Energy heavyweights prop up markets

Thu, 14 Jan Closing

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Backed by strong contribution from heavyweights such as Reliance and ONGC, markets maintained their positive momentum during the closing hours and managed to end the day comfortably in the green. While BSE Sensex edged higher by around 75 points (0.4%), NSE Nifty eked out gains of around 30 points (up 0.5%). However, the show stealers were once again the BSE Midcap and Small cap indices which gained by 0.9% and 1.2% respectively. Apart from oil & gas heavyweights, metal bellwethers like Tata Steel and Sterlite also contributed to the overall gains. The advance to decline ratio though was evenly split amongst the Sensex universe.

Asian indices were also in buoyant mood today as barring Hang Seng, all of them closed the day in the green. Europe is also witnessing strength currently. The rupee was trading at Rs 45.6 to the dollar at the time of writing.

Buoyancy in oil and gas as well as metals heavyweights once again seems to be pointing towards the fact that economic recovery is well and truly underway and at some point in time, investors are expecting greater inflation to show itself up. Moreover, some India specific articles that are doing the rounds are also having their impact on the energy and metals counters. Case in point being a Bloomberg story that quotes the President of Asian Development Bank and adds that growth in Asian economy could increase to 6.6% in the year 2010 as compared to 4.5% in 2009, obviously with a fair degree of help from India. Thus, higher growth in India would in turn boost demand for basic materials like crude oil and metals and hence the interest in these counters. Looks like one by one, the bears are slowly going into hibernation.

Indian pharma companies that were burdened by the foreign exchange losses on their overseas borrowings last fiscal seem to have learnt a lesson. As per a leading daily, the companies have reduced their cumulative foreign currency convertible bond (FCCB) burden by over 60%. This has helped the companies improve their financial health and look for further fund-raising for expansions. The drug companies, which raised over US$ 2 bn (around Rs 100 bn) during FY08 to fund acquisitions and capital expansions, have now reduced the FCCB outstanding to US$ 840 m. Most of the reduction was thanks to the relaxation of norms by the RBI to allow buyback of the issued bonds on or before December, 2009. This was a measure to help them tide over the global financial meltdown particularly in terms of the mark-to-market (MTM) losses. Pharma stocks closed a mixed bag today with Dr. Reddy's and Wockhardt ending in the positive.

Oil marketing companies are expected to finally recover some of their losses in cash. As per the oil ministry, PSU oil companies may get cash instead of oil bonds as compensation from the government for selling fuel at below market prices. While no decision had been taken on the quantum of compensation, the ministry had earlier sought Rs 200 bn worth of bonds for state-run firms as compensation for the current fiscal. The government has been issuing bonds to cover losses of PSU oil refiners. In FY09, the oil subsidy was Rs 756 bn as high global crude prices had inflated oil companies' losses. However, the oil bonds have swelled the government's fiscal deficit which is currently reigning at 16-year high. Stocks from this sector ended in the positive today with IGL, ONGC and Gujarat State Petronet being the lead gainers.