India leads gainers in Asia

Wed, 29 Dec Closing

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Buying interest in stocks across the board helped the Indian indices feature amongst the top gainers in Asia in today's trade. In fact even smallcap stocks seemed to evince interest amongst investors. While the BSE-Sensex closed higher by 242 points (up 1.1%), the NSE-Nifty edged higher by 64 points (up 1%). Gains in the BSE Midcap index (0.5%) lagged that in the BSE Small cap index (up 1.1%).

Most Asian indices closed higher today whereas Europe is trading strongly at the moment. The rupee was trading at Rs 45.09 to the dollar at the time of writing.

As per a recent government report, India plans to quadruple its renewable energy sources to 72,400 megawatts by 2022. It is known that developed countries are demanding stronger environmental commitments from major growing economies such as India and China. This is because the demand for energy is set to rise sharply in these regions to feed rapid industrialization and bring electricity to millions of households. India is projected to be the second-largest contributor to the increase in global energy demand by 2035, accounting for 18% of the rise as per IEA. However, the country is now well focused on renewable sources.

India's power generation capacity at the end of October 2010 was about 167 gigawatts, of which its renewables-based capacity was about 11%. It aims to raise renewables-based capacity to 72,400 MW, or 15.9% of total capacity by 2022. Despite encouraging news from its sector, the stock of Suzlon continued to languish in the red.

Technology stocks like Infosys and Wipro feature amongst the top gainers over the past month. The IT heavyweights have in fact had a dream run over the past six months. This was due to a strong global recovery in demand for IT services. The large IT players cornered the big ticket deals due to their scalability. As a result, mid-sized companies lagged behind. But this may soon change.

IT deals are undergoing a structural change. Clients are likely to divide the bigger deals into smaller components.  This would benefit the mid-sized companies as they would be in a better position to bag the smaller modules. While this would present an opportunity for investors who missed the bus with the larger IT companies, we would like to add a caveat here. Margins for smaller companies in the IT space would continue to remain under pressure due to a rising wage bill and shortage of suitably skilled employees. In fact, we believe that margins may be lower than those for larger companies as smaller companies tend to have a very tight cost structure and very low bench strength.

Stocks forming part of the BSE Realty index have had a pretty miserable outing in the last few months. It is a known fact that the real estate developers were engaged in aggressive expansion plans during the real estate boom. Foreseeing strong demand in both residential and commercial segments the developers made huge investments in the both the spaces. Since then the residential projects that have come on the anvil have been absorbed by the surging demand. But it seems that the developers missed the bus as far as anticipating the demand from commercial real estate is concerned. This is evident from the fact that most of the commercial projects that were built during the boom time are lying idle due to dearth of buying interest.

Although Construction Real Estate Developers of India (CREDAI) accuses the government for not taking any appropriate steps to revive the industry we believe otherwise. According to us it was a case of complete miscalculation on the developer's part. They went on to erect structures without undertaking a detailed study on occupancy and demand characteristics. And now they are paying the price for it.