Coal India euphoria spills over

Thu, 21 Oct Closing

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Markets today overturned the pattern of the last couple of sessions. While the markets sold heavily during the fag end in those sessions, today the latter half of the day saw some strong buying. This, combined with the positive momentum of the first half led to a very strong closing. The BSE Sensex edged higher by around 390 points (up 2%), NSE Nifty clocked gains in the region of 120 points (up 2%). BSE Midcap and small cap indices also closed strongly, gaining around 1% each. There was only one stock on the Sensex that closed in the red today and that too only marginally.

Most of the other Asian indices also closed higher today whereas Europe is also trading in the positive currently. The rupee was trading at Rs 44.3 to the dollar at the time of writing.

While most Asian markets closed higher today, the gains were muted at best. The sole exceptions of course were Indian stocks that indeed had a very good outing. The gains were perhaps driven by the massive interest in the country's largest ever IPO of Coal India Ltd, which eventually spilled over into the broader markets. As per latest reports, the issue has already been oversubscribed nearly 14 times over. The huge demand for the IPO underscores the appetite out there for good quality Indian stocks and this seems to have had a rub off effect on other equities as well.

As per a leading business daily, FMCG majors P&G Health and Hygiene and Marico are in the race to acquire Paras Pharmaceuticals which has a turnover of Rs 5 bn. At present, Paras Pharmaceuticals' OTC (over-the-counter) brands include Moov, D'Cold Total, Krack and Dermi Cool among others. Incidentally, pharma majors such as Cipla and Piramal Healthcare have also shown interest in acquiring the company's OTC brands to extend their product portfolio. But with too many players bidding for the brands, valuations have gone beyond reasonable levels. Smaller FMCG companies like Emami are also planning to raise debt to fund the acquisition. Nonetheless, P&G and Marico may benefit from the deal. Given that both P&G and Marico have faced margin pressures in the recent quarters, the companies may be looking at adding to their sales volume and product lines to offset the dip in margins.

PSU banks seemed to be the cynosure of investors' eye today with banks across the sector notching gains in the range of 2% to as much as 7%. Corporation Bank announced its 2QFY11 results today. The bank reported 42% YoY growth in net interest income on the back of growth in advances above the sector average. The other income, however, fell by 25% YoY primarily due to treasury losses, in line with its peers in the sector. The bank has recently hiked its base rate and the same is expected to help it sustain its net interest margins. With a capital adequacy ratio (CAR) of 14.5% Corporation Bank is adequately capitalized to fund its growth in the medium term. Its NPA coverage ratio is also well above the RBI mandate of 70%. Net NPAs at the end of 2QFY11 stood at 0.4% of advances as against 0.3% in 2QFY10. The stock of Corporation Bank ended the day 4% higher.