Markets down on profit booking

Fri, 8 Jan 11:30 am

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After witnessing a weak start, the Indian stock markets remained muted during the previous two hours of trade. Though currently in the red, they are inching slowly towards the dotted line. Currently, stocks from the banking, metal, telecom and IT sectors are trading weak, while stocks from the realty, power, capital goods sectors are finding favour.

The BSE Sensex and NSE Nifty are trading in the red, marginally down by 17 points and 6 points respectively. However, midcap and small cap indices have managed to buck the trend. The BSE-Midcap and the BSE-Smallcap are trading up by 0.79% and 1.2% respectively. The rupee is trading at 45.8 to the dollar.

As per a leading business daily, India's leading state-owned steel maker, SAIL is planning to cut prices of some of its products in the near term. It may be noted that during last week the company raised the prices for its flat and long products by around Rs 1,500 per tonne. Many steel companies including SAIL and Tata Steel increased the price of steel products on account of hike in input cost coupled with a surge in demand. Iron ore, which is a major raw material, costs around US$ 100 per tonne currently which is double the cost last year. Increase in demand is coming from the infrastructure, construction, automobile and consumer durable segments.

Nevertheless, it may also be noted that it is not just the raw material costs which drive steel prices. Prices are primarily linked to international trends and market fundamentals. Presently, the price of steel is surging globally. However it is believed that the price of long steel products which are mainly used by construction and infrastructure industry, has reached a level which mandate some correction. The domestic steel makers will have to take a price cut so as to make steel affordable for domestic companies mainly the PSUs.

According to a leading business daily, Indian IT majors like TCS, Infosys, Wipro and Patni have joined the race with global rivals like IBM and HP-EDS for a share in the outsourcing contracts being fleshed out by a multitude of city councils in the UK. As a number of city councils in the UK seek to gain efficiency by modernising their citizen services, they are inviting bids from renowned outsourcing firms across the world. No doubt, Indian IT majors are exploring new business opportunities in UK's public sector outsourcing. These contracts are particularly lucrative for Indian companies as they provide an opportunity for showcasing their ability to manage complex systems and deliver cost effective services to different set of customers.

However, it also brings a different set of challenges along with it. Working on government projects means increased public scrutiny, delays, potential cost overruns because of political pressures and investment risks. Moreover, currently due to high level of unemployment there, there is a lot of issue with public sentiments towards outsourcing. Such government contracts are expected to come with mandatory conditions for creating some local employment as well. The IT vendor might also need to share the initial cost of setting up shared services centres which will offer services across different departments (like financial management, payroll and customer service) across a number of city councils. It may be noted that TCS and Wipro are already working on such projects for some UK councils. We believe that such projects will give Indian IT companies a good insight of working with the government sector which currently ranks high in the priority list of almost all companies.