Record Trade Deficit, May Auto Sales Up

123jump.com Staff
02 Jun, 2008
New York City

Stocks in Mumbai fell as the government debated a fuel price increase. The ruling party coalition discussed various diverging proposals with no decision. Prime Minister Singh said that the fuel price rise is inevitable. Separately, April trade deficit rose to a record high of 9% as oil price increased import bill. Exports in the month rose 31% but imports surged 36%. Auto sales in May rose as consumers bought more motor cycles and small cars.

[R]1:30PM New York, 10:00PM Mumbai – A debate in ruling governing coalition on how to pass fuel price increase to consumers left market averages lower. May auto sales rose.[/R]

Political concerns dampen the markets

Growing political concerns weighed on the markets on Monday the late trading session, erasing early gains. Talks of a hike in fuel prices, widening trade deficit and slower manufacturing data sparked a sell-off in the evening trading.

The market was firm in the morning but sold off after reports that the Revolutionary Socialist Party, a member of the Left Front led by the Communist Party of India-Marxist was pulling out of the United Progressive Alliance-Left coordination committee.

Market Sentiment

In Mumbai trading, the 30-share BSE Sensex declined 2.2% or 352.39 to 16,063.18. On the NSE, the S&P CNX Nifty fell 2.7% or 130.5 to close at 4,739.60 levels.

Of the BSE traded shares, 600 shares declined, 2,066 shares fell and 50 shares remained unchanged.

Trading Statistics

Daily turnover on the BSE stood 4,779 core rupees and on the NSE it was recorded at 11,826 crore rupees.

Essar Oil was the most active stock with a turnover of 183.42 crore rupees on BSE followed by Reliance Capital, Reliance Industries, GSS America Infotech and Reliance Petroleum.

IFCI clocked the highest volume of 1.84 crore shares on the BSE followed by Ispat Industries, Spice Communications, Chambal Fertilizers and Reliance Natural Resources.

Fuel price hike inevitable - PM

With political parties including the Left opposing hike in fuel prices, Prime Minister Manmohan Singh on Monday warned that the government is not in a position to fully insulate the consumer from the impact of rising oil prices.

Despite the crude oil prices near record level and trading nearly 100% higher from a year ago and state-owned oil marketing firms suffering large trading losses, the government has not been able to pass on the burden due to lack of political consensus.

There are differences within the government in passing the hike in oil price to consumers. Finance ministry and few parties in the coalition are opposed to duty cuts sought by the petroleum ministry.

Petroleum and natural gas minister proposed an increase in petrol price of 10 rupees a litre, diesel price increase of 5 rupees per litre and for a cylinder of gas by 50 rupees.

But the Left parties are opposed to any fuel price increases passed on to the consumers however, the parties have not said that how they plan to pay for the rising government deficit from the oil imports.

April trade deficit soars

Exports from India soared 31.5% to $14.4 billion and imports in the month surged 36.6% to $24.3 billion. Rising crude oil prices continue to drive the oil import bill higher. India imported $8.02 billion, a rise of 46% from a year ago as crude oil prices surge nearly 70% in the period. Trade deficit in the month surged to a record high of $9.8 billion. Rupee against dollar has fallen 7.5% in the last three months helping the exports but rising crude oil prices have increased import bill and fueled inflation.

For the fiscal 2009 trade deficit is expected to rise to 9%.

Manufacturing index declined

Indian manufacturing activity slowed to its lowest in 10 months, although output and new export orders gained, a survey has showed.

The ABN AMRO Bank purchasing managers'' index was a seasonally adjusted 57.4 in May 2008 after 57.5 in April, significantly below its December 2007 reading of 61.9 which was the highest in the survey''s three-year history.

Indian economy to grow above 8% despite global slowdown

Anti-inflationary measures are unlikely to turn India into a slow growing economy, while other Asian nations could face the situation of rising prices and economic stagnation, according to a research report from Lehman Brothers.

The report noted, ""We do not believe that India would be affected significantly in a stagflation scenario and growth would remain strong in relative terms.""

However, the report said even as the economic growth is expected to remain strong, interest-rate sensitive stocks could be adversely impacted during ''stagflation'' situation in Asia. Lehman said the negative impact is likely be felt by interest rate-sensitive stocks or by companies that are not in a position to pass on cost pressures to consumers.

Investment spending is unlikely to witness a substantial slowdown primarily on account of significant shortages in key sectors such as steel and power.

Prime Minister Singh said on Monday that the economy would continue to grow above 8% despite the current global slowdown. India has maintained the economic growth of 9% and above in the last three years.

Gainers and losers

Indiabulls Real Estate fell 19% to 472.20 rupees and Unitech declined 6.5% to 217.45 rupees.

Banking stocks declined on fears of further surge in inflation post fuel price hike. HDFC Bank declined 3.8% to 1,306.55 rupees, ICICI Bank lost 3% to 764.85 rupees and State Bank of India lost 3.4% to 1,394.10 rupees.

Metal stocks declined after the government withdrew duty drawback benefits on all iron & steel shipments. The move was aimed at discouraging exports in the face of domestic inflationary pressures.

Tata Steel fell 3.9% to 868.05 rupees, National Aluminium Company was down 5.1% to 506.60 rupees and Hindalco Industries plummeted 5.1% to Rs 182.25 rupees.

However auto stocks held gains after posting rise in monthly sales in May. Bajaj Auto rose 0.3% to 576 rupees after recorded 7.6% rise in motorcycle sales to 179,649 units from a year ago.

The sale of total two wheelers rose 6.86% to 180,935 units. The total two and three wheeler sale rose by 4.17% to 201,511 units in May.

Hero Honda Motors gained 5.6% to 788.55 rupees. It reported a 9.54% rise in motorcycle sales in May at 312,317 units compared to 285,109 units in May 2007.

Maruti Suzuki India surged 2.9% to 787 rupees. The company''s total vehicle sales rose 16% to 69,001 units in May. Mahindra & Mahindra gained 0.8% to 597.05 rupees.

Reliance companies update

Reliance Industries lost 1.9% to 2,355.70 rupees, Reliance Communications lost 3.8% to 555.35 rupees, Reliance Infrastructure declined 4.9% to 1,170.40 rupees and Reliance Power lost 3.1% to 228.60 rupees.