Sensex closes up 2.8% for the week

Fri, 4 Dec Closing

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The volatile trading session today largely mirrored the market movements during the week, which saw mixed investor sentiments. While some sectors managed to draw investor interest others continued to witness their apathy. After a relatively strong start, the benchmark indices nosedived into the red post noon and failed to recoup losses until the end of the session. The benchmark BSE Sensex, however, closed 2.8% higher week on week. The BSE Midcap index ended flat today while the BSE Smallcap closed marginally higher with gains of 0.4%. Significant profit booking was seen in auto stocks that have been through a rally over the past few sessions on the back of strong sales numbers.

While the BSE Sensex closed lower by around 84 points today, NSE Nifty closed lower by 23 points. While most Asian indices closed in the red today, Europe is witnessing a mixed trend currently. Rupee was poised at Rs 46.21 to the dollar at the time of writing.

India Inc. is expected to face a quandary by way of new investment pattern for non-government retirement funds, effective FY10. As per a business daily, returns on corporate India's self-managed pension, provident and gratuity funds are expected to fall by over 10% in FY10 owing to the new investment norms. It may be noted that the government had earlier allowed such funds to invest upto 15% in equities. However, the new norms have reportedly excluded other investment options for those corporate retirement trusts that have opted to stay away from equity investments. While encouraging pension funds to invest in equities for long term returns is certainly a good move, in our opinion, the funds should be allowed to suit their respective risk profile.

Meanwhile, the Finance Ministry that was being accused of milking profitable PSUs by selling stake in them to reduce the economy's fiscal deficit has tried of come clean on the charges. The Finance Minister has offered an assurance that the government's intention is not to utilise the disinvestment proceeds to reduce the fiscal deficit. Instead, it plans to utilise them for expenditure on the social sector schemes. Last month, the government had identified 10 listed and 50 unlisted firms as candidates for stake sales in an effort to revive the divestment plans. It has already raised nearly US$ 1.8 bn by way of public offers of NHPC and Oil India. Going forward, follow on offers in NTPC, Rural Electrification Corporation are also expected to add to the government's kitty. We believe that while the same may help the government stick to its fiscal deficit targets for the fiscal, the surplus funds should not lead the government onto wasteful expenditures.

Stocks from Indian IT sector are currently trading a mixed bag. Infosys, India's second largest software services firm by revenue, expects the four new businesses it entered in the past three years to generate at least US$ 1 bn of revenue each by 2013. The plans include growth of revenue from infrastructure management, independent testing and validation, business process management and system integration. These businesses currently contribute independently between US$ 250 m to US$ 300 m a year. Indian software services firms have traditionally offered routine services such as application development and maintenance that account for around 40% of their revenue to customers in the US and Europe. But increasing competition and pressure on profit margins is making them look at new business segments and new geographies. We believe that such long term business strategies would go a long way in securing the future cash flows of Indian IT majors.