India trails losers in Asia

Tue, 9 Aug Closing

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The Indian stock markets continued their losing streak on account of weakness in global stock markets. The Indian indices started the day on a negative note. In the mid-session, they even recovered from their day's lows and moved into positive territory. However, the selloff continued towards the close of the session bringing India amongst the least losers in Asia. The BSE-Sensex closed around 132 points lower (down 0.8%) while the NSE-Nifty closed lower by around 46 points (down 0.9%). The BSE Midcap and BSE Small cap were worse off and closed lower by 1.3% and 2.1% respectively. All the sectoral indices closed in the red, with the exception of FMCG and auto companies.

As regards global markets, Asian indices closed deeply in the red today. Hong Kong closed around 5.7% lower, suffering its biggest one-day loss since the credit-crisis in 2008. European indices were also bleeding in opening trade. The rupee was trading at Rs 45.24 to the dollar at the time of writing.

According to a leading business daily, Oil Marketing Companies (OMCs) are likely to cut petrol prices by Rs 1.5/litre around August 15-16. The Oil minister has also stated that there may be a possibility of a price cut in petrol prices if the global crude prices see a sustained cooling down. The decline in crude prices will also help the country to rein in inflation.

The downgrade of the US' AAA rating may not affect India that much. However, the global uncertainty in financial markets is expected to force Indian companies to postpone their foreign fund raising plans. State run- Rural Electrification Corporation (REC) has initiated road-shows for raising US$ 300 m in the next fortnight. However, in light of uncertainties overseas the company will postpone its Swiss franc bond issue. Tata Chemicals has also put its fundraising plans on hold. In light of high interest rates in India, on account of RBI's successive monetary tightening, the company had planned to raise US$ 375 m in overseas debt. Overseas debt may now also get more expensive in the wake of the S&P downgrade.

The microfinance sector's growth prospects faced a huge setback in 2010. This was after Andhra Pradesh (AP), their biggest market for MFIs, approved legislation to regulate the industry. This was following complaints about usurious interest rates, aggressive recovery practices and suicides. Soon after this AP bill was passed bank's refused to fund the sector, fearing bad loans. The beleaguered microfinance sector may be in line for some good news now. IDBI Bank however plans to lend Rs 7 bn more to microfinance companies by the FY12. This is in addition to its current Rs 8 bn exposure to the sector. The bank's management stated that the RBI's guidelines for the sector issued in May have brought about some clarity in the space. In May, the RBI issued certain regulations for the microfinance sector and capped their lending rates at 26%.