Mid, small-cap stocks are lagging

Tue, 25 Oct 01:30 pm

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The Indian stock market gained on account of buying interest in heavyweights during the last two hours of trade and is now trading firm. Stocks from the IT, capital goods, Auto and Oil and gas sectors are leading the pack of gainers while those from consumer durables and banking space are trading weak.

The BSE-Sensex is trading up by 124 points while NSE-Nifty is trading 33 points above yesterday's closing. However, the BSE Mid Cap and BSE Small Cap indices are trading down by 0.1% and 0.4% respectively. The rupee is trading at 49.57 to the US dollar.

Banking stocks have been trading in the mixed with Canara bank, Industrial Development Bank (IDBI Bank) and Syndicate Bank leading the pack of gainers. However, Allahabad bank, Indian Overseas Bank and State Bank of India (SBI) are trading weak. Last week, National Housing Bank (NHB), the regulatory body for housing finance, has banned pre-payment penalties for floating rate loans. It was projected as a good move by NHB in the media. However, we had a doubt whether it would actually lessen the burden of the borrowers. As per a leading financial daily, now different banks are giving early indications to the Reserve Bank of India (RBI) that in case of waiver of prepayment penalty on home loans, interest rates would need to rise. Thing is that, the banks do not want to let go their easy income through pre-payment penalties. They are putting the argument that they would pass the pre-payment risks to borrowers by way of increasing loan interest rates. However, according to the panel headed by former Sebi chairman Mr M Damodaran, there was no justification for such charges as borrowers anyway bear the risk of interest rates in the floating rate regime.

Power stocks have been trading mixed as well with Gujarat Industries Power, Reliance Power and National Thermal Power Ltd (NTPC) leading the pack of gainers. However, Jaiprakash Power and Gunapati venkata krishna (GVK Power) are trading weak. No doubt, the financial health of the power distribution utilities is not in good shape. Considering this, as per a leading financial daily, the Planning Commission has set up a body to revive the power sector which is currently facing huge losses. The Committee is comprised of representatives from the Ministry of Finance, the Reserve Bank of India and officials from the state governments. Earlier, the Finance Minister Mr Pranab Mukherjee had asked the states to raise electricity charges to improve the financial health of power distribution companies. In some cases, the tariffs have not been raised for the last 10 years.

This new committee would present a report before the start of the 12th 5-year plan (2012PRE17), suggesting the measures that need to be taken to improve the financial health of power distribution utilities.