Indices close on a 5-month high

Tue, 21 Aug Closing

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Buying activity intensified during the closing stages of the day and as a consequence, indices in the equity market in India ended the day on a strong note. While BSE-Sensex edged higher by around 195 points (up 1.1%), NSE-Nifty logged in gains to the tune of 55 points. BSE Mid Cap and BSE Small Cap indices did not close as strongly as their large cap counterparts, ending only marginally higher. More than 3 stocks closed higher for every one that closed the day in the red.

While most Asian indices closed higher, Europe too is trading strong currently. The rupee was trading at Rs 55.5 to the dollar at the time of writing.

Although nothing seems to have changed fundamentally, the current rally seems mostly a result of renewed FII interest in Indian equities. Their confidence in turn has been boosted by news coming out of Europe that the European Central Bank will do whatever it takes to bring the Euro region back on its feet. While this is likely to boost equities in the near term, their business fundamentals and their management quality still remains their long term determinant. Thus, investors get carried away at their own peril. They should steer clear of risky business models and excessively priced stocks.

Maruti, India's largest passenger car manufacturer has resumed operations at its Manesar plant amid heavy security measures. It should be noted that the company had declared a lock-out at the plant more than a month back after incidents of labour violence. The closure is estimated to have cost the company millions of dollars in lost output. One major change that it is initiating is in the form of doing direct hiring rather than employing contract labour and the same has been communicated to existing contract workers. We hope the step leads to no more disruptions and helps the company to efficiently run all its operations. The stock closed higher by 1% today.

Slow economic activity and ambiguity regarding taxation has taken a toll on FDI in the Indian services sector. As per reports, the same has dipped by 18% during April-May FY13 over the same period last year. The overall FDI also seems to have come down sharply for the second month in succession in May to US$ 1.32 bn from the previous fiscal's US$ 4.7 bn. As per experts, taxation issues related with GAAR and retrospective amendment in the income tax act along with waning investor confidence in the country seem to be the major cause of the decline in FDI inflows.