Asian markets have opened the day on a strong note with most indices trading in the green. The markets in Taiwan (up 1.9%), Indonesia (up 1.4%) and Hong Kong (up 0.9%) are leading the gains. The markets in Japan are trading flat. On the other hand, markets in China (down 0.9%) are witnessing selling pressure. Taking cue from the Asian counterparts, the Indian markets have opened the day in the green as well. Stocks from the capital goods and banking space are currently leading the pack of gainers.
The BSE-Sensex is trading higher by around 125 points (0.7%), while the NSE-Nifty is up by around 36 points (0.7%). Mid and small cap stocks are also trading in the positive with the BSE Midcap and BSE Small cap indices up by about 0.79% and 0.57% respectively. The rupee is trading at 45.22 to the US dollar.
Auto stocks have opened the day on a firm note with Ashok Leyland, Escorts and Hero Honda witnessing significant buying interest. However, Tata Motors and M&M are trading marginally weak. The rise in commodity prices has crushed the margins of most of the companies. The car and bike companies are no exception to this. Despite the recent increase in prices, companies like Maruti Suzuki and Hero Honda, have seen their margins come under pressure in recent times. The main reason behind this is higher input costs. Maruti has seen a drop in net profits by almost 20% YoY. As a result, Maruti as well as Hero Honda have embarked on several cost saving schemes. Maruti is currently pursuing programmes with its 250 plus suppliers as well as at its own plants to reduce wastage thereby helping to bring down costs. Hero Honda is also reviewing the situation. Its management has stated that they may resort to a price hike soon if raw material costs do not come down. The company had announced a price hike in December last year. But even with these measures, both companies expect margins to remain under pressure over the short term horizon.
Energy stocks have opened on a mixed note with Reliance Ind and Guj State Petronet trading firm, while HPCL and BPCL are trading in the red. State-owned Indian Oil Corp (IOC) is losing a record Rs 2,370 mn per day on selling auto and cooking fuel below cost. The oil marketing firm is losing Rs 1,360 mn per day on diesel sales, Rs 470 mn on kerosene and Rs 540 mn a day on LPG sales. This means a loss of Rs 10.74 per litre on diesel, Rs 21.60 on every litre of kerosene and Rs 356.07 per 14.2 kg on LPG cylinder. Along with IOC, the other two public sector retailers HPCL and BPCL are also making similar kind of losses. The industry as a whole is losing about Rs 4.3 bn per day. This is because the government continues to bar them from raising rates in line with the surge in raw material cost. In addition, they suffer a loss of about Rs 2.50 per litre on petrol sales, even though prices were freed from the government control in June last year. The spike in global prices has widened the gap between the retail selling price and their cost.
The Oil Minister had recently ruled out any increase in fuel prices despite crude oil prices touching a two-year high. The Oil Ministry wants the Finance Ministry to compensate the oil companies in cash for at least half of their under-recoveries by making adequate provisions in the Budget. Upstream oil firms like ONGC will shoulder one-third of the burden. For the first nine months, the Finance Ministry has approved the release of a cash compensation of Rs 210 bn to the three state-run fuel retailers.