Small and mid-caps buck the trend

Tue, 18 Sep Closing

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The Indian stock markets started the day on a positive note. However this momentum could not be sustained for very long. Soon the indices turned choppy and moved below the dotted line. Finally indices closed lower ahead of the market holiday tomorrow. The market breadth was still positive with 1.4 advances to every decline. The BSE-Sensex closed in the negative, lower by around 46 points (down 0.3%). The NSE-Nifty also closed lower by around 10 points (down 0.2%). The smaller indices had a better day on the bourses. The BSE Mid Cap index and the BSE Small Cap closed 0.9% and 0.7% higher respectively in trade today. PSU stocks, capital goods and power stocks saw a bulk of the gains today. Oil and gas and IT stocks were the losers in today's trade.

As regards global markets, Asian indices had a negative outing today. European indices opened the day on a weak note. The rupee was trading at Rs 54.08 to the dollar at the time of writing.

Retail inflation numbers (as measured by the CPI) were released today, a day after the RBI announced its mid-quarterly policy review and expressed its concerns over the high inflation levels. The CPI increased to 10.03% for the month of August as compared to 9.86% in the previous month. The rise was led by soaring prices of vegetables - with an approximate increase of 21% YoY. The CPI for food and beverages section increased by 12.03%, while clothing, bedding and footwear rose by about 10.7%. Retail inflation in rural India rose to 9.9% from 9.76% a month ago, while that in urban India increased to 10.19% from 10.1%.

India's state electricity boards (SEBs) face huge transmission and distribution (T&D) losses. These utilities have been in the red for a number of years now due to the lack of periodic tariff revisions and the escalating costs of fuel. As a result, these boards have accumulated losses of at least Rs 2 trillion. Banks, especially public sector banks have unfortunately been funding these losses. A large portion of this debt has already been restructured in FY12; with a few more pains expected this year as well. The central government is now preparing a much-awaited debt recast package for these cash-strapped SEBs that will be sent to the cabinet for approval in a couple of weeks. However this will not be in the form of a bailout package. The restructuring will involve modifying the repayment schedule of debt owed by state electricity boards. On the back of this development a number of PSU banking stocks, especially the ones with significant exposure to these SEBs rallied. Oriental Bank closed 13% higher, Union Bank (10%) and Punjab National Bank (7%) all shot up post this development.