Monday 5th October, 2009
(Closing)
Selling pressure continued unabated during the closing hours of trade, leading to the markets ending in the negative for the first trading day of the week. Telecom stocks were amongst the ones that wreaked the maximum havoc with Bharti Airtel, India's largest player losing as much as 8%. While the BSE Sensex edged lower by around 270 points (down 1.6%), NSE Nifty lost around 80 points (down 1.6%). BSE Mid cap and Small cap indices also came in the firing line today, losing 1.6% and 2% respectively.
While Asian indices ended mixed today, most European indices are trading in the positive currently. The rupee was seen trading at Rs 47.5 to the dollar at the time of writing.
Today's decline seemed an indication of the investors taking some profits off the table after the rally of the past few months and nothing that should be a great cause for concern. Infact, the weakness in stocks like Grasim and Bharti Airtel due to company specific reasons also took its toll on the benchmark indices. Moving on to other things, the future of India Inc continues to look good barring a few sectors like the ones that are export oriented. However, with the jump in market valuations since the lows of March, most of the near term fundamentals seem to have been already priced in. Unless the coming quarterly results show a few positive surprises, markets may remain range bound for quite some time to come.
As per a business daily, Coal India has shortlisted 10 global companies, including ArcelorMittal, to develop 18 coal mines in the country. These difficult mines in Jharkhand and West Bengal were earlier abandoned due to technical reasons. These have 1.6 bn tonnes reserve of superior grade coal, including 350 m tonnes of coking coal. Production from these mines will take three years from signing of the contract. However, we believe that given the coal shortage that companies like NTPC are facing and the potential usage of the mineral for building India's power supply infrastructure, this development is a long term positive.
Indian government's heavy borrowing needs are likely to take a toll on banks' investment portfolio, particularly the ones that are to be marked to market (MTM). The yield on the benchmark 10-year government bond, which rose close to 7.5% in mid-September has dropped to around 7.1%. While this is good news for Indian banks as they will not have to book MTM losses on their bond portfolios, the situation may not remain benign in 2HFY10. In 1HFY10 the RBI borrowed Rs 2.9 trillion from the market. This will be followed by a borrowing of Rs 1.6 trillion in 2HFY10. Even if the government sticks to its plan of raising Rs 4.5 trillion this fiscal, it is likely to raise bond yields and thus put pressure on the banking system. Nonetheless, from FY11 onwards, Indian banks will shift to IFRS and have the freedom to decide how much of their bond portfolio will be kept in the HTM category. Banking stocks have shed gains throughout the session today with stocks like Axis Bank, SBI and HDFC Bank leading the pack.
