India Markets Wednesday Wrap-Up: Inflation Fails To Deter Investors

by: Equitymaster
In what seemed a sharp revival in the final hours today, the benchmark indices in the Indian stock market surged into the positive territory after a weak start. Higher inflation for the month of August too did not deter investors who seemed to be on the look-out for some value buying opportunities. The BSE-Sensex finally closed higher by around 242 points (up 1.7%) while the gains on NSE-Nifty stood at around 72 points. The BSE Mid Cap and BSE Small Cap indices edged higher by more than 0.3% each.

While the major Asian indices closed a mixed bag, India led the pack of gainers. The European markets have started on a positive note. The rupee was trading at Rs 47.6 to the dollar at the time of writing after touching a 2-year low of Rs 48 per US dollar.

In a bid to become a half-a-billion-dollar company by revenue in the next five years, Essel Propack, India's largest manufacturer of laminated tubes, is planning to restructure its business model. The company aims to reduce debt and boost revenue by reorganizing the sales mix and consolidating manufacturing facilities. The company embarked on restructuring the business model and retraining employees on new practices, following the slump in 2008.

The company's strategy involves several elements. The first is a shift in focus to the premium end such as haircare and pharmaceutical packaging from mass-market items, with a target of revenue mix of 30:70 in FY12. The larger proportion of revenues being devoted to the cheaper products. At present, 85% of revenue comes from mass-packaging products, largely from the oral care segment. The management of Essel Propack has stated that the growth in coming fiscals would be driven by Asia, Africa and Latin America. To harness the same, the company has undertaken several expansion programs in China, Germany as well as in the US.

As per a business daily, the government is considering allowing public sector banks to raise funds from the capital market, as it may not be able to fund their expansion plans. However, banks will not be allowed to let the government's stake fall below 51%. Currently, the government holds 58% stake in six banks and less than 58% in three banks. This move by the government will pave the way for a follow-on offer from the State Bank of India (SBI).

In FY11, the government gave Rs 200 bn to PSU banks to help them achieve Tier-I capital adequacy ratio at 8%. In FY12, it provided Rs 60 bn, from which the government is planning to allocate Rs 30 bn to SBI. Banks' credit growth is expected to diminish significantly in FY12 due to a capital crunch to expand their lending targets towards priority sectors and financial inclusion schemes. As per capital adequacy requirement in the Basel III regime, Indian banks are estimated to need around Rs 6 trillion over a period of 9 to 10 years.

Unloading stakes in PSU banks will also help the government meet the disinvestment target of Rs 400 bn for FY12. So far the government has only managed to raise only Rs 11 bn by selling 5% stake in Power Finance Corporation.

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