Asian stock markets are lower today as Japanese and Hong Kong shares fall. The Nikkei 225 is off 0.1% while the Hang Seng is down 0.5%. The Shanghai Composite is trading down by 0.8%. Wall Street fell in a day of heavy trading on Wednesday with the S&P 500 posting its biggest percentage drop since late June as investors turned risk-averse on disappointing earnings and escalating global tariff worries.
Back home, India share markets have opened the day on a lower note. The BSE Sensex is trading down by 136 points while the NSE Nifty is trading down by 29 points. The BSE Mid Cap index opened down by 0.2% while BSE Small Cap index opened the day up by 0.1%.
The rupee is currently trading at 69.77 to the US$.
Sectoral indices have opened the day on a mixed note with healthcare stocks and IT stocks witnessing maximum buying interest. While, metal stocks and realty stocks have opened the day in red.
In the news from the economy. India's trade deficit in July widened to the most in more than five years, worsening the outlook for the rupee that hit a record low on Tuesday.
According to data released by India's commerce ministry, the gap between exports and imports reached US$18 billion in July, fanned by a higher oil import bill.
The trade shortfall puts pressure on the current-account deficit, a key vulnerability for the economy and one of the reasons why the rupee has been among the worst-hit in Asia amid an emerging-market rout this year.
The rupee dropped to as low as 70.08 per dollar on Tuesday as a collapse in Turkey's lira hit investor sentiment, taking the slump in India's currency down to 8.6% this year.
While a weaker rupee is positive for exports, it poses an inflation risk for a nation that imports more than 80% of its crude-oil needs. Every rupee change in the exchange rate against the US dollar impacts India's crude-oil import bill by Rs 108.8 billion (US$1.58 billion), according to the oil ministry.
Inbound shipments of oil in July were at US$12.4 billion, up 57.4% from a year ago, while gold imports surged 41% to US$2.96 billion and electronics goods by 26% to US$5.12 billion. Overall imports rose 29% to US$43.8 billion, while exports grew at 14% to US$25.8 billion.
According to ICRA, broader emerging-market currency movement, dollar strength, and the trend in crude-oil prices will drive the outlook for the rupee in the immediate term, which will have an impact on the landed cost of imports. That will also have a bearing on various commodity prices and transmit into wholesale price inflation.
The wider trade gap comes at a time when inflation is easing, complicating the central bank's policy outlook. Wholesale price inflation eased for the first time in five months, while consumer-price growth moderated to 4.17% in July.
The monetary policy committee has increased interest rates twice since June to curb price pressures, while the central bank used foreign reserves to check currency volatility. The rupee reversed losses to close 0.1% higher at 69.8963 on Tuesday in Mumbai, with traders saying state-run banks sold dollars, probably on behalf of the RBI.
Reportedly, the current level of reserves at about US$402 billion will provide import cover of less than a year. The current-account gap is set to widen to 2.4% of gross domestic product in the financial year to March 2019, from 1.9% in the October-December period.
Moving on to the news from the mutual fund industry. Investors pumped a staggering Rs 105.9 billion in equity mutual funds in July, mainly driven by strong corporate earnings and near normal monsoon.
With this, total inflow has reached to over Rs 433 billion in equities during the current financial year (April-July), according to the data from the Association of Mutual Funds in India (Amfi).
Strong inflow pushed the asset base of equity mutual funds (MFs) by more than 10% to Rs 8.3 trillion by July-end from Rs 7.5 trillion at end-March.
According to Amfi data, equity and equity-linked saving schemes saw an inflow of Rs 124.1 billion in April, Rs 120.7 billion in May, Rs 82.4 billion in June and Rs 105.9 billion in July.
Strong earnings season and near normal monsoon have buoyed the sentiments in near term. However, in last few years we are seeing that the average Indian investors are now far more financially literate and mature. They realise that India is a strong structural story and participating for the long term as reflected by the growing SIP book.
Overall, the mutual fund industry saw a pull out of funds to the tune of over Rs 320 billion last month.
Liquid or money market segment - with investments in cash assets such as treasury bills, certificates of deposit and commercial paper for shorter horizon, witnessed an outflow of over Rs 310 billion.
Besides, income funds, which invest in a combination of government securities, saw a pullout of Rs 79.5 billion and gold exchange traded fund too witnessed an outflow of Rs 0.5 billion.
At present, the mutual fund industry, comprising 42 players, manages assets to the tune of Rs 23 trillion.
With buoyant capital markets and the mutual fund industry on a roll, AMCs are eager to hit the market with their IPOs.
With HDFC AMC's IPO hitting the markets, many are expected to follow HDFC AMC. This opens up an entirely new segment for investors.
The AMCs' plan to go public follows a growing trend where banks and financial services are looking to unlock value in group businesses after the rapid rise in stock markets.
Also, apart from AMCs, another segment that's grabbing attention is brokerage houses.
Is India Moving Towards Financialization of Household Savings?
So, how can you profit from this financialization trend in India? And how should you think about these IPOs? Are valuations worth it? Is the opportunity of a lifetime or the dud of the decade?
These are the questions that will require much more contemplation. But don't worry - our research team is on it. We will keep you updated from all the developments from this space.
To know what's moving the Indian stock markets today, check out the most recent share market updates here.
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This article was originally published in English at www.equitymaster.com
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