The Indian Stock market is currently trapped in a very unorthodox range of momentum. The markets go down in one session by 1500 points and suddenly rise back by 1200 points in the next session. This is how the markets are moving in current times. This simply means that the market participants are confused about the current state of Stock markets.
Also one cannot make sure which sector to bet on as almost all the sectors are having some hanging sword of bad news over their heads. The cement industry has the problem of increased competition, the oil and gas sector has the price volatility of crude in place, Steel segment has export duties levied, Sugar industry has upcoming export restrictions etc. hence almost all the major industries are trapped in the no buying zone.
However one can always bet on the buying at dips strategy if the portfolio needs to get averaged out. This means that the current situation should be utilised as an opportunity to expand the portfolio valuations by averaging the stocks or increasing the equity under one sector. It can be assumed that the current markets are getting stressed out by extreme selling pressure. The bears are trying to grip the markets again. This time they are making 2 sectors their primary aims : Steel Segment and Petroleum Segment.
Steel Sector and Its Issues
The Indian Steel industry has boomed out a lot during the COVID times. The reason is the extreme price rise post the COVID lockdown and high demand. This has given the companies an opportunity to earn extremely high profits. The current situation has however become the exact opposite. With heavy price rise the government tried to settle down the prices through numerous steps for the steel sector. The first one was to increase the export duties levied on steel, iron ore and other products under the sector.
This means the government tried to directly cut short the exports of the steel outside India. This would result in an increased supply domestically and the sector’s price rise issue can be solved. However the government also added another layer of safety to execute its plan through increasing the rate of interest. This would mean a high increase in supply of products in comparison to the demand.
However the issue triggered is already getting solved. The prices of iron ore, steel and aluminum are getting down. This has been the constant news in the commodities market as well. The products are down by almost 5 to 15% in the span of the last 2 weeks. The domestic prices for steel and its products are thus getting soft through these measures.
Stocks of Steel Sector
This has a direct impact on the steel segment stocks. The reason is decreasing prices will now mean less profit margin or the colonies. Also the export duties will play their role in decreasing the revenue of the segment. As per the experts the steel industry will be struggling to get desired returns this quarter and even till the end of this year. Thus one should definitely not initiate any new buying positions in this segment. However if the investment is there for a long time, the buying at dips strategy would work until the scenario gets back to normal.
Also the demand for steel would be low in monsoon season given the disrupted construction lobby during this time. However the upcoming infrastructure projects form the government would be helpful to boost the revenue and sales of the industry in the long run.
Petroleum Industry and Stock Effect
The petroleum industry has been very tight since the Ukraine and Russia War. Russian oil is facing a large ban from multiple nations and hence the shortage of crude has come to light. This has made the crude oil prices stay higher for a longer period of time.
However the rate hikes from Fed and RBI are showing their effects. The petroleum prices have been decreasing since the last 1 month. This has been a direct effect of the crude prices that are in correction mode. One can expect the crude oil prices to get corrected even more. Under any circumstances it seems clear the prices won’t go below 100 Dollars per barrel in a short time period.
With the decreased rate of crude the prices of petroleum and its related products are also under correction mode. The petrol prices have come down and even the by-products of crude such as Plastic have also faced value loss in the current scenario.
The stocks of petroleum are facing some correction due to the market downturn and the deceased crude prices. The price decrease would mean a direct decrease in the profit margins. However the companies have been able to gain almost 15 to 18% gains due to the price rise. Companies like ONGC and Oil India are major ones facing correction due to the price effect of crude oil.