India trails Asian gainers

Tue, 6 Jul Closing

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Taking cues from the buoyant global markets, the Indian benchmark indices ended the session well above the dotted line today. Pharma, software and banking stocks led the pack of gainers. Selective profit booking was however seen in auto and cement stocks. The Chinese and Indonesian markets were the top gainers in Asian region. European markets have also opened in the positive.

The BSE Sensex and NSE Nifty closed with gains of around 173 points (1.0%) and 53 points (1.0%) respectively. However, the mid and small cap stocks failed to catch up. The BSE Midcap index closed higher by 0.8%, while the BSE Smallcap index closed with gains of around 0.6%.

In a move that may allow Indian companies to hire skilled employees with global experience, the government is looking at revising the guidelines for work visas. Previously, Indian firms had to limit their foreign hires to 1% of their workforce. Also the minimum pay scale was US$ 25,000 (Rs 1.2 m) a year. However, these relaxations come with a clear mandate that only skilled and technical workers should be allowed. Thus while facilitating Indian companies, especially MNCs hiring employees with overseas experience, these guidelines do ensure that the unskilled jobs come to Indian first. Indian IT majors who are the major hirers of foreign nationals may stand to benefit from this move. The stocks of Infosys, Wipro and TCS ended higher today ahead of the upcoming result season.

Indian banks are having to pay a heavy price for the tight liquidity situation prevalent currently. The players in the sector are reportedly raising funds atleast 0.5% to 1% higher than that paid for bulk deposits a month earlier. The RBI's cues of an upward bias in interest rates are not helping banks either. However, the situation is expected to ease up by the end of July 2010 when some government papers mature. Meanwhile, we believe that it may not be a very prudent move by banks to raise bulk deposits at exorbitant rates as the same may eat into their already thinning margins. Key stocks in the sector including SBI, IDBI Bank and PNB ended in the positive.

The politicians did their best yesterday when it came to holding the nation to ransom on the pretext of inflation. What needs to be seen is what would be their reaction if inflation were to actually taper down on the back of good monsoon. Yes, the latest food inflation number at 12.9% is an enthusing 4% lower than the previous record. But that is not something to celebrate. For the lower number is purely due to a higher base in 2009. On a week on week basis, food prices continue to scale up. Having said that, as per the Finance Secretary and the Planning Commission, it is only a matter of time. The government officials seem confident that better food supplies this year will certainly ease pressure on prices. In fact they see inflation coming down to 5%-6% by the end of this fiscal. This hopefully is after taking into account the impact of higher fuel prices. We are keeping our fingers crossed.