Realty, metals lead the gains

Wed, 6 Oct Closing

   Previous Close   

   Pre-Open   

   09:30 am   

   11:30 am   

   01:30 pm   

After yesterday’s weakness, the Indian markets had a strong day today. At close, stocks from the realty and metal sectors led the gainers’ pack. Pharma and FMCG stocks ended as the biggest losers. The overall market breadth was positive as there was more than one gainer for every stock that closed in the negative.

BSE Sensex and NSE Nifty closed with gains of around 135 points (0.7%) and 35 points (0.6%) respectively. Mid and small-cap followed suit, as the BSE Midcap and BSE Smallcap indices closed stronger by 1.1% and 0.8% respectively. The rupee was trading at 44.40 against the US dollar at the time of writing this.

Smallcaps again had a good day today on the bourses. The BSE-Smallcap index’s overall breadth was positive with two stocks gaining for every stock that closed in the negative. Stocks like Ashapura Minecham, SREI Infra, Garware Offshore, and Hindustan Dorr closed with over 10% gains. As a matter of fact, small-caps have been among the front runners over the past few weeks. This has brought the BSE-Smallcap index’s P/E ratio to around 18 times, which we believe makes the category fairly priced.

Software stocks closed mixed today. While gains were seen in Mahindra Satyam and TCS, selling pressure marked trading in Mphasis and HCL Tech. Earlier, a leading business daily had reported how the Indian IT majors are looking to regain their growth momentum in the coming quarters. This is given that these companies’ clients in the US and Europe are raising their technology spending for addressing new markets, and offshoring more of their IT and back-office projects to cut costs. Though these large companies have started getting major deals, these are not as large as they were expecting earlier.

Anyways, amidst all this talk of growth revival, we believe that the biggest bugbear for the Indian IT sectors is the rupee’s appreciation against the US dollar. As a matter of fact, the rupee is fast moving to the 44 per US dollar mark given the continued strong FII inflows into Indian stock markets. We see this rupee appreciation as the biggest risk that Indian IT companies would face going forward. This is especially given their inability to control this factor that can have a meaningful impact on their profits.

Shipping stocks were in the limelight today, led by Shipping Corp. and GE Shipping. Gains in Shipping Corp. (SCI), India’s largest public sector shipper was on the back of reports that the government has agreed to sell a 10% stake in the company to raise divestment money. The government has also allowed SCI to issue fresh shares for another 10% to part finance its expansion. As a matter of fact, the company is planning to spend about US$ 4.3 bn over the next two years to buy 57 new ships. The Indian government plans to raise US$ 8.6 bn through stake sales in the current fiscal year that ends in March 2011.