Markets begin on a negative note

Tue, 11 May 09:30 am

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The Indian markets have started today's session on a negative note. The benchmark indices opened in the positive but soon moved into the red. These have managed to pare their losses somewhat since then. Other key Asian markets are in the green with China (up 0.6%) leading the pack of gainers. The US markets closed higher by 3.9% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading weak with power and software majors facing the brunt of selling activity. The BSE-Sensex is trading lower by around 50 points, while the NSE-Nifty is down by about 15 points. However, buying interest is being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.3% and 0.5% respectively. The rupee is trading at 44.87 to the US dollar.

Energy stocks have opened the day on a positive note. Gainers here include Castrol and Indian oil. As per a leading business daily, Reliance Industries will seek a higher price for its gas production from the KG D6 block in the future. It currently gets US$ 4.2 per million British thermal unit (mBtu). However, it believes smaller gas fields become economically unviable at this price. Hence, it would seek at least US$ 6 per mBtu when its smaller fields in KG D6 start production in 2014. Currently Reliance Industries produces from 2 gas finds in the block - Dhirubhai-1 and 3. There are 16 other smaller finds in the region. It may be noted that the price of US$ 4.2 per mBtu was set by an empowered group of ministers in 2007 and will come up for review in 2014. Under the production sharing contract between Reliance Industries and the government, the company has to discover a market price for natural gas and submit it for government approval. After the recent Supreme Court ruling, this process has been held proper beyond any dispute.

Banking stocks have also opened the day on a positive note. Gainers here include Bank of India and Central bank. Union Bank of India declared its FY10 results. The bank reported a 12% YoY growth in interest income in FY10 on the back of a 23% YoY growth in advances. However, this growth has come while partially sacrificing margins and asset quality. In order to hedge the slowdown in the growth of retail and agriculture segments, the bank tapped SME clients. Net interest margin dropped from 3.2% in FY09 to 2.7% in FY10 due to pricing pressure. Other income grew by 33% YoY on the back of 47% YoY growth in fees. The bank's capital adequacy ratio stood at 12.5% as per Basel II at the end of FY10. Net NPA ratio moved higher to 0.8% in FY10 from 0.3% in FY09.