India Markets Thursday Wrap-Up: Markets See A Lackluster Day Of Trade

by: Equitymaster

The Indian stock markets opened above the dotted line and were trading in the green for most of early trades. However in the last few hours of trade they took a turn for the negative. In the final hour of trade markets moved back into the positive zone, and ultimately closed with some gains. While the BSE-Sensex closed higher by around 23 points (up 0.1%), the NSE-Nifty closed higher by around 7 points (up 0.1%). The smaller indices also had a poor day on the bourses. The BSE Mid Cap index and the BSE Small Cap closed 0.07% and 0.2% higher respectively. FMCG stocks saw strong gains. Power and PSU stocks were also trading higher. Oil and gas and banking stocks and realty were the top losers.

As regards global markets, Asian indices had a mixed outing today. European indices also opened the day in the negative. The rupee was trading at Rs 56.98 to the dollar at the time of writing.

The Reserve Bank of India recently increased the export refinancing limits of banks. Within a few days of this announcement, State Bank of India (SBI) cut interest rate on loans to exporters by 0.5%. Export credit is linked to the bank's base rate and varies from 2.5% to 6% above that depending on various factors including credit rating of the borrower. SBI's base rate is one of the lowest at 10%. In the latest monetary policy review, the central bank maintained status quo with regards to the repo rates as well as on the cash reserve ratio front. However, the Reserve Bank of India (RBI) enhanced liquidity to exporters by increasing the refinancing limits of the outstanding rupee export credit for banks - to 50% from 15% earlier. The interest rate charged on the export credit refinance facility is equivalent to the repo rate, which is currently 8%. SBI also recently announced up to 3.5% cut in lending rates to top-rated corporates, SMEs and farm loan borrowers effective from June 1, to help drive growth in its loan book.

The slowing economy has had an impact on demand for new passenger vehicles for the second year in succession. However, diesel cars seem to be ruling the roads on account of the price differential between diesel and petrol. A dozen-odd new models are being readied for launch in the next six months. The new diesel cars will be launched by leading auto makers including Hyundai, General Motors, Renault, Nissan, Tata Motors (NYSE:TTM), Mahindra & Mahindra (OTC:MAHMF) and Force Motors, among others. The new cars would add to the 64 diesel models already on offer in the market. This is 5 times the number of variants which were on offer at the end of FY07. In the last three years, the number of diesel models has nearly doubled, as the petrol-diesel price differential has widened over the past few years. In July 2009, the differential was 36%; now, it is stands at around 75%. The proposed tax on diesel cars which may make the same Rs 1.7-2.6 lakhs costlier may however have an impact on demand going forward.