Thursday July 5, 10:30 AM
Slippery start... |
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By Equitymaster.com
Despite a positive start, profit booking in select index heavyweights has caused the benchmark indices to slid into the negative territory in the early trades. The overall market breadth is negative with losers outnumbering gainers by a ratio of 4 to 1 on the BSE Sensex. While select auto and engineering stocks have held ground, banking, cement and telecom stocks seem to be evincing little favour.
The BSE Sensex is trading at 14,792 (down 88 points) while the NSE Nifty is trading at 4,325 (down 35 points). The rupee is trading at 40.46 to the dollar.
The rupee's appreciation against the US dollar continues to erode the bottomline of Indian textile companies as over 60% of the textile exports are to the US. The dip in India's export value, primarily on account of the appreciating rupee and a sustained rise in the domestic interest rate regime, has translated into a 10% to 15% dip in the realisation for most textile exporters. India's exports of textile and apparel products to the US declined 0.4% in value terms even as export volumes surged 7.5% YoY in 1HCY07. China, on the other hand, has registered increases in both volume and value terms by 25% and 47% respectively. Other key exporting nations such as Pakistan, Sri Lanka and Indonesia, where local currencies have depreciated against the US dollar, have seen higher growth in value terms, even though export volume growth has not been significant. Textile stocks are trading a mixed bag with Arvind Mills (ARMI.BO, news) (down 5%) and Alok Industries (down 4%) being out of favour while Raymond (marginally up) has managed to hold ground.
Banking stocks are not evincing much favour in the early trades with SBI (marginally down), OBC and Corporation Bank (both down 1%) leading the pack of losers. A sharp slowdown in retail credit has pulled banks' lending growth rate down to 24.6% YoY in 1QFY08, while strong foreign exchange inflows swelled banks' deposits. The growth in deposits (24.5% YoY) has converged with the increase in credit for the first time in over three years. This figure is in line with the RBI's targets. Also, to contain the robust growth in credit, the central bank has raised key lending rates five times in the last one year. Further, the banking regulator had, in order to cool off credit growth in the retail sector, housing and real estate market, increased the risk weighting on bank lending to these sensitive sectors.
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