Indian share markets ended over 1% higher today aided by a firm rupee against the dollar. At the closing bell, BSE Sensex ended up by 461 points, while, NSE Nifty ended up by 159 points.
Except IT stocks, all sectoral indices ended the day in green with realty sector and consumer durables sector surging over 4%.
Globally, Asian stock markets finished higher today with shares in China leading the region. The Shanghai Composite ended up 0.2% while Japan's Nikkei 225 was also up 0.2% and Hong Kong's Hang Seng closed up by 0.1%. European markets are lower today with shares in France off the most. The CAC 40 is down 0.6% while Germany's DAX is off 0.6% and London's FTSE 100 is lower by 0.2%.
The rupee was trading at Rs 74.17 against the in the afternoon session.
In the news from the economy. Global rating agency Moody's Investors Service has termed government's decision to cut excise duty on petrol and diesel as credit negative for the India.
Moody's stated that this will reduce government revenue and increase fiscal deficit by 0.1% to 3.4% of Gross Domestic Product (GDP) in the year ending March 2019.
It also said that the earning of public sector oil marketing companies (OMCs) would be negatively affected as they also absorbed Rs 1 per litre cut in their pricing. It added that these measures create downside risks to the central government's fiscal deficit target of 3.3% of GDP for financial year 2018.
The rating agency said as the government had already met 94.7% of the budgeted annual deficit by August 2018, to achieve its deficit target it will likely need to compress capital expenditure. Consequently, it expects the central government deficit target to slip modestly to 3.4% of GDP, while the combined general government deficit (central and state) should remain at about 6.3% of GDP.
It said that the government revenue from excise duties on petroleum products has more than doubled since financial year 2014. State governments charge value added tax (VAT) on fuel as a percentage of prices and have therefore benefited from rising oil prices.
On OMCs, Moody's said even as the government so far has been committed to market-based pricing, going ahead there are risks to going back on deregulation. However, with important state elections at the end of this year and the general election next year, the risk of backsliding on these commitments will increase if oil prices remain elevated.
On the economic growth, it said that the fuel excise cut is expected to have a limited effect on GDP growth. Although lower excise taxes will help offset some of the negative effect on household consumption from higher oil prices, a depreciating rupee and potential curtailment of government spending will likely mute the benefits.
It expects real GDP growth of about 7.3% in fiscal 2018 and 7.5% in fiscal 2019. However, it noted that there are some downside risks to its forecast with intensifying external headwinds (tightening global financial conditions, high oil prices and trade tensions) and tightening domestic credit conditions.
Speaking of worries surrounding oil space, what does rising crude oil prices mean for stock markets?
Richa Agarwal, editor of Hidden Treasure, tracks the oil and gas sector very closely. She believes the rise in crude oil prices is a bearish sign for stock markets globally. At the same time, any market correction will throw up interesting buying opportunities in small-cap stocks.
This is what she wrote...
- After hitting a low of US$ 30 per barrel in January 2016, prices have more than doubled this year.
While the Hidden Treasure team looks for long-term wealth creators, such macro situations can help to recommend such stocks at a bargain. The ones who keeps calm, when everyone else is losing their heads, will gain the most when the tide turns.
Also, it's interesting to note that whenever oil prices have surpassed US$ 100/barrel, they didn't stay there for very long. In technical term, it is sort of 'resistance level'.
Resistance Kicks in Once Crude Touches US$ 100/barrel
This is what we wrote about this in one of the editions of The 5 Minute WrapUp...
- Oil prices have collapsed thrice because of demand destruction: in 1979, 2008, and 2014.
In 1979, the trigger for oil price increase was the Iranian Revolution and the Iran-Iraq war. Due to this, oil prices rose from US$ 50/barrel to above US$ 100/barrel between January 1979 and April 1981.
Then, new production from the North Sea, Mexico, Alaska, and Siberia flooded the market. By March 1986, prices had fallen to US$ 27/barrel.
In 2008, when oil touched US$ 150/barrel, it was quickly followed by the financial crisis and recession.
Then, between 2011 and 2014, when oil was above of US$ 100/barrel, several years of triple-digit oil prices led to a near doubling of shale production in the US, a volume that helped trigger the crash in 2014.
In fact, as per the media reports, even Saudi officials think US$ 60 is a reasonable price for oil in the long term.
It would be interesting to see how Iranian sanctions will influence crude oil prices. Meanwhile, we will keep you posted on all the updates from this space.
Moving on to the news from engineering space. As per an article in a leading financial daily, BHEL has bagged four orders for emission control equipment from NTPC.
Valued at about Rs 29 billion, these orders involve supply and installation of Flue Gas Desulphurization (FGD) systems for control of SOx emissions at NTPC's 3x660 MW North Karanpura, 2x500 MW Mauda Stage-I, 3x660 MW Barh Stage-I and 2x660 MW Barh Stage-II power projects.
With these orders, BHEL is presently executing FGD systems for 17 units of NTPC and its JVs, other projects being 3x250 MW Bongaigaon, 2x490 MW National Capital Power Station (NCPS) at Dadri and 2x660 MW Maitree in Bangladesh.
Overall, BHEL has contracted FGD orders for 32 units from various customers till date.
BHEL share price ended the day up by 5.5%.
To know more about the company, you can access to BHEL's Q1FY19 result analysis and BHEL stock analysis on our website.
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