Commodities weigh on Indian indices

Tue, 12 Oct Closing

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Indian indices languished in the red since the start of the session and failed to make any inroad into the positive territory until the final hour. While the BSE Sensex closed lower by around 137 points (down 0.7%), the NSE Nifty lost around 45 points (down 0.7%). The BSE Midcap and the BSE Smallcap also lost around 0.4% each. Losses were largely seen in commodity stocks on reports of the commodity prices having peaked.

As regards global markets, Asian indices across the board closed lower today with china being the sole gainer. European indices have opened in the red. The rupee was trading at Rs 44.73 to the dollar at the time of writing.

While the huge foreign capital inflows into equity markets have been a cause of worry for the RBI, the SEBI chief Mr Bhave believes that the numerous public offers in the pipeline could absorb a lot of the excess liquidity. Coal India’s IPO alone targets to raise Rs 150 bn. While Mr Bhave’s point is well taken, the excess liquidity is not just flowing into the primary but also secondary markets. And this is feared to take market valuations to unsustainable levels.

As per a report released by a business daily, the capacity utilisation for most of India Inc has seen new highs in FY10. Most of the companies are in fact restructuring their expansion plans. The average utilization level of the 101 large companies studied in the report increased from 82.2% in FY09 to 85.9% in FY10. Out of the total sample, slightly more than 62% companies achieved higher utilisation in FY10 with 18 companies hitting over 100%. Companies in the automobiles and steel industries led the tally. The average utilization of the automobile companies increased from 63.6% in FY09 to 76.2% in FY10. Maruti Suzuki achieved the highest average utilisation among the automobile companies in FY10. Given this scenario the need for companies to increase their production capacities to catch up with the growth in demand remains undiluted.

In what could be a turnaround for the debt ridden aviation sector, as per reports, the demand for air travel in India is expected to grow in double digits. Surging demand from India's growing companies and the middle class has prompted some companies in the industry to increase their forecasts. The Center for Asia Pacific Aviation recently raised its estimate of annual traffic growth in India to 13%, from about 10%.But an overloaded infrastructure threatens the ability of airlines and other aviation companies to tap the otherwise promising market. Also Boeing Co. estimated that Indian airlines will spend US$ 130 bn, up 30% from the aircraft maker's previous forecast, to purchase 1,150 planes over the next two decades. This could also bring relief to banks that have restructured loans for the sector.