India Markets Thursday Wrap-Up: Heavyweight Selling

by: Equitymaster

The Indian stock market shed gains due to selling pressure in heavyweights during the final two hours of trade. Stocks from the commodity, and auto sectors led the pack of losers while those from banking and pharma space ended higher. While the BSE-Sensex ended lower by around 75 points, losses on the Nifty came in at 22 points. The BSE Mid Cap and BSE Small Cap indices however bucked the trend and closed higher.

Most other Asian indices closed on a positive note, whereas Europe is trading mostly in the red currently. The rupee was trading at Rs 49.13 to the dollar at the time of writing.

The RBI governor Dr Subbarao today reiterated that it will maintain its anti-inflationary stance unless inflation eases, ahead of the monetary policy review scheduled on October 25. This is even as the central bank is conscious of the need to lower policy rate to help spur economic growth. The RBI has raised its key policy rate (repo) - by 3.5% to 8.25% since March 2010 in 12 sequential steps to contain stubbornly high inflation, which towered at 9.78% in August. Meanwhile, India's economic growth is showing signs of moderation with industrial output growth in August remaining sluggish at 4.1%; manufacturing activity as measured by HSBC's Purchasing Manager's Index plummeting to a two-and-a-half year low in September.

As per a leading business daily, the Indian auto component industry, which is currently valued at US $30B, is expected to touch US $100B in the current decade largely led by robust demand for automobiles. In the medium term however, the industry could face headwinds as the auto industry has slowed down on account of rising interest rates and fuel prices.

Though two and three-wheelers, along with passenger cars, account for two-thirds of the components manufactured, commercial vehicle components have shown the fastest growth rate over the last five years. Among the product range, the engine parts lead the industry with almost 31% market share followed by drive transmission and steering parts at 19%.

While the domestic market will certainly contribute to the growth of the industry, what is expected to take growth to the next level are exports. As a result, India's share in the world auto components is likely to grow to over 3% by 2015-16 (it was 0.4% in 2003-04). While Exide closed higher today, Bharat Forge was at the receiving end.