Oil & Gas stocks buck the trend

Fri, 25 Jun Closing

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Indian markets languished in the red for the entire session today as selling activity across index heavyweights took toll. While the BSE Sensex closed lower by around 160 points (down 1%), the NSE Nifty lost around 54 points (down 1%). Midcap and smallcap stocks were also at the receiving end as the BSE Midcap and BSE Smallcap closed lower by 1% each. While selling was seen across sectors, oil & gas stocks managed to find favour.

As regards global markets, Asian indices closed mixed today while the European indices have opened in the red. The rupee was trading at Rs 46.55 to the dollar at the time of writing.

MNC pharma stocks closed mixed today. While Pfizer and Aventis found favour, Novartis closed in the red. As per a leading business daily, Pfizer has envisaged a sales growth in 'double-digit' figures in 2010. While its top brands will be instrumental in contributing to this growth, new product launches will also play an important role in adding on to sales. It must be noted that in FY09 too, the company had managed to grow by a decent 14% YoY, largely led by its key brands 'Corex', 'Becosules' and 'Gelusil.' Just as its parent company Pfizer Inc. has evinced interest in foraying into generics, Pfizer India also has similar plans. In this regard, the latter has already launched 6 branded generic drugs till June 2010 in the domestic market. Pfizer is also looking to increase its reach to doctors and the focus will be more on metros and tier I, II, III and IV cities before it ventures into rural areas. All these initiatives will enable the company to boost its topline going forward.

As per a leading business daily, Petronet LNG is planning to go in for a rights issue by the end of 2011. This is for the purpose of funding a planned 1,200 MW power plant near its LNG terminal at Dahej, Gujarat. At present, the company is awaiting a final board approval for the purpose of setting up the plant. The power project is estimated to cost about Rs 36 bn. Currently, the detailed feasibility report for the power plant is under review for the final investment decision. Plans on the anvil include raising US$ 50-60 m for this plant. Further, the company has received shareholders' approval to raise its borrowing limit to Rs 150 bn from the current Rs 100 bn. The stock closed 1% higher.

Regulators globally are now skeptical about loosening their grip on banks. The RBI too is keen to keep an oversight. This is despite requests to allow more players in the Indian banking space. Hence, it wishes to allow only those NBFCs that are sufficiently capitalised to get into banking. The RBI has proposed a minimum net worth of Rs 10 bn for new entrants in Indian banking. This is three times the minimum capital prescribed for new players earlier this decade.

Given the capital crunch many banking entities (particularly the PSUs) are facing, the RBI does not wish to entertain more such players. Also sufficient capital adequacy will ensure that the new entities find it easier to comply with the CRR and SLR norms. While this certainly makes a lot of sense, we believe that such entry barriers are not enough. Besides ensuring that the new entrants are well capitalised, the RBI should also check the quality of the applicants' past operations.