Flat on the eve of the budget

Thu, 25 Feb Closing

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The benchmark indices gave up almost all their losses during the closing hours of trade and ended virtually flat today. Thus, while the Sensex closed almost unchanged from yesterday's levels, Nifty also displayed a similar trend. BSE Mid cap and Small cap indices on the other hand ended somewhat lower today, losing 0.4% and 0.2% respectively. The advance to decline ratio on the Sensex was also quite evenly split today with there being nearly equal number of gainers as well as losers.

Most Asian indices closed lower today whereas majority of European indices have opened on a positive note. At the time of writing, the rupee was trading at Rs 46.4 to the dollar.

With any other major event of note absent, the fact that the markets recovered from the day's lows does indicate that the economic survey has gone down well with investors. And why not? A survey, which projects that India could soon enter the rarefied domain of double digit growth within the next few years has to be taken positively indeed. Besides, projection of a lower fiscal deficit in the coming years is also a heartening sign. Both these factors are likely to rub off quite positively on corporate earnings in the times to come and consequently, on the share prices as well. Thus, while the markets did manage to erase almost all its gains, they seemed to be perhaps saving the bigger fireworks for tomorrow.

Tata Motors, India's largest CV manufacturer emerged amongst the top losers on the Sensex today. In fact, the stock is down nearly 26% from its yearly high levels, achieved a few weeks back. Quite a few factors seem to be weighing down the company's share price currently. While fears of stimulus roll back by the Government, which in turn could hurt vehicle demand is one of them, things are also not looking all that rosy on the international subsidiary front. JLR management is believed to be locked in some fierce arguments with the labour union over issues related to job cuts and wages. Ever since the crisis broke out and sales of luxury vehicles plummeted, the management of JLR has been trying hard to keep the company afloat and resort to strong cost cutting measures like laying off excess workforce. But the union seems to be having nothing of it. Clearly, if the current deadlock persists, the company may have trouble creating enough value out of JLR in order to justify the price it paid for it.

After HDFC Bank, ICICI Bank, India's largest lender in the private sector has hiked deposit rates. As per a daily, the bank hiked rates in select tenures by as much as 50 basis points (0.5%) with immediate effect. However, this still falls short of the hike undertaken by HDFC Bank where there was upto 1.5% hike in deposit rates across some maturities. More importantly, these steps taken by two of India's largest private sector banks do certainly point towards a higher interest rate regime going forward. It will not come as any surprise if more lenders also follow suit in the coming days. However, certain banks like SBI, which still have surplus liquidity, may be able to delay rate hikes by a few more weeks and thus, help reduce the pressure on its NIMs.