Indian markets buck the trend

Mon, 14 Mar Closing

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In a stark contrast to its peers in Asia, the Indian stock market indices managed to sustain a strong momentum till the closing hour. While the BSE-Sensex closed 282 points higher (a 1.6% rise), the NSE-Nifty closed higher by 86 points (up 1.6%). The BSE Midcap and the BSE Small cap indices also saw some buying interest, with gains of 0.5% and 0.3% respectively. All sectoral indices were in the positive, with the metal and oil and gas indices leading the gainers. However the auto and healthcare stocks did not see much buying interest.

As regards major global stock markets, most other Asian indices ended flat to negative with Japan (down 6%) leading the pack of losers. India was among the top gainers in Asia along with Hong Kong and Indonesia. Most European indices opened in the red. The rupee was trading at Rs 45.03 to the dollar at the time of writing.

Inflation continues to rear its ugly head and threaten to hurt India’s industrial and investment growth. India's wholesale price index (WPI) rose an annual 8.3% in February 2011 on higher fuel and other commodity prices. While the IIP data was not enthusing, the interest rate revisions expected from the RBI later this month may also hurt investment sentiments.

Meanwhile, the country's largest bank SBI has outlined its capital raising plans for the next fiscal. The bank plans to come out with Rs 200 bn rights issue in 1QFY12. The government is expected to maintain its stake holding in the bank above 51%. The bank had last raised Rs 167 bn through a rights issue in 2008, which saw its capital adequacy ratio rise above 14%. The Parliament had passed a Bill that would enable SBI to have a rights issue while allowing the government to reduce its stake to 51%. This is a departure from the previous requirement wherein the government had to retain at least 55% stake in the PSU.

Meanwhile, SBI has been raising funds from both the international and domestic markets to fund its expansion plan. Last month, it issued Rs 20 bn worth of retail bonds, which were oversubscribed 8.5 times. We believe that the long term funds will help the bank sustain higher NIMs in the medium term.

As per a business daily, PSU steel major SAIL is continuing a joint feasibility study with Japan's Kobe Steel for a steel plant and a 1,000 megawatt gas-based power plant in north India. The steel plant at Jagdishpur in Uttar Pradesh will involve investment of about Rs 100 bn. The two companies plan to set up a steel plant based on gas-based direct reduced iron-making (DRI) technology for making value added products. SAIL acquired the Jagdishpur assets in 2009 and is currently setting up a warehouse and corrugation unit as well as a mill to make TMT bars, which are used in construction.

India's growing status as a small-car hub is drawing global steel makers, especially Japanese firms, to the country. SAIL is also finalising plans to set up joint steel plants with South Korea's POSCO.