Mkts trading with modest gains

Thu, 10 Jun 11:30 am

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After starting on a positive note earlier this morning, Indian markets have managed to hold on to the gains. Key Asian markets are also marginally in the green. Stocks from the pharma and auto sectors are witnessing buying interest. Those from the IT and FMCG spaces are trading mixed.

The BSE-Sensex is trading up by around 110 points while the NSE-Nifty is trading up by around 30 points. The BSE-Midcap index is up by 0.6% and BSE-Smallcap index is up by 1%. The rupee is trading at 46.96 to the US dollar.

Oil & gas stocks are currently trading mixed. As per leading business daily, Reliance Industries (RIL) is planning to enter the highly competitive telecom space. It plans to enter the lucrative corporate bandwidth market which involves providing internet services to companies. RIL is likely to create an SPV to take care of this new venture. Since laying out fibre optic cable is capital intensive by nature, RIL plans to acquire a company directly rather than planning a greenfield expansion. Industry sources believe that HFCL’s arm, Infotel, could be a prime candidate for RIL. Infotel offers telecom and leased line services in Punjab. It is also currently bidding for the BWA auction. Thus if RIL is successful in acquiring stake in Infotel it would get a direct entry into the bandwidth market. It may be noted that Bharti Airtel had reported an operating margin of 46% in 4QFY10 for the enterprise segment which caters to corporate bandwidth market, suggesting the high profitability levels of this business.

SBI is trading strong on the back of announcing a Rs 200 bn (approx. US$ 4.2 bn) rights issue. This issue is expected to launch in the second half of this fiscal. The bank also plans to raise Rs 1-2 bn in the domestic retail bond market in the first half. Its capital adequacy ratio stood at 13.4% (as per Basel-II) at the end of FY10.

SBI had earlier stated that it plans to raise around Rs 700 bn within the next 5 years for expansion and consolidation plans. With the successful offering of this issue it will be well on its way to achieving this target. It needs capital for growth and out of all the available options such as a follow-on-offer, rights issue or preferential issue it prefers a rights issue to benefit its existing shareholders. The government's share in the issue is likely to be 60%. SBI’s balance sheet growth has always remained ahead of the industry due to its widespread rural and semi-urban presence. We believe this issue will further cement its lead.