Asian mkts down on Spanish woes

Tue, 25 May Closing

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As concerns over a possible banking crisis evolving in Spain grew stronger, markets across Asia witnessed a severe bout of selling pressure today. The benchmark Indian indices too gave in to the same closing as much as 3% lower by the end of the session. Telecom, power and commodity stocks led the pack of losers. On the BSE 100, there were nine losers for every stock that closed in the positive.

The BSE Sensex and NSE Nifty closed with losses of around 447 points (2.7%) and 137 points (2.8%) respectively. Mid and small cap stocks saw even greater weakness. The BSE Midcap and BSE Smallcap indices closed lower by around 3% each. Except China (down 2%), all other key Asian markets lost 3% or motre in today's trade. European markets have opened on a very weak note as well.

As per a business daily, an easing of RBI's permission norms for opening new bank branches has led to a substantial rise in their number. Banks in India have started focusing on branch-led growth since FY10 as this offered them a larger CASA base and safer asset profile. In December 2009, the RBI allowed domestic banks to open branches in Tier-III to Tier-VI cities (with population up to 50,000) without prior permission. Large PSU and private sector banks are therefore optimizing this opportunity to expand their franchise and build their balance sheet sizes.

The monsoons this year are expected to play a role in the decision of FMCG companies to either raise or maintain prices of their products. If the monsoons are good, the companies will have a case for price hikes as rural markets will be in a better position to absorb the same. Also inflation may get tempered with better agricultural produce. Further, consumer spending will increase on account of a decrease in food inflation and increase in demand. FMCG companies refrained from price hikes last fiscal to sustain volume growth. This paid off with volume growth on an average for most FMCG majors, barring HUL, being in the region of 8-10% last year. Most FMCG stocks except Godrej Consumer closed lower today.

Indraprastha Gas (IGL) reported a 26.5% YoY growth in topline during FY10 on the back of a 19% YoY growth in overall volumes. The company's CNG volumes grew by 14% YoY, while PNG volumes grew by 61% YoY during the year. During 4QFY10, IGL posted a growth of 26.8% YoY in total operating income. Its margins improved during 4QFY10 primarily on the back of raw material costs, which declined by 2.9% (as a percentage of sales). The company plans to increase CNG prices in the national capital region by about 20%. This move comes on the back of the government's decision to hike the price of administered price mechanism (APM) gas produced by ONGC and OIL from US$ 1.8 per m British thermal units (mBtu) to US$ 4.2 per mBtu. That is in line with prices of Reliance Industries' KG basin gas. IGL's current supply mix is 2.2 m standard cubic meters per day (mmscmd) of APM gas, 0.3 mmscmd of KG basin gas, and 0.4 mmscmd of regassified LNG. Since a bulk of IGL's gas supplies is sourced from APM gas, it had to choose between passing the cost to the customer and absorbing it.