Negative news weigh on Indian stocks

Fri, 18 Mar Closing

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Reports of bribes paid by the government for votes on the nuclear deal and speculations over the impact of higher interest rates on the economy weighed heavy on the Indian stock market indices today. So much so, that they turned out to be the only losers in Asia. Auto and oil and gas stocks turned out to be the biggest losers during the day.

While the BSE-Sensex closed lower by around 273 points (down 1.5%), the NSE-Nifty shed around 73 points (down 1.3%). The BSE Midcap and BSE Small cap also closed lower by 0.4% and 0.8% respectively. As regards global markets, most other Asian indices closed firm today while European indices have opened on a mixed note. The rupee was trading at Rs 45.13 to the dollar at the time of writing.

At least half a dozen Indian firms are planning to raise money through a variety of instruments to redeem the existing FCCBs that are coming up for redemption in next six months. Indian firms extensively raised FCCBs, a quasi-debt instrument, during 2005-07 to fund their expansion plans. Typically, these bonds are converted into equity if stock price of the company rises above the conversion price. If this does not happen, the issuer needs to treat the bonds as debt and redeem them. FCCBs of around 25 companies are coming up for redemption in next few months. While some of the companies like Tata Motors have enough cash on books to meet the redemption or their stock prices are near the promised conversion price, other need to make arrangements for equity or debt funds. The companies that are not in a position to redeem the FCCBs through the existing cash on their books are expected to face pressures on their balance sheet going forward.

Meanwhile Tata Motors has decided to hike the prices of its passenger vehicles, excluding the Nano, by up to Rs 36,000 from April 2011, to offset rising input costs. The company’s decision comes on the back of enthusing volume numbers reported over the past few months. Domestic car sales jumped 23% YoY in February 2011 to 189,008 vehicles, according to date from Society of Indian Automobile Manufacturers (SIAM.) This figure beat January's all-time high monthly sales of 184,332 cars. India is still one of the fastest growing auto markets in the world. Easy availability of loans, rising incomes and a young population has made it a major destination for any car company. However, with the rise in loan rates and higher prices, volumes are expected to be hurt in the medium term.

The decision to deregulate diesel prices may get deferred longer and bring no relief to the oil marketing companies (OMCs). The Prime Minister's Economic Advisory Council (PMEAC) today said the government would wait for inflationary pressure to calm down before freeing the diesel prices. The council also added that if crude oil prices remain at a very high level the government would be forced to take some important policy decisions. However, in the near term the government will be relying on the capital inflows to fund the current account deficit. Energy stocks across the board closed lower today.