Indian Markets Wednesday Wrap-Up: India Leads Asian Gains

Includes: EPI, IFN, IIF, TTM
by: Equitymaster

Rounding off the session at its two month highs, the benchmark BSE Sensex did not let go of the strong buying momentum seen since the start of the day today. At 3.2% the gains clocked by the Indian benchmark index was way ahead of its Asian peers, all of which closed higher. Positive news emanating from domestic and international markets helped rein in investor interest. Besides assurances of higher GDP growth and clarity about regulatory and policy issues, news about inflow of foreign funds into BRIC economies further buoyed sentiments. The BSE Metal and Oil& Gas indices were the lead gainers today, with gains of 4% and 3% respectively.

The BSE Sensex and the NSE Nifty closed with gains of around 539 points (3.2%) and 159 points (3.2%) respectively. Stocks from the mid and small cap spaces also followed suit. The BSE Midcap and BSE Smallcap indices closed higher by around 1.6% and 1.5% respectively. The rupee was trading at 46.82 to the US dollar at the time of writing.

On the back of the improving outlook for the Indian economy, the Indian Finance Minister Mr. Pranab Mukherjee has offered his view that India could grow at a much faster pace during the current fiscal. In fact, the FM believes that the GDP growth rate could be between the 7.5% to 8% mark for FY10. Also, he expects the economy to touch a growth rate of 9% to 10% within the next two to three years. However, he also added that the high level of inflation and fiscal deficit will remain a major challenge for the government.

In addition, the FM added that the sustained economic growth is a high priority for the government. And as such, the government will not withdraw the fiscal stimulus, despite the faster growth in the economy. It is believed that the government will wait until the annual budget to consider withdrawing some of the fiscal stimulus measures.

Aluminium stocks Nalco and Hindalco ended the day on a strong note today. While Nalco ended higher by about 5%, Hindalco ended higher by about 7%. Gains in Nalco were seen on the back of the firm raising prices by Rs 3,500 per tonne. This is the second hike for the company in a period of one month. The reason cited for the same was the improving rates of the metal on the London Metal Exchange. About two weeks ago, the company had raised prices of products by about Rs 7,000 per tonne. It must be noted that aluminium prices have increased by about US$ 200 a tonne over the past one month. Currently they stand at about US$ 2,230 per tonne on the LME.

In another development, the company is also looking at tripling its manufacturing capacity over the next six years. This is on the back of it witnessing strong demand from Asia, Europe and North America. The price of aluminium, a light weight metal used for manufacturing cars, aircrafts and beverage cans, has climbed 45% this year. This has been on the back of China becoming a net importer. In addition, the demand from other countries and regions such US, Japan and Europe also witnessed some recovery in recent times.

Auto stocks ended on a firm note led by M&M, Tata Motors (NYSE:TTM) and Ashok Leyland. A leading business daily has reported that TVS Motors is aiming at increasing its presence in the three-wheeler segment. The company expects to sell around 20,000 three-wheelers in the current, which would be a market share of about 10%. In the next 12 to 18 months the company is targeting a 20% to 25% market share. It plans to do so by expanding its reach in the semi-urban and rural areas. In addition, it is believed that TVS Motors plans to introduce diesel variant of auto rickshaws. The company's management expects an average growth of 7% to 8% in the auto rickshaw segment. This is considering the poor public transportation system in the country. On the other hand, it also believes it would do well on the back of lesser competition in this segment.

It may be also noted that, apart from higher revenues, this move would also help TVS to improve its overall operating margins. On the back of strong competition in the two-wheeler segment, coupled with lower volumes, the company's operating margins have been wafer thin so far. During FY09, they were below 2%.