India Markets Thursday Wrap-Up: India Leads Asian Gainers

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 |  Includes: EPI, IFN, IIF, INR, TATLY, TTM
by: Equitymaster

Indian indices managed to close the session firmly in the positive today backed by buying interest in heavyweights. Gains in excess of 2% were seen in the BSE bank, auto and oil and gas indices. The benchmark Indian indices closed nearly 2% higher today.

The BSE Sensex and NSE Nifty closed with gains of around 278 points (1.7%) and 86 points (1.7%) respectively. The BSE Mid and small cap indices saw gains of nearly 1% each. India led the pack of gainers in Asian region. European markets have also opened on a positive note.

India's leading utility vehicles manufacturer Mahindra & Mahindra (M&M) forayed into the electric car segment, acquiring a 55% majority stake in Reva Electric Car. With this the company added to its kitty a product that can cater to the growing demand for alternative energy vehicles globally. The strategic deal for an unspecified amount includes a fresh equity infusion of Rs 450 m by M&M into Reva. The buyout makes the M&M group a global player in the electric vehicle space, in which Reva is a leader with 3,500 units in use the world over. Further this deal is a win win situation for both companies as it will enable Reva expand its installed production capacity to about 30,000 units per annum in phases from existing 6,000 units.

While there are concerns that the payments of fees for the 3G auction and advance tax payments may suck out liquidity in excess of Rs 500 bn from the system, the RBI believes that the same may not impact credit growth. Both the RBI and the country’s largest bank SBI have opined that the banking system has sufficient liquidity to meet the credit requirements of players in the telecom sector as well as other industries. Meanwhile the RBI has also allowed banks to draw temporary liquidity through the LAF route.

According to the RBI, Indian companies borrowed funds overseas through the external commercial borrowings (ECBs) route to the tune of of Rs 216 bn in FY10. This was substantially higher than Rs 183 bn in FY09. However, if the rupee continues to depreciate against the US dollar, many Indian companies which have availed foreign currency loans, will have to provide for mark-to-market (MTM) losses in 1QFY11. This will lead to their taking a hit on their bottom line.

As per a business daily, most companies availing such loans did not take cover on such loans as the long-term view was that the rupee would appreciate against the dollar and they would gain in the process. These include companies like Tata Steel (OTC:TATLY), Suzlon, Tata Motors (NYSE:TTM) and M&M. Many of these loans go back to FY07 and are due for conversion this year, in 2011 and 2012.