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India's Third Giant Leap

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India strong amidst weak Asia
Wed, 30 Jun Closing

A sudden burst of buying activity during the fag end enabled the indices to close strongly in the positive today. While the BSE Sensex managed a gain in the region of around 170 points (up 1%), NSE Nifty edged higher by around 60 points (up 1.1%). BSE Midcap and Small cap indices also ended the day in the positive, going up by around half a percentage point each. The market breadth was extremely positive with six stocks gaining for every one that declined on the Sensex today.

While most Asian stocks closed in the red today, Europe is witnessing buying interest currently. The rupee was poised at 46.5 to the dollar at the time of writing.

That India was amongst the few bright spots in an otherwise weak Asian stockmarket did come as a little bit of a surprise. However, a closer look reveals that the move could well be justified. After all, it still remains one of the most domestic focused economy in the world and the one which is also growing at a pretty fast pace. Furthermore, the Government’s intentions in recent times on the fiscal discipline front have also given investors more reasons to cheer about. However, all said and done, India remains vulnerable to any sharp pull backs in the global market and hence, investors should be prepared to take near term losses to the tune of 20%-25%. From a long term perspective though, fundamentally sound stocks are likely to yield attractive returns if bought at good valuations.

PSU Banks traded a mixed bag today with stocks like Indian Bank and Corporation Bank amongst the gainers whereas Bank of Baroda and Union Bank ending up on the losing side. Taking cues from the PSU behemoth, SBI, smaller Indian banks, mostly in the PSU space have set their base lending rate between 7%-8%. Some of the important ones to announce their base rates today were IDBI Bank, Bank of Baroda and Allahabad Bank, with all of them fixing their base rate at 8%. It should be noted that the RBI has introduced the new lending rate system in order to ensure that small borrowers do not end up cross subsidizing large borrowers, most of whom were able to borrow much below PLR rates. The move has not been treated with a lot of fanfare amongst investors as the banking sector traded mostly lukewarm today.

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