India Markets Tuesday Wrap-Up: Rate Cut Anticipation Pulls Market Up

by: Equitymaster

The Indian stock markets started off the day on a weak note opening below the dotted line. However towards the middle of today's trading session they moved upwards. In the final hour of trade however the indices surged. Disappointing Index of Industrial Production (IIP) growth numbers, which saw a negligible 0.1% growth helped spur markets. The markets rallied on strong anticipation of a rate cut from the Reserve Bank of India (RBI) later this month to help drive growth in the system.

While the BSE-Sensex closed higher by around 195 points (up 1.2%), the NSE-Nifty closed higher by around 62 points (up 1.2%). The smaller indices had a relatively worse day on the bourses. BSE Mid Cap index and the BSE Small Cap closed 0.6% and 0.3% higher respectively. Most sectoral indices closed the day in the positive, with pharma stocks being the only losers. Banking stocks and realty were the top gainers in anticipation of monetary easing.

As regards global markets, most Asian indices had a negative outing today. European indices opened the day on a positive note. The rupee was trading at Rs 55.89 to the dollar at the time of writing.

India's biggest buyer of liquefied natural gas, Petronet LNG Ltd plans to raise around US$ 1 bn in debt this year to boost its import capacity. About US$ 600 m will be used to build a new terminal on the east coast and US$ 400 m to expand an existing facility on the west coast. However the company has not yet disclosed whether it will be raising money through loans or bonds. The supply of natural gas in India is much below demand for the fuel and it gives companies such as Petronet and Gas authority or india limited (Gail) a chance to benefit from the same. Since domestic supply of gas is not enough, increasing LNG imports is a way out. Besides the traditional suppliers in the Middle East, such as Qatar many more suppliers will come into the market soon according to the company. Petronet is in talks with LNG suppliers in a number of countries including Australia, Russia, USA and Canada for long-term contracts. The company is looking for a mix of more- expensive oil-linked contracts and cheaper gas-indexed supplies. The stock closed the day 1.2% lower.

It is reported that Coal India is looking to import about 30 m metric tons of coal this fiscal year. This move is aimed mainly to meet the rising domestic demand and in turn, mitigate power shortages. As per the company's management, these imports will be dependent on firm order from customers. The company has to resort to increasing imports as its own production levels have been not increasing for a while now. The reasons for the same vary from delays in obtaining environmental clearances for expansion projects and land acquisition problems. At the same time, the demand has been increasing at a faster pace. For a company which provides nearly 80% of India's coal requirements, Coal India would be under pressure to meet this demand. It is however believed that the company has not been able to sign long term import contracts with overseas companies, due to lack of interest from downstream buyers.

Apart from the above mentioned difficulties and problems, other factors also seem to be hampering the company growth prospects. These include transport bottlenecks and lower availability of wagons to supply coal from company's mines, which have been seeing bulging stockpiles currently, estimated at 63 m tons. The stock closed the day 1.3% higher.