Markets steady on New Year's Eve

Thu, 30 Dec 11:30 am

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After starting today's session on a positive note, Indian indices have managed to hold on to the gains. However, other key Asian markets are trading with a negative bias. Currently, heavyweights in the Sensex are trading firm with stocks from the consumer durables and IT space leading the gains. However, stocks from the healthcare and oil & gas space are trading flat.

Currently, the BSE-Sensex is trading up by around 79 points, while the NSE-Nifty is up by about 17 points. There has been some buying interest amongst the mid and small cap stocks as well with the BSE Midcap and BSE Small cap indices trading higher by 0.4% and 0.39% respectively.

Oil & Gas stocks are trading weak led by IOC and BPCL. However, GAIL and Indraprastha Gas are trading in the positive. Despite uncertainty prevailing over the deregulation of fuel prices and rising subsidy burden due to increase in global crude prices IOC has decided to go ahead with its massive Rs 550 bn capacity expansion programme. Expansion of refining capacity would fetch better refining margins to the company. Nonetheless, expanding capacity in a controlled market may lead to increased losses on higher sales as well. However, both the issues should be viewed in isolation. Although expanding capacity can lead to higher losses it may be noted that the under-recovery is shared between the government and up-stream players as well. Further, on many occasions the company buys fuel from other players and sells it in the open market. In these cases, the company has to forego the refining margins. Thus by expanding the capacity the company would be able to cash in on the refining margins on incremental sales.

Power stocks are trading mixed with Tata Power and NTPC trading firm and PTC and Coal India trading weak. As per a leading financial daily, NTPC is likely to float a Rs 180 bn tender for the procurement of nine supercritical units of 800 MW each. The tenders would be out a month after the cabinet's approval and the orders would be placed nine to ten months hence.  While four of the nine supercritical units would be set up in Orissa, three would be set up in Karnataka and the remaining two in Chhattisgarh. This tender is seen to have two main benefits. First it will bring down the benchmark price significantly, even to as low as what the Chinese manufacturers quote. Second, companies would be more confident in setting up manufacturing bases in India as this is one of the conditions of the tender.

The Indian government has embarked on a strategy of phased indigenous manufacturing programme for supercritical equipment suppliers. This is seen as a bid to secure domestic supply of spares and cut the country's rapidly expanding carbon footprint. Supercritical units, at present, amount for a miniscule portion of the 62,000 MW of power capacity being installed under the current 5 year plan. However, the government wants to ensure that at least 50% of the 12th five year plan capacity comes from supercritical units.