Commodities buoy Indian markets

Mon, 29 Mar Closing

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After a lukewarm start, the Indian stocks went on to add to the strength in the benchmark indices during the closing hours of trade today. Commodity stocks in particular were the ones that evinced investor interest in the latter half of the session. Select auto and pharma stocks also managed to tread higher. IT stocks however weighed heavy on the indices as the strengthening rupee dampened earnings estimates for the sector. The rupee strengthened to its highest level against the US dollar in nearly 19 months today.

Thus, while the BSE Sensex closed the day with gains in the region of 67 points (up 0.4%), NSE Nifty edged higher by around 21 points. While the BSE Midcap index ended flat, the Smallcap ended marginally lower today. Gains were also seen amongst most Asian markets today whereas Europe has also opened on a positive note. The rupee was seen trading at Rs 45.0 to the dollar at the time of writing.

Cement stocks ended mixed today. While Ultratech, ACC and Ambuja Cement found favour, India Cements closed into the red. As per a leading business daily, cement companies in India are looking to export cement to Sri Lanka given that there has arisen an overcapacity situation in India as a result of which capacity utilization has come down. Moreover, opportunity also exists in Sri Lanka as infrastructure has to be built in that country given that it has been afflicted by war. For instance, Madras Cements is already shipping cement to Sri Lanka, while India Cements and Dalmia Cement have got the approvals from the country's quality certification body, which is a precursor for shipping cement.

It must be noted that capacity utilization in the cement sector has dropped in the past one year. To put things into perspective, while in February 2009, capacity utilization was quite robust at 88.1%, the same has considerably fallen to 66.5% in February 2010.

Even as India's Planning Commission envisages greater private investment in infrastructure projects during the 12th Five-Year Plan, it has scaled down private investment targets in the current plan period. As per a business daily, railways, water and highways will now see the least private investment among all infrastructure sectors as a percentage of total investment until 2012. The private sector is now expected to contribute only around 16% of the Rs 2.8 trillion total investment in highways, from an earlier estimate of 34% contribution. Estimated private investment in railways has declined from 19.2% of total expenditure to just over 4%, while private investment targets for airports are down from 70% to 64% of total expenditure. Delay in awarding projects and long gestation periods have been cited as the main reason for lesser interest from the private sector.

The country's largest lender, SBI, has set in motion the process of merging associate bank State Bank of Indore with itself. The behemoth has agreed to give 34 shares of the parent company to minority shareholders for every 100 shares of the associate bank. For this purpose, SBI would issue up to 1.16 lakh shares (0.02% of outstanding shares) to the minority shareholders of State Bank of Indore.

The merger would lead to SBI's issued capital increasing marginally by Rs 1.2 m. This will be the second such merger of its associate banks after SBI merged State Bank of Saurashtra with itself in August 2008. SBI currently holds 98% stake in State Bank of Indore. Post this merger, SBI will be left with five associate banks, which it plans to merge with itself gradually.