Banking & telecom lead the gains

Thu, 3 Jun Closing

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Led by buying in banking, telecom and energy stocks, Indian markets recorded strong gains today. These gains were fueled by positive news coming out of the US and Europe. The BSE Sensex and NSE Nifty closed with gains of around 280 points (1.7%) and 85 points (1.7%) respectively. Mid and small cap stocks followed suit. The BSE Midcap and BSE Smallcap indices closed higher by 1.1% and 1.2% respectively. On the broader BSE, two stocks gained for every one that closed in the red.

Among other key Asian markets, China (down 0.7%) was the sole loser today. Gains were seen in Hong Kong (up 1.6%) and Japan (up 3.2%). Stocks across Europe have also opened the day on a strong note.

Power stocks closed with gains today. Key gainers here included Tata Power and NTPC. Earlier, as per a leading business daily, NTPC was reported as buying a controlling stake in a coal field in Australia. The deal is said to be valued at US$ 1-1.5 bn and will provide NTPC coals assets of 72 m tonne (MT). As pr The Economic Times, these mines would allow NTPC to bring home up to 10 MT of coal annually for its plants.

An acquisition like this talks a lot about the urgency with which Indian power companies like NTPC are eyeing such assets abroad. While some of these companies have also won tenders for mining coal in India, execution here is pretty slow. And the lure of buying an operational coal mine is any day brighter. We see these international coal assets as having big importance for a company like NTPC. Not only is this considering its huge expansion plans, but it also stems from the shortfall in coal supplies it is facing from domestic coal suppliers like Coal India Ltd. Anyways, buying global mining assets has its risks as well. Improper calculation of reserves is one. As buyers have seen in the past, actual reserves have turned out to be a fraction of the stated or promised deposits. This also casts doubts on the valuations paid for such assets.

Software stocks closed strong as well. Gains were seen in Tech Mahindra, Infosys, and TCS. Gains in Infosys stemmed from reports that the company is not seeing any pressure on demand from Europe. This is even as the region is mired by huge global uncertainty following the Greek financial crisis. The management has suggested that no projects have been cancelled, nor any decisions delayed by any European customer or potential customer. As a matter of fact, Infosys derives less than 1% of its revenue from crisis-ridden countries like Greece and Spain. As such it does not see any serious impact on its future performance. Anyways, around 60% of the company’s European sales come from the UK, which is also facing a crisis of sorts.

Food prices are showing no signs of cooling off. As per latest data, India’s food inflation rose to 16.55% for the week ended May 22 on account of high prices of pulses, fruits and vegetables. In fact, this number was higher by 0.32% from 16.23% recorded in the previous week. Although food prices have been firming up, experts feel prices will come down in the next 2-3 months. Anyways, food stocks closed mixed today. While gains were seen in Britannia and ITC, selling pressure marked trading in GSK Consumer and Nestle.