Profit booking leads to a weak closing

Tue, 4 Jan Closing

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Profit booking took its toll, with the Sensex being amongst the top losers in Asia. FMCG and oil and gas stocks rallied. But, banking and realty stocks saw significant selling pressure. The BSE-Sensex closed the session lower by around 62 points (down 0.3%), whereas NSE-Nifty saw an 11 points drop (down 0.2%). The BSE BSE Midcap Index was down 0.3%, while the BSE Small cap index remained flat with a negative bias.

Most of the Asian indices closed positive today. China and Japan saw strong gains post their Christmas break. Europe is currently trading positive. The rupee was trading at Rs 44.95 to the dollar at the time of writing.

With economies in the developed world still facing a slow recovery, FDI inflows to India are also facing a slowdown. They fell by around 7% MoM (month on month) to US$ 1.6 bn in November, 2010, falling for the seventh consecutive month. Overall, for the past 8 months FDI inflows have declined by 27%, over the previous year to US$ 14 bn. But, the government is now trying to increase the attractiveness of India as a destination for FDI. It is considering liberalizing FDI in defence and multi-brand retail.

Soon after it announced a formal split of its Indian Joint Venture, Japanese auto major Honda Motor Co. has already formed plans to make strong inroads into the Indian 2-wheeler market. This will probably affect Hero Honda's current stronghold on the market.

Honda plans to increase sales by three times in India to 5 m units annually in the next five years. It plans to boost capacity from 1.6 m units annually currently, under its subsidiary Honda Motorcycle and Scooter India. It plans to open a second factory unit in Rajasthan by the second half of 2011, and a third plant in Andhra Pradesh thereafter. Honda's overall capital investment for increasing production in India is estimated at Rs 10 bn. It also plans on opening new sales locations in regional cities and rural areas. A strong distribution channel was one of Hero Honda's major strong points. Hero Honda closed down for the day.

India has an ambitious plan for adding 100,000 MW of power capacity in its 12th year plan. Environmental concerns have however held up this process. Delays in getting these environmental clearances have once again postponed the invitation of bids for the 4,000 MW ultra mega power project (UMPP) at Sarguja in Chhattisgarh for the fourth time. PFC, the nodal agency for UMPPs in the country had initially invited bids for the same in March, 2010. The Ministry of Environment and Forests (MOEF) is yet to approve coal mining from the blocks allotted for the project. These is still no clarity on the go and no-go areas for coal mining. A total of 203 coal blocks, with reserves of over 600 m tonnes, are believed to be stuck for lack of environment clearances. Blocks in thick forests, wildlife parks and sanctuaries fall under the 'no-go area'. These are to be rejected immediately as they will harm wild-life. 40% of India's coal reserves are estimated to be under dense forest cover. Without clarity on the same, India's power dreams may be just that.