Indian Markets Tuesday Wrap-Up: Sole Gainer in Asia

Persistent buying activity during the second half of today’s trading session led the Indian markets to make a late recovery. However, profit booking led the indices to shed a portion of their gains during the final minutes of trade. The BSE-Sensex ended the day higher by about 80 points, while the NSE-Nifty closed higher by about 35 points. Stocks from the mid-cap and small-cap spaces ended the day on a positive note, recording gains of 2.2% and 2.1% respectively. Barring stocks from the energy sector, buying activity was witnessed in stocks across the board led by banking, power and metals.

All other Asian markets ended the day in the red today. The European indices are currently trading mixed. Rupee was trading at 47.78 against the US dollar at the time of writing.

Software stocks ended the day on a positive note led by Tech Mahindra, Satyam (SAY) and NIIT. As per a leading business daily, Indian IT companies are increasingly looking at Japan, the world’s second largest economy, for offshoring opportunities. Japan would be one of the many regions that the industry is targeting as it would help it reduce dependence on the US and Europe. As per the president of Nasscom, the economic downturn has led many Japanese companies to look for cost cutting opportunities. While China has been a partnering Japan for a while now, he believes that issues of the stringent intellectual property laws in China will work in favour of India. In addition to this, R&D offshoring also throws up a good opportunity to the country. However, it may be noted that issues such as cultural differences and language barriers will pose as challenges for the industry.

Energy stocks ended the day on a weak note led by RNRL, Indraprastha Gas and Reliance. As per a leading business daily, Indraprastha Gas (IGL) has increased the price of compressed natural gas (CNG) by Rs 2.1 a kg in Delhi to around Rs 21 a kg. The company is the sole supplier of CNG in the city. The increase in the price of CNG is on account of overall rise in the input cost of natural gas sourced by the company. This revision comes after a period of three years. IGL believes that even after the price revision, it absorbs around 40 paise per kg. The benefit of higher prices is mitigated on account of higher costs. It may be noted that the volume of gas pooled by the company from the government controlled price of Rs 5.82 per cubic meters is inadequate considering that there is a growth of around 20% to 25% in the annual demand for CNG. As a result, the company has to source imported liquefied natural gas (LNG) at Rs 14.5 per cubic meter and spend additionally an amount for mixture of CNG and LNG. Further, it pays special surcharge levied by GAIL for drawing extra gas from the system. Though the increase in the price provides a better cushion to IGL, the pressure on the cost will remain.

The Centre for Monitoring Indian Economy (CMIE) in its latest publication has stated that it expects the Indian economy to grow by 6% to 7% in the current fiscal. Even though the economy improved significantly towards the end of 2008, growth in 2009 will largely depend on domestic demand and exports. Domestic front is resilient but international demand is declining, beating exports out of shape. Exports, though contributing only 13% to India’s GDP, are very important for trade and transport segment which contributes 20% to the country’s GDP. On these cues, though Indian economy can grow at around 6% in this year, it believes that it would still take a couple of years for it to come back to the phenomenal growth rate of 9%.

Comments

[Mad Hedge F...:]

Watch India. I couldn’t help but laugh when I saw my old colleague from Morgan Stanley, Stephen Roche, on CNBC today. The current chairman of Morgan Stanley Asia (MS) is bearish on the economy and sees no chance of a “V” shaped recovery, just a very weak one at best. There are no “green shoots”, they’re still underground. “The consumer is toast”, he averred, and he expects consumer spending to plummet from a record 72% of GDP to 67% in five years. Because a massive external deficit has to be funded by foreigners, the outlook for the dollar is “down, down, down.” There won’t be a crash, just a gradual decent, as we have seen for the last 38 years. China isn’t going to bail us out. The US has only 4.5% of the global population, but accounts for $10 trillion of consumer spending. China and India together have 40% of the population, but only spend $2 trillion. This disparity is 50:1. Steve was an early BRIC fan, like me, and since China is so overbought short term, India is his first pick. You want to buy countries that have to build infrastructure and a middle class, and China has already done that. India’s recent election of a more pro business government is the trigger. I aggressively pushed India at the beginning of the year (www.madhedgefundtrader...), and it has doubled since then. The humorous thing about all of this is that Steve has been spouting the same perma bear line for the US for 15 years. The in-house joke at MS was that he was sent to China because his bearish sentiments were scaring the firm’s conservative US institutional investors. Given the performance of the BRIC’s since then, it is Steve having the last laugh.

Jun 16 06:48 PM