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 182 points (down 0.5%) and the NSE Nifty is trading down by 52 points (down 0.5%). Meanwhile, the BSE Mid Cap index is trading down by 1.4%, while the BSE Small Cap index is trading down by 1.82. The rupee is trading at 72.64 to the US$.
In news about the economy, the government raised import duty on various items in an attempt to curb the widening current account deficit.
India raised import duty on a range of items including air-conditioners, refrigerators, washing machines, footwear, jewellery, furniture fittings and tableware besides imposing it on aviation turbine fuel (ATF).
Basic customs duties have been raised on 19 tariff lines that accounted for an import bill of Rs 860 billion in FY18 by 2.5-10%. Basic customs duty of 5% has been imposed on ATF. The prices of jet fuel will be increased by Rs 2,000 per kilolitre from Thursday, oil refiners have communicated to airlines.
The increased duty is likely to yield about Rs 40 billion in revenue.
India's current account deficit deteriorated to 1.9% of GDP in FY18 from 0.6% in the year before and is forecast to rise to around 2.8% in the current year. Given the uncertain global environment, emerging economies running high current account deficits have seen their currencies depreciate sharply amid interest rate increases by the US Federal Reserve, higher crude prices and an intensifying global trade war.
To add to the woes, the Indian rupee is down about 13% since January.
Talking about currency wars and the falling rupee, we did a small exercise to understand the impact of the weak rupee on the markets.
Should You Be Worried About the Rising Dollar?
India is a net importer. This means if the rupee is weak, the cost of imports increases and value of the export decreases - resulting in a widening current account deficit.
A high current account deficit also impacts the government's spending power.
Also, companies which import raw material witness pressure on their margins and profitably.
So, this looks quite negative on the face of it. So, it's not surprising that markets get volatile when the currency depreciates.
Look at Indian rupee against the dollar from 1990. It has deprecated at a compounded annual rate of 5%.
Yes, the dollar has been on a winning streak from the beginning.
And despite that... the BSE Sensex has returned 14% compounded annually since 1990.
Thus, the falling rupee can bring volatility to the market in the short-term. But in the long-term, our market should be fine.
This is exactly what we keep in mind when picking stocks for Smart Money Secrets subscribers. I cut out the noise of short-term disruptions and look at the long-term picture beyond.
Moving on to news from stocks in the auto sector. Hero Motocorp share price is in focus today after the company announced price hikes for its products.
The country's largest two-wheeler manufacturer said that it will increase prices of its entire range of products by up to Rs 900 with effect from 3 October this year.
The company is doing so to offset the impact of rising input costs and a weakening rupee.
The price hike will translate to an increase of up to Rs 900, although the exact quantum of the increase will vary, basis the model and the specific market.
Notably, the company currently sells a range of bikes and scooters priced between Rs 40,000 and Rs 100,000.
Hero Moto Corp had taken a price of hike of up to Rs 500 last month as well.
In August 2018, Hero MotoCorp reported sold 685,047 units of motorcycles and scooter, witnessing a growth of just 1%, as compared to 678,797 units sold during the same month last year.
At the time of writing, Hero Motocorp share price was trading up by 0.3%.
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