advance in more than eight months on speculation that tensions in the Middle East may lead to supply disruptions, reinforcing a buy call on commodities by Goldman Sachs Group Inc.
Crude oil recorded new-highs of 2018 this week as the risk of conflict in Syria, as well as ongoing tensions between Saudi Arabia and Iranian-backed rebels in Yemen, raised concerns over supply security in the energy-rich region.
While OPEC said its output last month fell to the lowest in a year, with worldwide inventories set to decline significantly later this year, the International Energy Agency (IEA) sees a second wave of shale revolution in the US.
How this pans out remains to be seen. We will keep you updated on all the developments from this space.
Note that crude oil prices have been witnessing a rising trend of late.
However, this is not good news from India's perspective.
As we wrote in a recent edition of The 5 Minute WrapUp...
- Fiscal revenues are at risk. Particularly if the government is forced to consider a cut in fuel excise duties due to a rally in oil prices. In recent times, a sharp jump in excise collections has helped indirect tax collections. Any risk to revenues and subsequent threat to the fiscal deficit target at 3.2% of GDP would require tighter spending cuts.
Secondly, the impact on inflation needs to be monitored. This narrowing the central bank's scope for further rate cuts.
Lastly, low crude prices were a positive growth impetus through higher discretionary incomes for households and lower input costs for manufacturers and farmers. Part of this benefit is likely to be eroded as retail fuel costs rise. As for corporations, expansion in gross margins caused by falling commodity prices is also likely to wane, pressurising profitability.
You can read the entire article here.
Comments
Log in or sign up to join the conversation.