Despite being on the losing side, Indian markets were the best performer within Asia today. These were helped by gains in stocks from the auto and IT sectors. Metal and FMCG stocks however continued to face weakness. On the BSE, two stocks gained for every stock that ended in the negative today.
The BSE-Sensex and the NSE-Nifty closed with losses of around 49 points (0.3%) and 13 points (0.3%) respectively. Stocks from the mid and small cap spaces however bucked the trend, as the BSE-Midcap and BSE-Smallcap indices closed higher by around 0.2% and 0.3% respectively. The rupee was trading at 46.49 to the US dollar at the time of writing.
Almost all Asian markets closed weak today. China (down 3.5%) was the biggest loser followed by Hong Kong (down 1.5%) and Japan (down 1%). Weakness in these markets could be traced to China's warning to its banks to control their lavish lending that has underlined the risks to an economic recovery driven by easy credit. While this seems a good move towards curtailing any bubble buildup in the world’s third largest economy, markets did not seem to like this.
Coming back to the Indian markets, IT stocks closed strong today. Leading gainers included Mphasis and Infosys. Gains in these stocks were led by reports that some of these companies are eyeing contracts worth US$ 1 bn from the US markets over the next 1-2 years. These deals are likely to come from top US banks that will be aiming to improve their operational efficiencies with the recovery in the US economy.
Already, firms like JP Morgan, Goldman Sachs and Morgan Stanley are seeking to offshore more of their non-core IT and back-office projects to India. This comes after some of these had postponed new offshoring decisions while trying to cope up with the meltdown in the financial markets. Now as they come back to the offshoring table, Indian IT companies can expect a good amount of deal flows to happen over the next few quarters.
Power stocks closed weak today. Reliance Infra, PGCIL, and PTC closed among the leading losers. A leading news daily has reported that PTC, the power trading major, has tied up with the UK based Ashmore Group for setting up a US$ 1 bn private equity (PE) fund. Called the India Energy Fund, this will be used for financing energy projects in the country. As matter of fact, Ashmore already handles US$ 25 bn funds worldwide. It has a special focus on emerging markets.
While Ashmore will hold a 60% stake in this proposed PE fund, PTC will have the remaining 40% stake. PTC has already raised this required sum of US$ 1 bn through a recent QIP issue. It expects to take 20-30% stake in private power projects. PTC’s management has shown increasing interest towards its power financing business over the past few quarters. However, we see the same as a diversion from its core business of power trading that itself holds good potential in the long term.
In what could have aided market sentiment today, Prime Minster Dr. Manmohan Singh has indicated that India plans to push ahead with key financial and tax reforms aimed at shrinking its yawning budget deficit. But this seems much more difficult to do than said. This is considering that even the RBI is facing a huge dilemma to pull out its easy money policy to counter rising inflation. As for Dr. Singh’s remarks, even his government faces the dilemma to roll back the stimulus measures that have helped the economy pick up some steam over the past few months. And we see no other way he can push ahead with his tax reforms without tinkering with the stimulus.