India leads the Asian rally

Mon, 9 Aug Closing

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Indian markets gained today, led by buying in stocks from the realty and metal sectors. Stocks from the oil & gas and pharma sectors however, closed weak. On the broader BSE, two stocks gained for one that closed in the negative.

The BSE Sensex and NSE Nifty closed with gains of around 145 points (0.8%) and 45 points (0.9%) respectively. Midcap and smallcap stocks followed suit, as the BSE Midcap and BSE Smallcap indices closed up by around 1.2% and 1.4% respectively. The rupee was trading at 46.1 to the US dollar at the time of writing this.

The Indian markets were in fact the best performer in Asia today. Among other key Asian markets, China and Hong Kong closed up by 0.5% and 0.6% respectively, while weakness was seen in Japan (down 0.7%).

Realty stocks closed strong today, led by gains in Sobha Developers, Unitech, and DLF. Today's gains mark the continuation of a rally in these stocks after the weakness witnessed in the first half of this year. Fears of rising interest rates had spooked these stocks during the first six months of 2010. These fears seem to have receded since then, largely owing to the RBI's stance of going slow in hiking rates. Realty companies have also seen a revival in their business, with the same having grown both in volume and value terms during the first quarter of FY11. DLF, for instance, had recently reported a 23% YoY growth in 1QFY11 sales. Also the fact that the country has seen a couple of large realty deals indicates the revival of interest in the realty sector. Investors must however note that this euphoria can be detrimental to their interests given that real estate companies have been known to over-do things in the past. And this time could be no different.

Auto stocks also gained strongly today. Stocks like TVS Motor, Tata Motors, and Maruti led the gainers' pack. Gains in these stocks were seemingly on the back of good sales numbers for the month of July 2010, which were announced earlier today. As reported, car sales grew by 38% YoY during the month, driven by improved customer sentiment on expectations of a strong economic growth. The overall automobile sales have grown by 35% YoY during the first four months of this fiscal (April-July 2010). This indicates that the recovery in demand has been broad based and has not been restricted to just cars. As we see from here on, capacity constraints and higher interest rates can spoil the party for Indian auto companies.

Stocks from the software sector closed mixed today. While gains were seen in TCS and HCL Tech, selling pressure marked trading in Mahindra Satyam and Oracle Fin. Services. Earlier, as was reported in a leading business daily, Indian IT companies are getting optimistic on getting over the European crisis. This, the companies expect to happen owing to a recovery in demand from their largest market, the US. Some of the large IT companies have seen pressure on their business from the European region during the recently concluded quarter. And it was not just about the business volumes. Even the sharp depreciation in the Euro against the Rupee impacted the receivables from this region. These companies are thus counting on revival in US offshoring demand and reduced exposure to Europe to get over the weak revenue and profit growth in the coming quarters.