Banks & realty drag down the indices

Wed, 5 Jan 09:30 am

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Asian markets have started the day on mixed note. Markets in Malaysia (up 0.5%) and Singapore (up 0.03%) are trading in the positive territory. On the other hand, Taiwan (down 1.5%), China (down 0.4%) and Hong Kong (down 0.2%) are trading in the negative. Indian markets have opened the day in the negative as well. Banking and realty sectors are the main losers currently.

The BSE-Sensex is trading lower by around 70 points (0.3%), while theNSE-Nifty is down by about 30 points (0.5%). Mid and small cap stocks are trading mixed, with the BSE Midcap down by about 0.1% and the BSE Small cap up by 0.1%. The rupee is trading at 45.22 to the US dollar.

Engineering stocks have opened on a mixed note. ABB and BHEL are trading in the green. However, Gammon India and Punj Lloyd are trading in the red. L&T is leading the pack of gainers in the sector. The company has announced that it will be split into nine independent companies. As per the Chairman, Mr. Naik, each of the companies will be like an independent company, with its own business as well as its own management and board of directors. He hopes that at least 75% of these would be ready to be listed by 2012, should the management choose to get them listed. The nine companies would be formed by each of the nine business units. These would be power, hydrocarbon, machinery & product, switchgear, heavy engineering, infrastructure, building & factories, metals & minerals and electrical business. The idea behind the restructuring is to allow ease of managing. Presently, only one chairman looks after the entire gamut of over 64 businesses. As of now, L&T is a behemoth with these diverse businesses under its fold. So the idea of spinning them into independent businesses looks good. What will however be important is the successful transition, given the company’s size and scale of operations. The plan for restructuring has already been approved by L&T’s board and is in the process of being implemented.

Fertilizer stocks have opened the day on a positive note. Godavari Fertilizers, Nagarjuna Fertilizers and Chambal Fertilizers are the biggest gainers. The efficiency of fertilizer companies is all set to improve if the government approves the plan of the group of ministers (GoM). The GoM has proposed to give the industry Rs 9 bn every year for the next three years with the view that this would help companies improve their efficiency. The proposal is a part of the new pricing regime for urea. It would mainly benefit the non gas-based plants. The fourth stage of the new pricing scheme for urea was to come into effect from April last year. However, the ministry has been cautious with respect to decontrolling urea prices. The ministry is worried that deregulation would lead to a sharp hike in the prices of urea which would lead to further inflationary pressures. With inflation soaring high, the ministry may decide against deregulation at the current stage. However, the urea companies have assured the ministry that they would not hike the urea prices by more than 10%. We would have to wait and see if this assurance is enough for the ministry and whether deregulation is actually carried out this year or not. But if this additional amount is dished out, it would go on to impact the ballooning fiscal deficit.