Apr 22

Daily Market Commentary : 21st April 2016

The Indian markets witnessed a gradual downturn after a gap-up opening and finally closed more or less on a flat note. International Monetary Fund (IMF) lowered its global growth forecast to 3.4% in 2016. Nifty ended with nominal gains of 2 points to close at 7912.05 while Sensex ended with a gain of over 36 points at 25880.

As an article in Economic Times states, metal stocks such as JSPL, Hindalco, Tata Steel, Vedanta and JSW Steel rallied between 10-30% in the past one month. The gains here have outperformed the BSE Sensex, which rose by around 4% during the same period.

There are three main reasons behind this rally. One is the recent rally in the prices of base metals such as iron and copper. The rally in metal prices is witnessed on the back of a weak dollar overseas. The dollar has tanked nearly 5% in the last one month and this has aided the commodity prices.

Second are signs of improvement in China’s industrial sector, a major contributor to global metal demand. The improvement has added to the positive sentiments.

Third can be the steps taken by the government to limit cheap imports into India. Most of the surge in metal stocks was followed after the government imposed a provisional safeguard duty of 20% on import of certain categories of steel. Also, this measure was followed by the introduction of a fixed minimum import price on 173 steel products in February. Along with this the government extended the safeguard duty till March 2018.

We think that it would be too early to conclude that. This is because there are still many headwinds that remain ahead for the metal companies. One shall note that metal companies are sitting on huge debts. And this has hit their profitability levels. Apart from this, there is oversupply on a global level and the domestic steel industry is still recovering from aggressive dumping from China. So going by fundamentals, the indicators may suggest that the present rally is on shaky grounds.

PSU Bank sector remained a show stealer and gained a total of 86 points. Bank Nifty and Financial Service sectors gained more than 1 per cent each. Pharma remained marginally positive with 0.47 per cent upside. On the contrary, IT and Realty sector tumbled the most, losing 1.7 per cent each. FMCG recovered but still closed in red with 0.87 per cent loss. Media and Auto were flat to negative.

We think that it would be too early to conclude that. This is because there are still many headwinds that remain ahead for the metal companies. One shall note that metal companies are sitting on huge debts. And this has hit their profitability levels. Apart from this, there is oversupply on a global level and the domestic steel industry is still recovering from aggressive dumping from China.

So going by fundamentals, the indicators may suggest that the present rally is on shaky grounds.

USDINR trade today to close at 66.29

From the Nifty basket, 42 stocks advanced and 8 declined.

Top 5 Nifty Gainers: Tata Steel (1.58%) Bajaj Auto (2.00%), Adani Ports & Sez (1.06%), ONGC (0.85%), and Maruti Suzuki (1.17%).

Top 5 Nifty Losers: BHEL (-1.28%), Sun Pharma (-1.05%), Bharti Airtel (-0.83%), Asian Paints. (-1.04%) and HDFC (-0.79%).

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