Sensex continues on its winning streak

Tue, 23 Aug Closing

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Indian stock markets had a positive trading session today, on positive global cues. Despite trading weaker in the morning session, they continued to gain steam and ended up closing well above the dotted line. While the BSE- Sensex closed higher by around 157 points (up 1%), the NSE- Nifty closed higher by around 50 points (up 1 %). The BSE Midcap and BSE Small cap, also saw strong gains. They closed higher by 1% and 1.2% respectively. Almost all indices closed in the positive today.

As regards global markets, all Asian indices closed in the green today, while European indices echoing similar sentiment. The rupee was trading at Rs 45.58 to the dollar at the time of writing.

IT stocks have rallied today, with the index rising by almost 4% today. Tata Consultancy Services, and Financial Technologies led the gains, closing 5.4% and 4.8% higher respectively. This was after a few weeks of heavy selling in these tech stocks on account of the slowdown in the global recovery. This rally today was probably on the back of Software Body, NASSCOM stating that it is confident that the IT industry will grow at a projected rate of 16-18% in the financial year 2011-12. This is despite economic uncertainty in the US and the European regions. The body has spoken to various customers, and they are confident of expanding into various geographies and implementing solutions. Irrespective, the industry continues to have a cautious outlook of the future. Growth in software and services export is expected to be in the 16-18% range, and the sector is expected to clock in revenues of US$ 68-70 bn. growth in the domestic market is also expected to stay robust, growing by an estimated 15-17%, with revenues of US$ 19-20 bn.

The managements of PSU banks may soon be in for an overhaul. The RBI governor, D Subbarao has recently proposed in favour of bifurcating posts of chairman and managing director (MD) in various state-run banks. The track record of this move has been successful in the private sector. Subbarao believes that one person wielding too much power is not good. Currently in most public sector banks, the top executive is designated as the chairman and managing director. An exception is State Bank of India where the top seat belongs to the chairman and there are four separate managing directors under him. This move will bring more focus and vision, help in the functioning of the bank, and also provide a system of checks and balances and also improve the corporate governance of these banks.

Leading consultancy firm, The Boston Consulting Group (BCG) has also recently come out with a report that incentive pay was an important tool to increase productivity. It stated that a variable compensation at 15-20% of the fixed compensation was an effective way to provide an incentive to the employee. It stated that variable compensation as a percentage of total employee costs in Indian banking stood merely at 2%. Now, while private sector banks, and foreign banks are closer to the benchmark range, public sector banks fail dismally in this regard. BCG has stated, that the government should introduce performance linked compensation framework for PSU banks wherein 12-15% of the salary could be variable for at least 75% of its staff. Well, these two moves could really provide a paradigm shift in the functioning of PSU banks in the country.