After opening the day flat share markets in India are trading on a negative note and are presently trading below the dotted line. Sectoral indices are trading on a mixed note, with stocks in the realty sector and stocks in the capital goods sector witnessing maximum selling pressure.
The BSE Sensex is trading down by 100 points (down 0.3%) and the NSE Nifty is trading down by 52 points (down 0.5%). Meanwhile, the BSE Mid Cap index is trading down by 1.6 %, while the BSE Small Cap index is trading down by 2.6%. The rupee is trading at 72.80 to the US$.
In news from the manufacturing sector. Activity in India's manufacturing sector picked up the pace in September supported by strong domestic and export orders.
According to the Nikkei Purchasing Managers' Index (PMI) survey by Markit, India's manufacturing sector increased its pace of expansion in September after a tepid showing in August.
The PMI is the reading of the country's manufacturing sector output and is updated monthly. A reading above 50 indicates expansion, while any score below the mark denotes contraction.
PMI in September stood at 52.2, an increase from the 51.7 reading in August, indicating a sustained expansion. This is the fifteenth consecutive month that the manufacturing PMI remained above the 50-point mark, which separates expansion from contraction.
Manufacturing Activity Shows Growth in September
A surge in oil prices over the past few months means India's retail inflation has remained above the Reserve Bank of India's (RBI) medium-term target of 4% prompting the central bank to raise key interest rates by 25 bps in its latest monetary policy review.
On the prices front, a build-up of inflationary pressures re-emerged as input cost and output inflation was at the strongest since February due to the upswing in global oil prices.
An escalating US-China trade war has pushed up the dollar and hurt emerging-market assets, including the rupee which is down over 13% this year and is ramping up the cost of crude oil imports.
The weaker rupee and oil - India's biggest import - pose a serious upside risk to inflation.
Though Indian manufacturers remained cheerful about growth prospects, worries about the possibility of unexpected policy decisions and a risk of an international trade war weighed on confidence.
It will be interesting to see what stance the RBI takes in its monetary policy meeting due this week.
Moving on to news from stocks in the financial sector. According to a leading financial daily, the government has decided to remove the management of IL&FS following serial defaults by the company and its subsidiaries to lenders.
It was reported that the government has moved the National Company Law Tribunal (NCLT) for a change in the company's management.
The government is likely to supersede the IL&FS board and change the company management. The government intervention comes after IL&FS defaulted on repayments and has had its debt rating downgraded, which has, in turn, roiled the markets. The net-owned funds of the finance company have been wiped out. The IL&FS group has a total debt obligation of over Rs 900 billion, of which bank loans account for Rs 570 billion, mostly from state-run lenders.
The development comes as shareholders of the company have voted in favor of raising Rs 150 billion in the form of debt while the IL&FS bonds trustee had barred it from distributing any dividends.
IL&FS has sought a one year loan of Rs 35 billion to meet payment obligations.
The IL&FS group has a complicated structure, with the holding company owning stakes in its financial services arm as well as the subsidiaries that operate its infrastructure assets.
Further, a look at the shareholding pattern of IL&FS underlines the scale of the problem.
Two of India's biggest entities comprise of the top 5 shareholders in IL&FS. LIC has a 25.3% stake. HDFC Ltd owns 9%. Along with Central bank of India (7.7%) and State Bank of India (6.4%), these entities own almost half of IL&FS.
Adding all these stakeholders signifies how much is at stake on the revival of IL&FS.
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