Energy stocks bail out markets

Mon, 1 Feb Closing

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The benchmark indices on Indian bourses yet again managed to inch closer to the dotted line in the final hours of trade today, after struggling for most of the session. Primarily held back by the weakness in heavyweights from banking, IT and FMCG sectors, the indices started off on a weak note. Concerns over rise in interest rates and its impact on stocks and real estate prices clouded most of the near term outlook. Some positive news in terms of 9.3% rise in exports during the previous month, however, brought in some cheer.

While the BSE Sensex ended flat, the NSE Nifty closed higher, up by 18 points. The BSE-Midcap and BSE-Smallcap are closed up by 1.8% and 2.7% respectively. The rupee is trading at 46.3 to the dollar. Major Asian indices closed lower today while European indices are also trading low currently.

Energy stocks were amongst the few gainers in today's session. Stocks like GAIL, IOC and HPCL gained as much as 4 to 5%. The optimism about the sector amongst investors was backed by hopes of recovery of losses by state owned oil marketing companies. The Oil Ministry has stated that it will take a decision on the merits of raising the price of natural gas supplied by PSU oil and gas companies in coming weeks. It may be noted that the Finance Ministry is in favour of giving state-run oil firms freedom to fix prices of petrol and diesel in tune with their cost. While ONGC, Oil India and GAIL bore the entire Rs 84 bn under-recovery on petrol and diesel in 9mFY10, the government has agreed to give only Rs 120 bn in cash against the Rs 210 bn revenue loss on cooking gas. PSU energy firms, which account for about 40% of India's gas output of 140 m standard cubic metres a day, are seeking higher prices to make up for the under-recoveries.

Meanwhile the largest PSU banking entity in the country, State Bank of India (SBI) has come under the government scanner for pursuing profitability too aggressively. As per a business daily, the government has noted that had SBI made adequate provisioning for NPAs arising out of the farm loan waiver scheme, it would have reported a negative growth in profits for 9mFY10.

The government feels that the largest bank should have set an example rather than concentrating on posting better results. SBI's provision coverage ratio at 57% in 9mFY10 is amongst the least in the sector and well below RBI's mandate of 70% coverage. SBI has, however, argued that it has followed all the banking norms and there is little cause for concern. The stock lost 2% in today's trade.

A leading business daily today reported a major fire at SAIL's Bhilai steel plant in Chhattisgarh, severely hitting the production at the company's flagship manufacturing unit. Although no one was injured, officials from the company have stated that the production was hit severely. It may therefore take several days for the plant to resume normal production. The plant produces 17,000 tonnes of steel daily on an average. The Bhilai plant had seen a record production in FY09 as it produced 4.5 million tonnes of saleable steel. In 3QFY10 as well, higher volumes and improved sales mix helped the company put up 12% YoY growth in topline. The stock of SAIL lost 1% in today's trade.