Flat with positive bias

Tue, 8 Jun 11:30 am

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After starting on a positive note in the morning, the Indian indices have managed to hold on to the gains and are trading flat currently. Key Asian markets are also marginally in the green. Stocks from FMCG and Auto space are seeing buying interest while profit booking is seen in stocks from the IT and Oil & gas space.

BSE-Sensex is trading up by 36 points while NSE-Nifty is trading marginally in the green. BSE-Midcap index and BSE-Smallcap index are both trading up by 1%. The rupee is trading at 46.98 to the US dollar.

As per leading business channel, Bharti Airtel is planning a new collaborative firm in Africa. This collaboration will be with tier 2 operators in areas where Zain operates in order to share radio access network and reduce cost burden. Convergence of all operators onto a single network will result in significant capex savings for the company. After being successful in India, Bharti is trying to replicate its low cost business model in overseas markets as well. However, this time around it has pioneered a unique way of collaboration which if proven successful can result in significant capex and opex savings for the company. This should provide some cushion to the bottom line against the huge pile of debt taken to fund the Zain deal.

Oil and gas stocks, especially state run refiners including HPCL and BPCL are trading weak on account of the government postponing fuel price hikes. Prices of petrol, diesel as well as cooking gases such as kerosene were slated to rise. This delay took place after ministers felt that this move would lead to voter backlash as well as increase inflationary pressures.

Raising fuel prices will help the government cut expenditure on fuel subsidies, which reached Rs 260 bn last year, according to a leading business daily. Indian Oil is one of the companies hoping to benefit from this deregulation of prices. The refiner loses Rs 1.1 bn a day on fuel sales at the low government set prices.

The government is under pressure to push through financial reforms but yet not go against public sentiment. It feels that a gradual price increase may be more beneficial in the long run as a direct increase to market prices would increase the prices of petrol by 7% and diesel by about 9%.  Since key ministers could not attend the meeting to discuss this sensitive issue, the government is planning to reconvene in 2 weeks. The government needs to take a call soon as these oil companies cannot bleed cash forever.