A strong start to the week

Mon, 18 Nov Closing

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The Indian markets ended the day on a firm note today as buying activity gathered momentum as the day progressed. The BSE-Sensex closed higher by about 451 points or 2.21%, while the NSE-Nifty ended higher by about 133 points or 2.2%. Buying activity was seen in stocks across the board, with those from the engineering, banking and FMCG spaces being the top gainers, while stocks from the healthcare and consumer durables sectors were amongst the top underperformers. Mid and smallcap stocks closed the day on a firm note as well with the BSE-Midcap and BSE-Small indices ending higher by 1.2% and 1% respectively.

Asian indices ended the day on a firm note, with China and Hong Kong closing higher by about 2.8% each. Japanese markets however ended the day on a marginally weak note. The rupee was trading at Rs 62.43 to the dollar at the time of writing.

Stocks of oil and gas companies ended the day on a firm note led by Mangalore Refinery and Petrochemicals (MRPL), Oil and Natural Gas Corporation Ltd. (ONGC) and Gujarat Gas. A leading news daily reports that Fitch Ratings has said that the government may have to rely on FY15 budget to fund the portion of the current year's oil subsidy bill. To recollect, the government had allocated Rs 650 bn for petroleum subsidies in FY14. Rs 450 bn of this was paid to oil marketing companies for the subsidy gap in the previous financial year. This leaves only Rs 200 bn with the government which would prove insufficient to meet up the subsidy bill target and hence may require around Rs 450 bn from next year's budget. However, the manner in which burden of subsidy on petroleum to be shared between government and top players namely; ONGC, Gas Authority Of India Ltd. (GAIL), Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) is still not clear. With elections only a few months away, it leaves limited room for the government to pass on any sharp increase in petroleum price to consumers besides the monthly increase. Also, the government is pressurized on the deficit front wherein oil subsidies expenditure contributes hugely to the India's deficit bill. According to Fitch Ratings, top players, ONGC and Oil India may have to bear the larger portion of the total under-recoveries of FY14.

Stocks of cement manufacturers ended the day on a firm note led by Mangalam Cement, India Cement, and Ultratech Cement. As per a business daily, cement major ACC is looking to cut its logistic costs by Rs 1.5 bn. As per the company's management, the same would be possible due to the adoption of modern technology coupled with better utilisation of assets. These efforts are being done to trim the effects of lower fuel subsidies given that the company moves about 60% of the goods by trucks. The company is also installing radio frequency identification (RFID) software along with global position system (GPS) on all of its logistics fleet. These efforts would help towards reducing waiting time of trucks inside the plant as well. It may be noted that during the quarter ended September 2013, freight and forwarding costs formed nearly 20% of the company's standalone revenues, costs which increased by 5% YoY as compared to a revenue growth of 3.2% YoY.