Sustained buying fuels indices

Fri, 2 Sep Closing

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Indian stock market began the day's proceedings on a positive note and maintained this momentum throughout the trading session today. Although there was some profit booking witnessed at higher levels in the afternoon, the indices still managed to trade into the positive. Buying activity once again intensified in the final hours ensuring that the indices closed well above the dotted line. While the BSE-Sensex closed higher by around 145 points (up 1%), the NSE-Nifty closed higher by around 39 points (up 1%). The BSE-Midcap notched gains of 1%, while the BSE-Small cap closed marginally into the positive. Barring IT stocks, gains were seen across sectors.

As regards global markets, most Asian indices closed in the red today while European indices have opened on a weak note. The rupee was trading at Rs 45.92 to the dollar at the time of writing.

Auto stocks closed mixed today. While Bajaj Auto, Mahindra & Mahindra Ltd. (M&M) and Hero Motocorp found favour, Maruti Suzuki closed in the red. As per a leading business daily, auto major Hero Motocorp (the erstwhile Hero Honda) has reported healthy sales growth numbers for August 2011. Sales volumes growth for the month stood at 18.6% YoY. Further, cumulative sales for the company between April to August in 2011 crossed the 2.5 m units milestone, a growth of 21% over the same period last year. As a result the company is likely to meet the initial guidance of 6 m volume sales this fiscal. It must be noted that the company had put up an impressive performance during the first quarter of FY12 as well. During the quarter, revenues grew by 32% YoY on the back of a 24% YoY increase in sales volumes led by new product launches. What is more, the company was able to marginally expand its operating margins as well, although this was more a result of better control over staff costs and other expenditure. Raw material costs had risen significantly and could put pressure on margins in the coming quarters.

There seems to be no relief yet on the food inflation front. Food inflation in India shot up to its highest in more than four months in the week ended Aug 20. This was driven by a sharp rise in vegetable prices. The wholesale price index-based food inflation rose to 10.05% from a year earlier, compared with 9.8% in the previous week. Food prices have hovered at elevated levels for more than two years now due to increased demand. The RBI has attributed this to the growing prosperity in the country that has led to increased consumption of high-protein foods such as eggs, fish, meat and milk. Not just that, the worrying sign is that headline inflation has remained in excess of 9% for eight consecutive months since December 2010. This means that inflation control would continue to remain the focus of monetary policy in September. Indeed, if the RBI does raise interest rates, it will be for the 12th time since March 2010. Moreover, it is not just food prices that is stoking inflation but also rising prices of non-food articles, high government spending as well as supply hindrances in India's distribution chain.