Cautious sentiments in global markets triggered by the rate hikes in China, led the Indian indices into the negative territory in the latter half of today's session. While the BSE-Sensex closed lower by around 45 points (down 0.2%), the NSE-Nifty lost around 14 points (down 0.2%). While the BSE Midcap lost 0.2%, the BSE Smallcap index managed to buck the trend and closed higher by 0.2%. Barring FMCG, healthcare and IT stocks, most stocks across sectors closed weak.
As regards global markets, Asian indices closed mixed today while European indices have also opened on a mixed note. The rupee was trading at Rs 45.27 to the dollar at the time of writing.
The Chinese central bank raised the country's benchmark lending and deposit rates by 0.25% last weekend. It was the second hike in 10 weeks to counter the economy's fastest price hike in more than two years. More importantly, the People's Bank of China has signaled more rate hikes in 2011. The policy makers in China are seeking to slow rise in property prices and inflation that are hinting towards asset bubbles. The country has also cracked down on bank lending to the realty sector. In the wake of harder interest rates in China, the prospects of the RBI's rate hike moves getting accelerated are high.
Several PSU banks in the country are looking for more funds from the RBI to bring their capital adequacy ratio to the prescribed levels. Union Bank of India is expecting funds worth Rs 11.5 bn from the government by the end of FY11. This would help bring the bank's tier I capital to 8.4% from 7.9% in 1HFY11.
It may be noted that the government had approved the capitalisation plan of the bank to the tune of Rs 12.6 bn, of which it received Rs 1.1 bn in 1QFY11. With a higher capital base, the bank is expecting a deposit growth of 20% YoY and credit growth of 23-24% YoY in FY12. Meanwhile, the net interest margin of the bank is expected to remain in the range of 3.1% to 3.2%. Besides, the bank will open 500 new branches in FY12. However, most PSU banks closed lower today.
Despite pressure on input prices, India's manufacturing sector continues to put forth a strong performance. As per a survey conducted by the CII, as many as 50 segments in the manufacturing sector have shown growth in excess of 39% in the first nine months FY11. Of the 127 segments covered by the survey, 22 have made it to the ‘high growth' category (10 to 20% growth), showing 17.3% YoY expansion during 9mFY11. However, going forward, the ability to withstand the steep rise in commodity prices will determine the growth in the sector.
Crude oil prices, for instance, are hinted at crossing the US$ 100 a barrel mark in 2011. As per a business daily, Kuwait's oil minister and other oil exporters have indicated that OPEC may decide against increasing output through 2011 as the market was well supplied.