Realty, capital goods buoy markets

Fri, 5 Mar 11:30 am

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   09:30 am   

   01:30 pm   

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Despite paring some of the opening gains, the Indian markets continued to trade on a strong note during the previous two hours of trade. Currently, buying activity is being witnessed across sectors with stocks from realty, capital goods, telecom, metal and consumer durables sectors leading the pack of gainers.

The BSE-Sensex and the NSE-Nifty are currently trading higher by around 85 points and 27 points respectively. Stocks from the midcap and small cap spaces are trading in the green, with the BSE-Midcap and the BSE-Smallcap indices trading higher by 1.0% and 1.3% respectively. The rupee is trading at 45.80 to the US dollar.

As per a leading business daily, India’s second largest software exporter Infosys has hinted that it is betting big on newer transaction based business models. The company plans to generate one-third of its revenues through pay-per-use type of revenue models in the next couple of years. It may be noted that pay-per-use model is beneficial to the customers as they require lower capital expenditure on IT infrastructure. Instead of paying fixed up-front cost for owning an IT system, the clients can pay only when they use the services. This model becomes less profitable for the IT vendors initially as they need to bear the fixed cost. Nevertheless, the model generates long-term visible revenue streams for the IT vendors who can offer their services to multiple clients. They also need not have huge resources bound to serving one client.

It may be noted that Infosys, has already started serving around 4 customers using newer delivery models and derives nearly 5% of its revenues from such services currently. We believe that focusing on newer non-linear business models is a positive way to succeed in the new business landscape after recession. Like Infosys, other IT majors like TCS, Wipro and HCL Technologies are also tweaking their business strategy to adjust with the trends.

As per a leading business daily, Indian public sector oil companies have huge investment plans lined up. They are expected to invest over Rs 775 bn as an attempt to add 44.2 m tones of refining capacity by 2012. According to the Union Minister for Petroleum and Natural Gas, India Oil Corporation (IOCL) will be investing around Rs 298 bn in building a new refinery having 15 m tones annual production capacity in Orissa. Similarly BPCL and HPCL will be investing Rs 114 bn and Rs 189 bn respectively in order to put up 6 m tones and 9 m tones capacities in the near future. Following suit, Mangalore Refinery will be ramping up its refining capacity from 11.8 m tones to 15 m tones with an investment of Rs 124 bn.

It may be noted that these capacity expansions along with few others are estimated to raise India’s oil refining capacity to 153.8 m tones by 2012 from the current levels of 109.6 m tones. While we believe that boosting capacity ahead of demand may be prudent for down-stream oil companies, the lingering concern about government regulations on pricing continue to haunt them. Till a sustained reduction in the crude oil prices is observed, the prospects of the oil marketing companies largely hinge on ad hoc government policies. The Union Budget 2010 has not adopted the recommendations of the Kirit Parikh committee on fuel pricing and has in fact rolled back some of the excise and customs cuts given last year.