Consumer goods lead the rally

Thu, 3 Mar 01:30 pm

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After having lost ground in the previous two hours of trade Indian indices have posted a smart come back and are currently trading in the green. Stocks from Consumer goods and Realty space are trading strong while those from IT and Metal space are trading weak.

Currently, the BSE-Sensex is up by 83 points while NSE-Nifty is trading 20 points above the dotted line. BSE Midcap and BSE Small cap indices are both up by 0.37% and 0.42% respectively.

FMCG stocks are trading firm with Camlin and Dabur leading the pack of gainers. However, P&G Hygiene and Godrej Consumer are trading weak. Following a steep rise in coal and wood prices paper companies are all set to pass on the increased burden to the customers. It may be noted that prices of wood, one of the key raw materials, have gone up by 25% over the last one year. Even coal prices have gone through the roof recently. As a result of an increase in the key raw material prices, paper companies are mulling an increase in the paper prices by about 6-8%. Increase in raw material prices will erode the price competitiveness of the industry in an environment where export dependent economies are offloading their excess capacity in India. However, increasing the import duty which has been hovering around 10% can bring in some relief.

Banking stocks are trading firm with ING Vysysa and Karnataka Bank leading the pack of gainers. However, South Indian Bank and Federal bank are trading weak. RBI has decided to allow big industrial houses to set up banks but with certain riders. One of them being that the promoter company setting up the bank should have power to supersede the board of inefficient banks. RBI will also retain the right to oversee the operations of the promoting company that have any business relationship with the bank. This will seek to evade conflict of interest, if any, arising from any transactions.

The RBI is expected to issue guidelines with respect to the new banking licences by 31 March 2011. For the awarding new licences RBI is looking out for corporate’s with strong track record and clean image. Although many small NBFC’s and MFI’s have applied for the licences RBI is not keen on granting licences to them as it is not convinced about the overall efficacy of small banks. While the regulator is planning to award 8-10 new licences no time line has been defined for the same. We believe this could be a lengthy process as the banking law needs to be amended before the award of new licences.