Eco survey fails to enthuse markets

Thu, 25 Feb 01:30 pm

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Despite prospects of higher GDP growth cited in the Economic Survey for FY10, the Indian markets continued to trade in the negative territory during the previous two hours of trade. Currently, stocks from FMCG, oil & gas, auto, metal and banking sectors are weighing heavily on the indices. However, the stocks from capital goods, healthcare, realty and consumer durable sectors are managing to garner investors' interest.

The BSE-Sensex and the NSE-Nifty are currently trading lower, down by around 60 points and 15 points respectively. The stocks from the midcap space are also bearing the brunt of profit booking with BSE-midcap index down by 0.2%. Nevertheless, small cap stocks are still finding favor with the BSE-smallcap index trading marginally higher by 0.05%. The rupee is trading at 45.36 to the US dollar.

Software stocks are currently trading mixed with Wipro, Infosys and Patni Computers trading firm, while Mphasis and HCL technologies are trading weak. The Indian IT industry is likely to see projects coming ir way soon. It is believed that the governments - central and state - are likely to call in bids for three major IT projects this year. These are believed to the home ministry's police mission mode, the agriculture ministry's pilot projects and the ones under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM). While the Mission Mode project for police, which would be a crime and criminal tracking system by the ministry of home affairs, would be worth about Rs 25 bn, the ministry of agriculture projects would be worth about Rs 2 bn. This would be towards understanding of the requirements in six states. Further, some parts of the JNNURM initiative which is worth Rs 50 bn are also expected to see bids being invited for citizen-centric services.

It may be noted that the above mentioned projects are part of the overall Rs 230 bn National e-governance Plan (NeGP), which is expected to be spent over the next few years. We believe that this is a win-win situation for the government as well as the Indian IT companies. While the government can improve the delivery mechanism and operations of its projects, Indian IT industry has a lot to gain from the widening Indian IT market.

Capital goods stocks are currently trading firm as the BSE-Capital Goods Index is trading higher by 0.9%. Stocks that are leading the pack of gainers include Crompton Greaves, L&T and Punj Lloyd. A leading business daily has reported that engineering and construction major L&T has signed a joint venture agreement with Karnataka Power Corporation for setting up power plants. As per the agreement, the two companies will jointly set up two coal-based thermal power plants of 800 Mw (megawatt) each at Godhna in Chhattisgarh. The total cost of these projects is estimated at Rs 100 bn. Work on this project is expected to be completed in three years. It is believed that both the companies will invest an equal amount in this venture.

In another development, the company is reportedly looking at borrowing nearly Rs 100 bn (US$ 2.2 bn) to fund certain road and power projects. During FY09 L&T’s debt to equity ratio stood at a high 1.5 times. However, it should be noted that power projects by default use high amounts of debt, to the tune of about a 70:30 debt to equity ratio. Going by that, the large amount of debt the company is looking to take may be a required as part of the nature of its business.