Markets cheer fiscal sops

Thu, 29 Apr Closing

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Amidst the gloom in global markets on the back of the debt crisis in Europe, Indian markets managed to stay resilient and ended the day in the positive. The key reason for the same was the Finance Minister hinting at some fiscal sops for select sectors. Stocks from the banking, auto and commodity sectors added to the strength in the indices. Most other key Asian markets closed weak today, led by China (down 1%) and Japan (down 2%).

The BSE Sensex and NSE Nifty closed with gains of around 124 points (0.7%) and 39 points (0.7%) respectively. Mid and small cap stocks followed suit. Both the BSE Midcap and BSE Smallcap indices closed 1% higher.

Pharma major Biocon recently announced its FY10 results. The company grew its revenues in FY10 by a robust 50% YoY, led by the strong performance of biopharmaceuticals, AxiCorp and contract research businesses. However, its EBDITA margins fell marginally by 0.6% during the year on the back of a rise in raw material costs (as percentage of sales). While the bottomline grew at a stupendous pace during the year, the same was largely due to the forex loss incurred in FY09, which is not present this year. On excluding the same, growth in bottomline stands at 22% YoY. Besides statins and immunosuppressants, Biocon has considerably ramped up its branded formulations business which crossed the Rs 1 bn mark in this fiscal. Biocon has also been increasingly focusing on enhancing its research capabilities by entering into partnerships with global innovators and consequently boosting its licensing income.

As per the latest data, India's annual food price inflation has eased in April. However, fuel prices maintained a faster rise and kept pressure on the wholesale price index (WPI). This is expected to prompt further monetary tightening by the central bank. The food price index rose 16.6% YoY in April, lower than 17.7% in the previous week. The WPI on the other hand touched a 17-month high of 9.9%, prompting the RBI to raise rates in April for the second time in as many months. The RBI governer earlier attributed rising prices for food, fuel and wages to demand-led inflation. As against this, much of the country's inflationary pressures were initially on the supply-side as a result of the 2009 monsoon failure that pushed up food prices.

In a move that can make funds for infrastructure building cheaper, the government is set to allow them to refinance part of their domestic debt through overseas borrowings. The overseas borrowings will bring in cheaper loans as interest rates head higher in India because of the monetary tightening.

It may be noted that India will need over US$ 1 trillion of funds over the 12th Plan period for the infrastructure sector. A greater access to overseas funds will help raise cheaper funds for executing infrastructure projects. Currently, companies can borrow overseas at an average rate of around 9 to 10% including currency hedging costs, which is still lower than domestic credit. The concession thus bodes well in terms of financing the economy’s infrastructure needs on time. Companies like IDFC, PFC and REC are set to be the key beneficiaries of this.