Strong start to the week

Mon, 5 Apr 09:30 am

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The Indian markets have started today's session on a strong note. The benchmark indices opened at the breakeven mark but quickly raced into the green and have held on to their gains since then. Other key Asian markets are trading in the positive with Singapore (up 2.3%) leading the pack of gainers. The US markets closed higher by 0.7% last Thursday.

Currently in India, heavyweights from the BSE-Sensex are trading in the green with power and construction stocks attracting buying interest. The BSE-Sensex is trading higher by around 100 points, while the NSE-Nifty is up by about 30 points. Buying is also being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.8% and 1.1% respectively. The rupee is trading at 44.72 to the US dollar.

Steel stocks have opened the day on a positive note. Gainers here include Tata Steel and NMDC. As per a leading business daily, India's largest iron ore producer NMDC has hiked its base prices by 34% to 56%. NMDC calculates its prices by taking the percentage increase or decrease in international prices accepted by Japan for the company's products and adjusts for foreign exchange variation. It may be noted that prices were last raised by 16% this January. They are likely to be raised further in some time. NMDC supplies iron ore to most domestic steel producers that do not have captive mines, such as Essar Steel, Ispat Industries, JSW Steel and Rashtriya Ispat Nigam. Due to the higher iron ore prices, steel producers have increased prices by Rs 2,500 per tonne from April 1.

Energy stocks have opened the day on a positive note. Gainers here include Indraprastha Gas and Gujarat Gas. As per a leading business daily, the state owned oil marketing companies (OMCs) - Indian Oil, BPCL and HPCL - could together post a loss of Rs 800 bn in FY11. For FY10, the losses on the sale of auto and cooking fuels are likely to amount to Rs 480 bn, which would be higher in FY11 if crude oil prices continue to hover in the region of US$ 85 per barrel. It may be noted that the government continues to force the OMCs to price fuels below their input costs. As a result, petrol is sold at a loss of around Rs 6 per litre and diesel at a loss of Rs 4.6 per litre. Kerosene leads to an under recovery of Rs 18 per litre, while cooking gas is sold at a loss of Rs 265 per cylinder. It may be noted that the government has indicated that it will no longer give oil bonds to compensate the OMCs for their losses. In our view, at some point fuel prices will have to be deregulated. But the timing is difficult to predict given the political backlash it is going to generate.