US downgrade overhang continues

Mon, 8 Aug Closing

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The downgrade of the US' AAA rating spooked markets globally today. However, the Indian stock markets recovered from their day's lows mid-session on account of some positive news coming from the European Central Bank (ECB). Having said that, concerns over economic weakness of the US and its impact on Indian equities continued to play on investors' minds till the end of the session. The BSE-Sensex continued on its losing streak from last week and closed around 316 points lower (down 1.8%). The NSE-Nifty closed lower by around 93 points (down 1.8%). The BSE Midcap and BSE Small cap were not spared either as they closed lower by 1.5% and 2.2% respectively. All the sectoral indices closed in the red, with stocks from realty, IT and metal sectors sharing the bulk of the losses.

As regards global markets, Asian indices closed in the red today while European indices were also bleeding in opening trade. The rupee was trading at Rs 45 to the dollar at the time of writing.

The government has indicated that it may cut down its disinvestment target for the financial year 2011-12 (FY12) in light of global uncertainties and volatile capital markets. As against its ambitious target of raising Rs 400 bn from the sale of shares of the state-owned enterprises, the government has so far raised only a little over Rs 11 bn by selling its stake in Power Finance Corporation in May 2011. There are a number of companies in the pipeline waiting to tap the capital markets, including SAIL, ONGC, etc. Rashtriya Ispat Nigam Ltd (RINL), MMTC, National Buildings Construction Corp (NBCC) were also set for divestment, however the government may postpone their stake sales in light of the volatility in capital markets.

In FY11 as well, the government fell short of its Rs 400 bn disinvestment target. 2010, was one of the best years for the IPO (initial public offering) market the subprime crisis. Then the government managed to raise Rs 228 bn from sale of equity in public sector enterprises like SJVN, Coal India, Shipping Corporation of India, etc.

Mahindra and Mahindra (M&M) recently announced its results for the first quarter of the financial year 2011-12 (1QFY12). The company's auto sector volumes saw a strong YoY growth of 21% in the domestic market. In the passenger utility segment sales grew by an impressive 14%, compared to an industry growth of 5%. Domestic tractor sales grew by 20% in 1QFY12, compared to an industry growth of 14%. On the back of a strong growth in volumes, net sales grew by 30%. However, expenditure grew at a faster pace, seeing a 33% increase on the back of higher employee and raw material costs. Profits grew by 8%, on the back of a fall in interest costs. The company posted a good set of numbers despite the RBI's tight monetary policy. The company's shares closed higher by 2% today.