IT, telecom aid India's gains

Wed, 16 Dec Closing

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Despite immense volatility seen throughout today's trades, Indian markets still managed to close in the positive. This was led by gains in stocks from the IT and telecom sectors. On the other hand, realty stocks closed with the biggest losses. On the BSE, one stock gained for every stock that closed in the red.

The BSE Sensex and the NSE Nifty closed with gains of around 35 points (0.2%) and 20 points (0.5%) respectively. Stocks from the mid and small cap spaces also followed suit. The BSE Midcap and BSE Smallcap indices closed higher by around 0.2% and 0.3% respectively. The rupee was trading at 46.65 to the US dollar at the time of writing.

Asian markets closed mixed today. Apart from India, while gains were seen in Japan and Singapore, stocks in China and Hong Kong faced some profit booking. Gold is currently trading up by around US$ 10 an ounce.

Expectations are in a rise that the RBI will raise interest rates soon to tame rising inflation. This is what possibly hurt banking stocks today. The BSE Bankex closed down by around 0.5%. Major losers from the sector included Axis Bank, Yes Bank, and SBI. This is the fourth straight drop for this index. Pressure on bank stocks is simply because higher interest rates from the RBI will mean higher cost of funds for banks. This would subsequently force them to raise their own interest costs thereby leading to a possible decline in credit offtake.

Regulated prices continue to take a toll on India's energy companies. This time it is nation's largest oil and gas producer ONGC. As per an Economic Times report, the company lost Rs 47 bn in revenues on selling natural gas at a rate below production costs during FY09. The company sells its gas at a regulated price of Rs 3.2 per unit. Compare this with the production cost of Rs 5.9 per unit and you know why ONGC is unhappy!

"Central banks are not known for their investment acumen," reads a report on Bloomberg. It talks about emerging market central banks’ decision to buy gold to diversify the reserves away from the US dollar. Citing that these banks may be late in the game to buy gold, the report suggests that such an action might instead be sending a strong signal to sell the yellow metal. Gold has already jumped around 27% this year in dollar terms. Some experts like Nouriel Roubini now see a bubble building up in gold prices. This is given that investors across the world are now closely following the yellow metal like never before.

As for our view on gold, we maintain that an investor must have not more than 5-10% of his portfolio in gold. This is because while the yellow metal is a good store of value in bad economic times, it does not have any intrinsic value of its own. Thus, it can’t be treated as an asset that will always rise in price.