After a muted start, profit booking in key index heavyweights led the Indian markets to the same fate as met by its peers in Asia. Except select banks and automobile companies, investors seemed to show little interest on other counters. Heavy profit booking in the metal and telecom spaces ensured that the indices closed well below the dotted line in the final trading hour. While the BSE Sensex closed lower by around 190 points (down 1%), the NSE Nifty lost around 57 points (down 1%). Midcap and small cap stocks fared marginally better with losses of 0.9% each.
As regards global markets, other Asian markets also closed in the red today with China and Japan being the key losers. European markets have opened lower. The rupee was trading at Rs 45.3 to the dollar at the time of writing.
The Indian telecom regulator TRAI put out some important recommendations on the sectorís M&A plans today. The regulator recommended ending restrictions on telecoms firms selling out. This move could help consolidation in the world's fastest growing telecoms market. Currently, India restricts telecoms firms from selling majority stakes within three years of getting license. TRAI also suggested that telecom players pay a one-time fee for holding radio-spectrum beyond 6.2 mega hertz (MHz) based on 3G prices. This move can hit established operators like Bharti Airtel and Vodafone. While these recommendations are yet to be reviewed, the fact that the sectorís need for consolidation is on the regulatorís mind is very apparent.
Crude oil prices fell below US$ 77 a barrel today as a stronger dollar signaled lingering doubts about a resolution to Europe's debt crisis. The US$ 1 trillion package to restore confidence in the Eurozone infact seems to have restored confidence in the US dollar as the reserve currency for the foreseeable future. At the same time, Chinese inflation data raised concern about potential monetary tightening measures. China's inflation edged up to an 18-month high in April 2010 and could call for tighter measures by the Chinese central bank to curb loan growth.
Rating agency CRISIL estimates that Indian banksí profitability will be hurt this fiscal as they will have to make additional provisions of Rs 620 bn over the next two years to achieve provision coverage of 70% (of gross NPAs) as per the RBIís mandate. At the end of FY10, the ratio on an average stood at 60%. Further CRISIL expects net NPAs of banks to increase by 0.3% this fiscal. This coupled with restructured loans comprising 3.5% of advances could pose a serious threat to the sector asset quality. PSU banks like SBI, Bank of Baroda and Union Bank of India have a higher share of such restructured loans as compared to their private sector counterparts.