Markets end strong on global cues

Tue, 8 Mar Closing

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After opening on a positive note, the Indian stock market indices managed to sustain the momentum till the closing hour. While the BSE-Sensex closed 217 points higher (a 1.2% rise), the NSE-Nifty closed higher by 59 points (up 1.1%). The BSE Midcap and the BSE Small cap indices also saw some buying interest, seeing gains of 1% and 0.8% respectively. All sectoral indices were in the positive zone, with IT and banking stocks leading the gainers. However FMCG and capital goods stocks did not see much buying interest.

As regards major global stock markets, most Asian indices closed in the green on the back of some easing in crude oil prices. India was among the top gainers in Asia along with Hong Kong and Singapore. Most European indices opened in the green. The rupee was trading at Rs 45.1 to the dollar at the time of writing.

Coal India is planning to invest in building railway lines and wagons in the country. This is part of efforts to reduce bottlenecks and ensure timely supply of coal to customers. The company plans to send a proposal to the Railway Minister highlighting its plans. Inadequate rail infrastructure may force it to curb output. It has already cut its output goal for FY11 to 440 m tons and for FY12 to about 447 m tons due to environmental issues. Coal is critical for India as 70% of the country's power generation is based on it. The company meets more than 80% of the domestic requirement for the fossil fuel. However, it has received complaints from its leading customers including power producer NTPC and National Aluminium for its inability to meet supply commitments. Shortage of railway lines and wagons is also forcing it to store large stocks of coal with itself. It needs at least 10 additional wagons to help clear stocks.

The RBI may soon increase regulations for non-banking finance companies (NBFCs). Banks need to deal with strict RBI regulation on lending, capital adequacy etc. Regulatory arbitrage has forced players to shift business to NBFCs. Lower entry barriers, and lighter regulations are the main reasons for the same. Currently the entry point norm for NBFCs is a capital base of Rs 20 m compared to Rs 3 bn for banks. RBI’s concern stems from the fact that NBFCs are not subject to restrictions regarding investments in the capital market. This leads to increased market risk. They also have no restrictions on setting up of subsidiaries, while banks need approvals for new branches etc. Another concern is the definition of an NBFC in terms of its ‘principal business’. This vague definition makes it possible for NBFCs to conduct other non-financial activities as well by deploying funds in non-financial assets.

The RBI had earlier prescribed that NBFCs will have to maintain higher capital adequacy ratio of 15% end FY12, against 12% currently. The central bank had also proposed that NBFCs make a 0.25% provisioning against all standard assets. We may soon see some more guidelines in place for the sector.