Energy, pharma stocks lead gainers

Wed, 3 Oct Closing

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The Indian stock markets started the day on a positive note. However the indices remained range bound in trade today trading within a narrow band. Towards the middle of the session, indices moves slightly lower but soon recovered towards the end of trade. Finally indices closed higher after yesterday's market holiday. The BSE-Sensex closed in the positive, higher by around 46 points (up 0.2%). The NSE-Nifty also closed higher by around 12 points (up 0.2%). The smaller indices had a better day on the bourses. The BSE Mid Cap index and the BSE Small Cap closed 0.6% and 1% higher respectively in trade today. Oil and gas and pharma stocks saw a bulk of the gains today. Auto and consumer durables were on the losing end in today's trade.

As regards global markets, Asian indices had a mixed outing today. European indices opened the day on a weak note. The rupee was trading at Rs 52.24 to the dollar at the time of writing.

The Asian Development Bank (ADB) cut its 2012 and 2013 growth estimates for developing Asia. A slump in overseas demand weighs on the region's growth drivers China and India and on its other export-dependent economies. The ADB cut its GDP growth estimate for China by nearly 1% to 7.7% from the 8.5% previously. Growth in India is expected to hit 5.6% and 6.7% in 2012 and 2013 respectively. This is lower than previous forecasts of 7.0% and 7.5%, respectively, as India has to battles high inflation, interest rates, a large fiscal deficit and slowing consumption growth.

Cement stocks have been having an excellent run of late on account of the receding monsoon. This revival of post-monsoon construction activity and the upcoming state elections may boost execution of public infrastructure projects. Buoyancy due to proposed government reforms have also set these stocks soaring. Ambuja Cements announced a 4.72% growth in sales for the month of September at 1.55 million tonne (MT). The company had sold 1.48 MT cement in the corresponding period last year. The company's cement production for the month of September grew 6.16% at 1.55 MT as compared to 1.46 MT is the same period last year. For the January-September (9 month) period, the company sold 16.37 MT, while its production grew to 16.38 MT, compared to 15.41 MT and 15.43 MT respectively in the year-ago period.

Kingfisher Airlines is facing a prolonged shutdown unless the cash strapped company clears its salary arrears which go back a number of months. The lockout at Kingfisher has stepped up pressure on lenders, who have a combined exposure of Rs 80 bn. Bankers are considering a recall of loan or encashing securities to minimize their losses. The lockout the airline is another red signal that recovering this non-performing asset may not be easy. Banks will be forced to hike their provisioning this quarter as their airline has slipped to the doubtful category from sub-standard earlier. This means that provisioning would double to 30%. State Bank of India (SBI) already has set aside Rs 13 bn for potential losses, according to the Times of India.

For unsecured loans (i.e. without collateral) the provisioning will be 100%. Plus with the stock tanking almost every day, the equity stake a number of banks have in the airline are pretty much worthless. At the time of the loan restructuring last year, the airline had given a long list of collateral ranging from founder, Vijay Mallya's personal guarantees to one from United Spirits, besides pledging promoters' shares and giving first charge on 2.6 m shares of United Spirits and 10 m shares of Mangalore Chemicals and Fertilizers that were pledged with SBI. The government recently allowed for FDI in the Indian aviation space. If the carrier is able to sell a stake to a foreign entity it may just see the light of day and its lenders will be able to breathe a small sigh of relief.