Metals, realty pull markets down

Fri, 2 Jul Closing

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What was being seen as a good day for the Indian markets turned sour as the benchmark indices dropped into the negative during the middle and closing periods of trade. Losses in stocks from the metal, realty and engineering sectors led this decline. On the BSE, one stock lost for every one that gained.

The BSE Sensex and NSE Nifty closed with losses of around 50 points (0.3%) and 25 points (0.5%) respectively. Small cap stocks however bucked the trend. The BSE Smallcap index closed up by around 0.3%.

Among other key Asian markets, Hong Kong and Indonesia closed in the red. China (up 0.4%) and Japan (up 0.1%) however managed marginal gains. Stocks across Europe have also opened the day on a mixed note.

Power stocks closed mixed today. While gains were seen in Reliance Power and NTPC, selling pressure marked trading in GIPCL and GVK Power. Gains in Reliance Power were owing to reports that the company has received approval from the US Exim Bank for a US$ 600 m loan guarantee. The company has got this approval for its proposed ultra mega power project in Sasan, Madhya Pradesh. Interestingly, this approval comes just a week after the same bank had rejected its request to finance this US$ 4.5 bn project on environmental grounds. As per reports, the Sasan plant, which will be fired by coal, is projected to emit 26,000 to 27,000 tonnes of carbon dioxide per annum. The guarantee thus comes as a respite for the company. It also comes a savior for some US companies, which will now be able to supply power equipments for this plant and therefore save around 1,000 jobs in that country.

Software stocks also closed mixed. While Wipro and TCS found favour, Infosys and Tech Mahindra were at the receiving end. IT companies may have begun to report better sales and profits than what they did in 2009. But as reported in a leading business daily, advisory firm Gartner and Forrester has stated that the European sovereign debt crisis will cause companies and governments in that geography to curtail IT spending for 2010. Further, Gartner has scaled down its 2010 growth outlook for the global IT industry to 3.9%. Its earlier estimate was for a 5.3% growth. It now expects worldwide IT spending to total US$ 3.4 trillion in 2010 from US$ 3.2 trillion in the 2009. This is primarily due to the devaluation of the euro versus the US dollar since the beginning of the year.

Indian IT companies will however feel a greater pinch if spending is curtailed in the UK. This is the biggest market for Indian players in Europe. Having said that, given that European nations are mired deep in debt, cost cutting looks like the most obvious option. In that sense, many vendors in Europe would then outsource of a lot of their operations to Indian IT players.

Stocks from the telecom sector closed weak, led by Idea Cellular, MTNL, and Reliance Communications (RCOM). Earlier, RCOM had reported that it has bought over the operations of India’s largest cable TV services provider Digicable in an all-stock deal. The deal is valued at US$ 1 bn and adds to RCOM’s bouquets of service offerings in the telecom plus media space. The new entity will be called ‘Reliance DigiCom’, and it will integrate RCOM's DTH, IPTV and retail broadband operations.