L&T, RIL make it seven in a row

Thu, 17 Jun Closing

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After spending most of the morning session crawling around the break even line, markets, with some great help from heavyweights like Reliance and L&T surged ahead in full steam during the second half and managed to close the day strongly in the positive. This is now the seventh consecutive trading session where the markets have closed in the positive. The BSE Sensex closed higher by around 150 points (up 0.8%), whereas NSE Nifty surged in the region of around 40 points (up 0.8%). BSE Midcap and Small cap indices were also in the thick of action, gaining 0.4% and 0.6% respectively.

While Asian stocks have closed mixed today, Europe is trading in the positive currently. The Indian currency was pegged at 46.4 to the dollar at the time of writing.

With today's gains, the Sensex is now just a couple of good sessions away from breaching the highs of the current bull run, a level of around 18,000. And who knows, with the global sentiment as it is right now, FIIs could keep pumping in money and we would be there. But will we go significantly higher than that? We have our doubts. The problems plaguing the developed world are far too big to go away in a hurry. Thus, every spate of good news is likely to be followed by bad ones and it will all lead to markets going nowhere for a considerable period of time. What is more, the risk of a significant correction should things take a turn for the worse does remain and this would affect Indian markets as well. But as we have been maintaining, in the case of India, every such correction should be seized as an opportunity to buy into the country's long term growth story.

A few years back, a new security had come into vogue. Called FCCBs, it promised the features of both, equity as well as debt. Companies happily bought into this promise, barely realizing that there is no such thing as free lunch in finance. And now, the hidden risks in FCCBs are slowly coming to light. As per a leading daily, around 90 of the BSE 500 listed companies had outstanding FCCBs aggregating Rs 546 bn as on March 15, 2010. And the probability of the same getting converted into equity is very low for around 50 of those companies. The end result? They may either have to refinance their FCCB debt or settle for a much lower conversion price or a mixture of both. All said and done, the entire episode could lead to some serious pressure on the fundamentals of the companies involved, if not for the long term then at least for the near to medium term. Some of the prominent companies that are likely to face the FCCB problem are Reliance Communications and Suzlon.

Wipro, the IT bellwether closed in the positive today, optimism perhaps stemming from the fact that the company has won a significant outsourcing deal from one of the world's largest IT companies, Microsoft. However, it is not the company's software division that has anything to do with it. The deal has been won by Wipro's BPO arm and it involves providing legal process outsourcing (LPO) to Microsoft's IP and licensing group worldwide. While the size of the deal is not known, it does mark an important step in Wipro's journey towards cementing its place in the fast growing space of legal process outsourcing.