Realty lead the rally

Thu, 2 Dec 11:30 am

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After starting today's session on a positive note, Indian indices have lost initial ground. However, other key Asian markets are trading firm. Currently, heavyweights in the Sensex are trading mixed with stocks from the realty and consumer durables space registering strong gains. However, stocks from the auto and consumer goods space are trading weak.

Currently, the BSE-Sensex is trading up by around 136 points, while the NSE-Nifty is up by about 39 points. There has been buying interest amongst the mid and small cap stocks as well with the BSE-Midcap and BSE-Smallcap indices trading higher by 1.2% and 1.5% respectively. The rupee is trading at 45.33 to the US dollar.

Energy stocks are trading strong led by Castrol and Gujarat State Petronet. IOC is expected to come out with a follow on public offer by the end of next month at an estimated price of Rs 450 per share. The follow on offer will see government divesting 10% stake combined with a 10% fresh issue by the company, aggregating to about Rs 200 bn. Half of the proceeds that the company will get will be used to revive the shelved petrochemicals project at Paradip in Orissa and build a proposed facility for importing gas in ships at Ennore in Tamil Nadu. It may be noted that at present the firm is losing Rs 1 bn a day by selling diesel and kerosene at government capped prices. We believe that if the government lifts the control over diesel prices prior to the follow on offer IOC would deserve much better valuations.

Banking stocks are trading firm led by Bank of Baroda and Vijaya Bank. The government has approved an additional capital infusion of Rs 60 bn in 10 PSU banks with an objective to raise its holding to a minimum 58% in all state run banks. It may be noted that the government had already announced a capital infusion of Rs 150 bn in the budget to ensure that all the banks are well capitalized. Additional capital infusion would enhance the lending capacity of PSB's to meet the credit requirement of the economy. It will also give banks additional headroom to raise money from the capital markets. It may be noted that as government was holding 51% in many PSB's they were not able to access capital markets as that diluted the government's holding below the threshold limit.

Banks where additional capital infusion has been approved include Bank of Baroda, OBC, Andhra Bank, Dena Bank, IDBI Bank and Vijaya Bank. The exact amount and the mode of infusion will be decided later.