Strong buying leads markets higher

Fri, 9 Apr 01:30 pm

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   Pre-Open   

   09:30 am   

   11:30 am   

   Closing   

The Indian markets gained further ground during the previous two hours of trade. Buying activity is being witnessed in stocks across sectors with gains being seen in the heavyweights from most sectors. While stocks from the consumer durables, banking, energy sectors are leading the gainers, stocks from the pharma and realty sectors are seeing the least gains currently.

The BSE-Sensex is trading higher by 235 points while the NSE-Nifty is trading higher by 65 points. The BSE-Midcap and BSE-Smallcap indices are trading higher by 0.9% and 1.4% respectively. The rupee is trading at 44.34 to the US dollar.

According to a leading business daily, Indian government has banned FDI (Foreign Direct Investment) in cigarette manufacturing. This implies that foreign companies will be prohibited from investing in manufacturing of cigarettes, both for domestic consumption as well as for exports. The government’s decision augurs well for cigarette manufacturing companies like ITC and Godfrey Phillips as foreign players like Japan Tabacco, BAT and the Altria Group will no longer be able pose a threat to Indian firms in the industry. It may be noted that recently Japan Tabacco hinted at plans to raise its stake in its Indian arm to 74% from current 50%. BAT (British American Tobacco) which holds 32% stake in ITC has also been trying to increase its stake. However, it did not succeed. The ban on FDI in the industry bodes well for the Indian cigarette manufacturers like ITC and Godfrey Philips, which can benefit from the vast Indian market with relatively lesser competition. This will also bring more clarity to the FDI norms pertaining to the sector. However, the new rule technically still allows FDI in other tobacco segments like beedis and gutkha.

As per a leading business daily, auctions for 3G spectrum are slated to begin today and may last for 15-20 days.  Bidding for broadband spectrum is expected to begin 2 days after the completion of 3G auction. However, the design of auction is something which is really interesting. In order to prevent collusive bidding, it will be the auctioneer who will drive the process and not the bidders. The auctioneer will present bids received in ascending order to the bidders and they have to either accept or reject the proposal. This is unlike traditional auctions, where it is generally the bidder who drives the auction process. During the auction the base price will be revised at each round. It should be noted that the base price for pan India 3G license is pegged at Rs 35 bn, while for broadband wireless auction it is at Rs 17.5 bn.  The launch of 3G is expected to leverage the balance sheet of most telecom companies (due to aggressive bidding). Many expect the launch of 3G services to change the face of telecom in India. But we worry about the level of penetration that this service can see in the coming years. Infact, if one were to go by the global experience too, the usage of 3G has been much lower than expected.