Indian equities trade on a firm note; overlook pessimistic European opening

Indian benchmarks are trading on a steady note in Tuesday afternoon trades, maintaining the one percent gain as investors continue to pile up hefty positions almost across the counters. Domestic investors even went ahead to overlook the gloomy European market opening which fell after Standard & Poor cut Italy's credit rating by one notch, stoking fears that the region's debt crisis was spreading. The Asian equity indices too traded on a mixed note failing to give any decisive clue to the domestic bourses. Though the Sensex briefly showed some signs of easing in early noon trades but soon gathered support around the psychological 16,900 levels as investors resorted to bargain hunting after sharp falls seen in the previous session. Meanwhile, PMEAC chairman C Rangarajan, admitted that the continuous rate hike by RBI may have some impact on economic growth but was confident that the GDP growth in this financial year will be around 8% from 8.6% a year ago. On the sectoral front, the information technology counter gathered maximum traction and surged by around two percent while the consumer durables and metal pockets too witnessed huge buying interests as they gained well over a percent. On the flipside only, PSU and Capital Goods gauges languished in the red terrain with marginal losses. Moreover, the broader markets traded on a positive note but failed to match the fervor exhibited by their larger peers. The bourses surged on good volumes while the market breadth on BSE was in favor of advances in the ratio of 1566:933 while 105 scrips remained unchanged.

The BSE Sensex is currently trading at 16,918.32 up by 172.97 points or 1.03% after trading as high as 16,959.31 and as low as 16,758.69. There were 26 stocks advancing against 4 declines on the index.

The broader indices were trading on a positive note; the BSE Mid cap index gained 0.43% and Small cap advanced 0.67%.

On the BSE sectoral space, IT up 2.34%, TECk up 1.92%, CD up 1.54%, Metal up 1.07%, and Auto up 0.85% were the major gainers while PSU down 0.22% and Capital Goods down 0.05% were the only losers on the index.

Tata Motors up 2.79%, Wipro up 2.62%, Infosys up 2.43%, TCS up 2.36% and JP Associates up 2.13% were the major gainers on the Sensex, while ONGC down by 3.01%, BHEL down 14.37%, Maruti down 1.03% and Coal India down 0.07% were the only losers on the index.

Meanwhile, the growth of Indian leather export units is likely to halt this year on the back of impulsive economic conditions in the European markets and the sharp increase in raw material and input prices, which has already eroded margins by 50 percent. The leather export units in India are primarily dominated by small and medium enterprises (SMEs).

According to the chairman of the Council of Leather Exports (CLE), ‘export growth is likely to stall in the next six-month period due to volatile economic conditions in the US and European markets.’ With uncertain economic circumstances, the question of survival has become a priority for entrepreneurs, who are now looking at consolidation and aiming towards the domestic markets. But on the other hand, the industry is also expected to attain a size of $5.4 billion by 2014 from the current level of $3.8 billion.

About 80 percent of India’s leather exports are to the US and Europe. The main markets are Germany - 14 percent, UK - 13 percent, USA - 9 percent, Italy - 11.6 percent, France - 17 percent and Spain - 16.25 percent. At present the industry is witnessing 13-15 percent growth, which may slow down in the months ahead due to the crisis in western markets.

Besides the weakness in the western economies, there are two other major issues for the industry, the rise in the costs of inputs (power and labour). Raw material prices have gone up by 35-40 percent in the last 6-9 months, while power costs have gone up three times due to power cuts - both scheduled and unscheduled - in the state.

The other issue is the interest rate, which has gone up from 7 percent in March 2010 to 12.5 percent at present. Transaction costs too are 10-12 percent in India, against the global norm of five to six per cent. In order to address the high volatility in the export markets, units in these clusters have now started looking at consolidation. The manufacturers are also looking at launching their own brands to cater to the domestic market, which is largely catered for by industry in the North. Though the value is less, domestic market volumes are stable. In the next five years it is expected that the domestic market will gain its momentum.

The S&P CNX Nifty is currently trading at 5,082.70, higher by 50.75 points or 1.01% after trading as high as 5,095.65 and as low as 5,035.25. There were 43 stocks advancing against 6 declines on the index.

The top gainers of the Nifty were Wipro up 2.89%, Tata Motors up by 2.69%, TCS up 2.45%, Infosys up 2.36% and Cairn up 2.27%.

ONGC down 3.23%, BHEL down 1.41%, Maruti down 0.85%, BPCL down 0.69% and Tata Power down 0.02% were the major losers on the index.

Asian markets traded on a mixed note, Shanghai Composite added 0.17%, Straits Times rose 0.19%, Seoul Composite surged 0.94% and Taiwan Weighted gained 0.16%.

On the other hand, Hang Seng plunged 2.65%, Jakarta Composite sank 1.66%, KLSE Composite shaved off 1.15% and Nikkei 225 plunged 1.61%.

The European markets traded on somber note as France’s CAC 40 declined 0.91%, Germany's DAX slipped 0.65% and Britain’s FTSE 100 shed 0.69%.