Indian stock markets open weak

Wed, 24 Aug 09:30 am

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Asian stock markets have opened the day on a mixed note. Stock markets in Malaysia (up 0.3%), China (up 0.2%) and Indonesia (up 0.2%) are trading firm. However, markets in South Korea (down 1.2%), Hong Kong (down 0.9%) and Japan (down 0.4%) are trading in the red. The Indian stock markets have opened the day on a weak note. Stocks in the IT and power space are leading the losses. However, consumer durables, healthcare and realty stocks are trading firm.

The BSE-Sensex is trading lower by around 32 points (0.2%) and the NSE-Nifty is down by around 9 points (0.2%). However, midcap and small cap stocks are trading in the green, with both the BSE Midcap and BSE Small cap indices up by 0.7% and 0.6% respectively. The rupee is trading at 45.77 to the US dollar.

Oil & gas stocks have opened the day on a mixed note with ONGC, Petronet LNG and Essar Oil trading firm. However, HPCL, BPCL and Oil India are facing selling pressure. State-owned Hindustan Petroleum Corporation Ltd (HPCL) has been in the process of setting up a new refinery with a capacity of 9-15 m tonnes per annum (mtpa). The government of Maharashtra had offered 2,800 hectares of land at Lote Parshuram in Chiplun in Ratnagiri district. However, after reviewing the detailed feasibility study prepared by Engineers India Ltd, the oil marketer decided that it would require more land. As a result, HPCL has now sought 4,000 hectares for the proposed refinery at Chausal which is in the same district. The Maharashtra government has indicated that land would be available for the facility. The land will cost HPCL about Rs 300 bn. As of now, HPCL has two refineries, one each in Mumbai and Visakhapatnam, with capacities of 6.5 mtpa and 8.3 mtpa, respectively.

Bank stocks have opened the day on a firm note with State Bank of India (SBI) and Bank of Baroda leading the gains while ICICI Bank is trading in the red. India's top bank SBI, now has the lowest Tier-1 equity among big banks and could be facing a crisis in the next year. The bank's Tier-1 capital has gone below 8%. Even though the regulation says that the banks should maintain 9% as the capital adequacy, banks themselves maintain 12% or higher. Out of this the tier-1 is 8% while remaining 4% is Tier-2. To raise the Tier-1 capital, the bank is planning a rights issue where they expect the government to participate in. As another option, the bank could go for a bond sale to raise its capital adequacy in Tier-2 capital to continue lending. However, in today's market a bond issue can turn out to be quite expensive due to higher interest rates. The management has stated that they cannot sustain without capital infusion from the government in long term. However, the bank is confident that it should not face any capital adequacy problems next year.