Volatility plagues Indian bourses

Wed, 17 Aug Closing

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Indian stock market had a rather volatile outing today. While the morning session saw the indices surge as buying activity intensified, investors began to book profits at higher levels subsequently thereby erasing most of the early gains. The afternoon session, however, saw markets recover thereby ensuring that they close well above the dotted line. While the BSE-Sensex closed higher by around 110 points (up 1%), the NSE-Nifty closed higher by around 21 points (up 0.4%). The BSE-Midcap and BSE-Small cap were, however, at the receiving end as they as they closed lower by 1% and 2% respectively. While gains were seen in IT and FMCG stocks, auto and banking stocks were out of favour.

As regards global markets, Asian indices closed mixed today while most European indices have opened in the red. The rupee was trading at Rs 45.43 to the dollar at the time of writing.

As per a leading business daily, Sintex Industries is aiming to double its revenues to US$ 2 bn by FY14. For this, the company plans to invest around Rs 11 bn on its upcoming capacity expansion projects across India. During this period, the company will invest Rs 2.5 bn on facilities for custom moulding, Rs 2.2 bn on prefab, Rs 3-3.5 bn on monolithic, Rs 1.5 bn on captive power and Rs 500 m on textiles. The company has shifted its focus from textiles and water tanks and is concentrating more on building products like monolithics and pre-fabricated structures. Further, the company is looking to target new markets for pre-fabs in the tribal areas of the country.

Going forward, the growth in Sintex's monolithic and prefab businesses is expected mainly on the back of the government's focus on universal education and housing. Need for providing education to more and more children and creation of quality yet cost effective infrastructure (classrooms), combined with construction of quality houses at much lower cost and in much lesser time than traditional concrete houses, are expected to be the biggest drivers for Sintex's prefab business in the future. The stock closed lower today.

As per a leading business daily, research firm Dun & Bradstreet expects India to become a US$ 5.6 trillion economy by 2020 compared to US$ 1.7 trillion last fiscal. What will drive growth in the next decade is the rate of investment, consumer expenditure and infrastructure spending. The share of discretionary spending is projected to increase considerably to 72% of private consumption expenditure from around 60% in FY10. Besides, the share of the services sector is expected to rise from 57.3% of the GDP in FY10 to 61.8% in FY20. Also, infrastructure sector spending is expected to rise to 12.1% of GDP by FY20 from around 7% of GDP in FY11. While this sounds positive, there are still a number of challenges that India has to deal with in the medium term. For starters, inflation has remained persistently high as a result of which the RBI has been compelled to raise interest rates gradually over the last few quarters. Higher interest rates and fuel prices have acted as a dampener on demand and have also hurt the profitability of India Inc. Not to mention the rise in input costs, which have also impacted margins. The government is also grappling with a high fiscal deficit which could hamper its investments in developmental activities unless it brings it down. Thus, although the growth prospects for India look strong from a long term perspective, it could face some headwinds in the medium term.