Strong buying fuels indices

Wed, 15 Sep Closing

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Indian markets continued gain momentum in today's trading session as well led by strong buying activity across index heavyweights. Although trading was largely rangebound, the indices closed well above the dotted line in the final trading hour. While the BSE Sensex closed higher by around 155 points (up 1%), the NSE Nifty gained around 65 points (up 1%). The BSE Midcap closed marginally in the positive while the BSE Smallcap was flat. Gains were largely seen in IT and oil & gas stocks while auto stocks were at the receiving end.

As regards global markets, most Asian indices closed mixed today while European indices have opened in the red. The rupee was trading at Rs 46.38 to the dollar at the time of writing.

As per a leading business daily, Mahindra Finance expects net profits to grow by 40-45% in FY11. This will be led by growth in demand for commercial and pre-owned vehicles and construction equipment. Further Mahindra Finance, which borrows mainly from banks and financial institutions, does not see any impact on borrowing cost in case of a 25-50 basis points rate hike which could take place in FY11. The strategy is to pass on a significant rate hike to customers but the company is confident of being able to absorb a rate hike of 25-50 basis points. The company has also envisaged buoyant demand on the back of a good monsoon and the National Rural Employment Guarantee scheme, which increases disposable income of the rural population.

It must be noted that Mahindra Finance is a 60% subsidiary of auto major Mahindra & Mahindra (M&M), and is one of India's leading non-banking financial companies (NBFCs). It is focused on the rural and semi-urban sector, providing finance for utility vehicles, tractors and cars and has the largest network of branches covering these areas. The company principally finances M&M utility vehicle (UVs) and tractors, and has been attempting to diversify its asset base to cover non-M&M vehicles (other than tractors). The stock closed firm today.

Steel stocks closed firm today with the key gainers being SAIL, Tata Steel and JSW Steel. As per a leading business daily, SAIL has entered into a joint venture (JV) with RITES Ltd for setting up a wagon manufacturing unit at Kulti in West Bengal. The plant will have a capacity of 1,500 wagons a year. The initial cost of the project has been pegged at Rs 850 m. The unit is expected to come on stream in 14 months. While steel from SAIL will be supplied to this plant at prevalent market rates, the unit will procure other items at market determined prices through tenders. The rationale behind this JV is to overcome the shortfall of wagons and the Steel Minister has indicated the formation of 5 such JVs for wagon manufacturing.

As per a leading business daily, India's exports in August grew by 22.5% YoY to US$ 16.6 bn. This was better than the 13.2% growth in July which was the lowest in six months. Infact, exports grew more than 30% in the five preceding months partly due to the base effect as exports were sluggish in 2009. Meanwhile, the scenario in the developed world is not too bright. US is not expected to recover anytime soon in the coming months as the stimulus measures come to an end and unemployment continues to remain high. Europe is still grappling with huge debt burdens. Meanwhile, imports grew at a faster rate of 32.2% YoY in August. This increased India's trade gap for August to US$ 13 bn.