Valuations keep investors edgy

Mon, 12 Apr Closing

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Indian markets were on a roller coaster ride since the start of the session today. Anxiety over the upcoming earnings season and steep valuations seem to have made investors cautious. The RBI’s latest directive allowing FIIs to use government bond holdings as collateral for stock market transactions also failed to lift sentiment. Auto and capital goods stocks led the downward pressure on the indices.

While the BSE Sensex closed lower by around 90 points (0.5%), the NSE Nifty lost around 20 points (0.4%). Midcap stocks also closed lower with losses of 0.1%. Small caps, however, bucked the trend and closed higher by around 0.3%. Losses were largely seen in auto, power and engineering stocks. As regards global markets, Asian markets with the exception of India, China and Hong Kong closed firm. European indices have opened on a mixed note. The rupee was trading at Rs 44.45 to the US dollar at the time of writing.

As per Reuters, FIIs have already invested around US$ 4.5 bn in government bonds out of the maximum limit of US$ 5 bn. The RBI directive released today on their using G-Sec investments as collaterals does away with an earlier rule that only allowed cash to be used.

As per a business daily, Tata Steel, the world's eighth-largest steelmaker, expects demand for steel in India to rise 10-12% in the current fiscal, FY11. The Indian market accounts for a quarter of the company's global capacity of about 30 m tonnes. The company also sees hardening raw material prices as a major concern in FY11. During 3QFY10, Tata Steel posted a 21% YoY decline in consolidated topline even though GDP contraction has slowed in the western markets leading to better demand than the 2QFY10 lows. China and India continue to be the two bright spots in the world steel market. The group produced 6.2 m tonnes of steel, in 2QFY10 as well as 3QFY10.

PSU banking major Corporation Bank plans to increase its capital base to ensure sufficient room for growth. It plans to raise Rs 20 bn in FY11 through a combination of Tier-I and Tier-II capital. It is considering tapping the equity market next fiscal via a rights issue or a follow-on public issue and raise around Rs 30 bn. Further, the bank is targeting a loan growth of 25% YoY during FY11 and hopes to maintain a net interest margin of 2.6% (2.4% in 9mFY10). While Corporation Bank has been affected by lower treasury income due to hardening of interest rates, it expects to mitigate effect of the same through robust fee-based income growth.