India up on strong global cues

Tue, 4 Jan 09:30 am

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Asian markets have opened on a positive note today. Benchmark indices of China (up 0.6%) and Japan (up 1.4%) are leading the gainers' pack. The US markets had a good opening to 2011 yesterday, and closed with gains of 0.8%, at their fresh two-year highs. As for the Indian markets, these have also opened in the positive today. Metal and realty stocks are witnessing buying interest currently. Auto and banking stocks are however trading with some losses.

The BSE-Sensex is trading higher by around 70 points (0.3%), while the NSE-Nifty is up about 20 points (0.3%). Mid and small cap stocks are also trading with gains, with the BSE Midcap and BSE Small cap indices up by 0.6% apiece. The rupee is trading at 44.70 to the US dollar.

The inflation demon is just not showing any signs of retreat. And now it's the chance of higher borrowing costs to spoil the show for consumers. As per a leading business daily, financing a vehicle purchase is soon going to get expensive. This is given that financiers (banks) are looking set to raise interest rates of vehicle loans. Automobile prices in India are already expected to rise this month as companies expect to pass on the input cost hike to buyers. Now higher interest rates will act as a double whammy. It won't be surprising then that India's car sales numbers, which grew by a robust 25-30% during December 2010, come off sharply in January 2011. As per reports, while banks have not raised interest rates per se, they are pulling back their discounts thereby effectively increasing the costs for the borrowers by around 0.25% to 1%. Anyways, auto stocks have opened today on a mixed note. While gains are seen in Eicher Motor and Ashok Leyland, selling pressure marks trading in M&M and Hero Honda.

Energy stocks are trading with gains currently. Gujarat Gas and Castrol are leading the gainers' pack. As per reports, India's largest oil & gas exploration and production company ONGC has signed a deal with gas marketing major GAIL. As per the agreement, GAIL will get the first right on all gas that ONGC will produce from any of its fields in future. But if GAIL is unable to get a good price (as per ONGC's requirements) within a 30 day period, the latter will take back the marketing rights. This agreement is valid for three years, and is extendable based on the mutual agreement of the two companies. This comes as a major boost for GAIL in growing its gas trading volumes. But the issue here is that it will all depend on the level of output from ONGC's fields. And given that the output from its old fields is on a decline and new sources are hard to come by, the actual benefit for GAIL will be seen only as time progresses.