The Indian markets have started on a strong note. Although the benchmark indices opened below the breakeven mark on the back of weak Asian cues, they soon recovered strongly to zoom past the dotted line into positive territory. Asia is currently trading in the red with China (down 2%) leading the pack of losers. The US markets closed higher by 0.6% last Friday.
Currently, in India, heavyweights from the BSE-Sensex are trading in the green with cement and auto stocks leading the pack of gainers. The BSE-Sensex is trading higher by 87 points, while the NSE-Nifty is up by 24 points. Buying interest is also being witnessed among mid and small-cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.3% and 0.5% respectively. The rupee is trading at 46.71 to the US dollar.
Energy stocks have opened the day on a positive note. Gainers here include Indraprastha Gas and GAIL. Oil and gas exploration and production major ONGC has often expressed its discomfort with the ad hoc mechanism to share the under recoveries recorded by the oil marketing companies - Indian Oil, BPCL and HPCL. As per a leading daily, it has now proposed an alternative method to allocate the subsidy burden. It has sought levy of windfall tax at the hands of producers on crude oil price of over US$ 60 per barrel. This special oil tax could be levied at 20% of the incremental price beyond US$ 60 per barrel, 40% beyond US$ 70, 60% beyond US$ 80 and 80% beyond US$ 90. It may be noted that upstream companies like ONGC, GAIL and Oil India used to bear one third of the under recoveries till last year and have been asked to bear the entire amount from this year onwards. In our opinion, the method suggested by ONGC will bring a degree of certainty to the subsidy mechanism. It will also provide a margin for the upstream company to pay for the cost of oil field services which rise with higher crude prices. However, there have been similar suggestions in the past which the government has not implemented so far.
Steel stocks have opened the day on a positive note. Gainers here include
SAIL and Tata Steel. As per a leading business daily, steel giant SAIL has asked the government to levy anti-dumping duty to curb cheap steel imports at a time when profits are under pressure due to falling prices. Earlier, the steel ministry had requested the finance ministry for a 10% duty on steel imports, which was turned down. The imports come from China and Ukraine at US$ 400 per tonne at a time when rates are US$ 500 to US$ 550 per tonne in India. Given the global overcapacity situation in the sector, we believe the Indian steel makers will have to lobby hard to insulate themselves from low prices. It may be noted that even if the quantity of import is not significant, import prices set the benchmark for the industry.