Weak US, Asia equals weak India

Tue, 16 Nov 09:30 am

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Asian markets have opened today in the red, possibly taking cues from the weakness in US markets yesterday. Currently China, Hong Kong, and Japan are all trading weak. As for the Indian markets, these have also opened in the negative. Engineering and realty stocks are leading the weakness.

The BSE-Sensex is trading lower by around 80 points (0.4%), while the NSE-Nifty is down about 30 points (0.5%). Mid and small cap stocks are however trading marginally in the positive, with the BSE-Midcap and BSE-Smallcap indices up by 0.2% each. The rupee is trading at 45.09 to the US dollar.

Power stocks have opened on a mixed note. While NTPC and NHPC are among the key losers, some buying interest is seen in PTC India and Tata Power. Tata Power, India's largest private sector power company, announced its 2QFY11 results late last week. The company's standalone sales fell by 5% YoY, largely due to a decline in volume sales of electricity and weaker realisations. On a consolidated basis, net sales were up a marginal 1% YoY, helped by the coal mining business. This business formed 30% of the company's total sales during the quarter, and grew by 7% YoY. Tata Power's consolidated operating margins improved to 23.6% in 2QFY11, from 20% in 2QFY10. This was aided by lower fuel and coal processing costs (as percentage of sales). Subsequently, led by the improvement in operating margins and higher other income (due to high forex gains), the company's consolidated net profits surged by 83% YoY during the quarter.

PSU majors Coal India and Power Grid have recently seen much success with their IPO and FPO respectively. While the former raised almost US$ 3.5 bn, the latter ended up with around US$ 1.7 bn. These are big sums in the Indian context, and the success of these issues suggests that foreign and domestic investors are willing to put large money on stake for a pie of India's growing companies. Talking about foreign investors, a leading business daily reports that these public issues have also attracted a lot of money from sovereign wealth funds. These funds are increasingly allocating bigger sums to emerging market assets given that the western world had a dearth of such opportunities. While the long term intent of these funds is still doubtful, given that way foreign investors have behaved in the past, the short term intent is definitely to get higher returns on their investments using loads of money that has been created by the quantitative easing in the west and rising oil prices in the Middle-East.