Largecaps outperform their peers

Mon, 10 May 01:30 pm

   Previous Close   

   Pre-Open   

   09:30 am   

   11:30 am   

   Closing   

Continuous buying activity led the markets to rise steadily during the previous two hours of trade. The market breadth is extremely optimistic as the overall advance to decline ratio is poised at 3.5 to 1 on the BSE. Stocks across the board are trading firm led by those forming part of the metal, realty, banking and oil and gas spaces. Stocks from the healthcare and FMCG sectors are amongst the lowest gainers at present.

BSE-Sensex is trading higher by 450 points (up 2.7%) while NSE-Nifty is trading 140 points (up 2.8%) above the dotted line. BSE-Midcap Index is trading higher by 2.1% while the BSE-Smallcap index is trading higher by 2.4%. The rupee is trading at 44.96 to the US dollar.

Steel stocks are currently trading firm led by Tata Steel, JSW Steel and SAIL. A leading business daily has reported that steel major, Tata Steel is looking at raising Rs 100 bn through debt in the coming future. The proceeds from this will be mainly used to finance an expansion plan at its Jamshedpur facility. A part of it will also be used to reduce the debt which the company had taken to acquire Corus. It is believed that the company is looking to expand the steel making capacity at its Jamshedpur plant from 6.8 m tonnes to about 10 m tonnes. This capacity is likely to be set up by September 2011. This debt is likely to be taken on the books through tranches – the first one Rs 40 bn through a 15-year bond with an annualised coupon of 10.5%. It is reported that this 3 m will require an investment of Rs 130 bn.

The fact that India continues to be a net importer of steel (despite having good iron reserve) gives a clear indication that steel demand is strong in the country. With the industry witnessing delays in setting up capacities, production of steel has not been growing in line with the demand. In terms of financing the debt, the balance sheet of the company's domestic operations is quite healthy. As such, financing this expansion should not really be a problem.

Banking stocks are currently trading firm led by Kotak Bank, ICICI Bank and Yes Bank. Punjab National Bank declared its 4QFY10 and FY10 results. The bank's interest income grew by 12% YoY aided by a growth of 21% YoY in advances. However, net interest margins expanded by 0.1% as a result of higher proportion of CASA. Fee income grew by 22% YoY while cost to income ratio decreased by 4% to stand at 39% for the year. CAR ratio stood at 14.2% while net NPA climbed by 0.1% to 0.5% of advances for the year. For 4QFY10 the interest income increased by 9.6% while net interest income increased by 40%. The bank's growth has been led by a healthy growth in advances. However, the concern for this bank is low proportion of fee income and slippages in agricultural loans.