Energy, cap. goods pull mkts down

Thu, 15 Apr Closing

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After what seemed like a strong start, the Indian markets steadily slipped lower during the rest of the day. They finally closed well below the dotted line. Energy, capital goods and banking stocks led the downward pressure on the indices. Gains on the other hand were seen in stocks from the realty, pharma and consumer durable spaces.

While the BSE Sensex closed lower by around 183 points, the NSE Nifty lost around 54 points. Midcap stocks also closed lower with losses of 0.2%. Small caps saw even higher losses closing down by 0.6%. As regards global markets, Asian markets with the exception of India, China closed firm. European indices have opened on a mixed note. The rupee was trading at Rs 44.46 to the US dollar at the time of writing.

Better days seem to be in the wait for India’s beleaguered aviation industry. The sector which is expected to incur losses of US$ 2.1 bn in FY10, is cautiously expanding routes and adding capacity as an economic recovery sets in. But as a business daily reports, fund raising continues to pose a challenge. In the last two years, the airlines sector in India and globally had been battered by a spike in fuel prices and global economic slowdown resulting in lower travel spends. The past few months though have thrown up evidence of a turnaround. With passenger traffic growing by 20% YoY in 4QFY10, players in the sector like Jet Airways are looking forward to better passenger load factor. However, we believe that volatility in crude prices and rupee-dollar exchange rates may keep the margins very unstable.

Although India’s inflation worries may have tempered for the time being, the central bank will need to stay on alert. Latest data shows that India’s wholesale price index (WPI) rose to 9.9% YoY in March 2010. Although slower-than-expected, the same may call for a rate hike by the RBI at its policy review next week. Fuel prices also rose 12.7% in the same month from 10.2% in February following a hike in domestic fuel prices and an upswing in world crude prices. The RBI had earlier cited increased capacity utilization as one of the principal factors driving up inflation. However, the central bank may want to keep demand under control until companies boost their output potential.

Rising cotton prices have been the chief cause for margin worry for textile companies. An important input in textile manufacturing, rise in cotton costs to the tune of 67% has led to the companies being unable to pass on the rise in costs. The government has now imposed a duty of Rs 2,500 per tonne on raw cotton exports in order to moderate prices of the commodity in the domestic market and help the local textiles industry. It however remains to be seen if this protective measure helps the sector safeguard its margins. Stocks in the textile sector including Arvind and Raymond closed lower.