Friday, February 27, 2009

Closing Bell 26-02-09

Closing Bell 27-02-09

The Indian indices began the day on a weak note. Thereafter, they dropped deeper in the red but made a U-turn towards the dotted line post noon. While the indices ended the day in the red, they managed to curb a large chunk of their losses. The Sensex closed lower by around 60 points, while the Nifty closed lower by around 25 points. Stocks from the mid-cap and small-cap indices ended the day on a weak note as well. Rupee closed at 50.8 against the US dollar. While the Asian markets ended on a mixed note today, the European indices are currently trading weak. 

Tata Steel led the pack of gainers on the BSE Sensex today. The company declared its consolidated numbers for the quarter ending December 2008, reporting a net profit of Rs 8 bn as against Rs 13 bn a year ago. While the company’s numbers are lower on a YoY basis, it reported better than expected numbers. It may be noted that the company’s standalone profits during the quarter dropped by 56% YoY. 

Stocks from the core sectors such as construction, realty, cement, energy and IT led the pack of losers, on the back of the dismal GDP growth rate. As per reports, India’s GDP growth has slowed down to 5.3% YoY during the quarter ended December 2008. This is way below the 6.1% growth projected by 21 economists on Bloomberg. It may be noted that this is the slowest pace of growth since the last quarter of 2003. The top losers in stocks forming part of the BSE 100 Index included Aban Offshore, Grasim Industries, Punj Lloyd, SAIL, Reliance Infrastructure and Ambuja Cements. However, key banking and financial stocks such as HDFC, ICICI Bank, HDFC Bank and SBI Bank ended the day on a positive note. 

Healthcare stocks ended the day on a weak note led by Ranbaxy, Dr. Reddy’s and Wockhardt. As per a leading business daily, Wockhardt has recently secured the US FDA (Food and Drug Administration) approval to sell alcohol-free syrup of ranitidine hydrochloride in the US. This syrup is used to treat ulcers and hyper-acidity. It may be noted that this syrup is a generic version of GlaxoSmithKline's syrup, Zantac. It is believed that the US market for the syrup is estimated to be worth US$ 51 m (Rs 2.6 bn), which gives the company an opportunity to cater to a large market. In addition, the company has secured a provisional approval for the alcohol containing version of ranitidine. The patent of this product is set to expire on 26th of May this year. 

Realty stocks ended the day on a weak note led by Akruti City and Mahindra Lifespace. As per a leading business daily, realty major DLF has raised Rs 7 bn from the issue of non-convertible debentures at an annual interest rate of 14%. These funds have been issued to insurance companies which would mature in the next five years. This is part of the company’s move to raise Rs 50 bn by selling bonds in order to restructure its debt. DLF has to repay Rs 43 bn of its loans by June, of which it has already refinanced Rs 20 bn at rates of 12% to 13%. The company has resorted to this strategy as its cash flows have been adversely affected on account of the slowdown in housing demand. It may be noted that the company has a cash and bank balance of Rs 8 bn. 

The Indian rupee on Friday, reached its all time low level against the greenback. In today’s trading session, the rupee tumbled to 50.85 against the US dollar. Growing concerns about the continued loose fiscal policy, S&P’s statement of it mulling over cutting the nation’s credit rating to junk, and poor economic growth are the chief reasons for this slump. Furthermore, dollar demand from importers weighed heavy on the rupee. 

Markets continued to languish in the red during the previous two hours of trade on account of sustained selling activity witnessed across the board. While stocks from the realty, metal and energy sectors are leading the pack of losers, select stocks from the FMCG and consumer durables are trading higher. The overall decline to advance ratio is poised at 1.7:1 on the BSE. 

The BSE Sensex and the NSE Nifty are lower, down by around 193 points and 63 points respectively. The BSE Midcap and Smallcap indices are trading lower by 0.5% each. The rupee is trading at 50.73 to the dollar. 

Energy stocks are trading mixed. While MRPL and Castrol are leading the pack of gainers, ONGC, BPCL and RIL are at the receiving end. As per a leading business daily, ONGC is facing delays in the supply of offshore supply vessels (OSVs) for its oil and gas exploration operations which threatens to affect its production and exploration targets. As a result, the company has decided to cancel tenders for the vessels and extend its existing vessel contracts on a nomination basis at old contract rates. While this move will help ONGC in getting assured supply of OSVs, it will also benefit Indian shipping companies by ensuring full utilisation of their fleet. 

Software stocks are trading weak led by Wipro and TCS. As per a leading business daily, in a move to improve the operating efficiency, TCS will review the variable pay of its employees. The company’s variable pay accounts for around 20% to 35% of total gross salary. The total salary accounts almost 55% of the company’s revenues. The company will also increase working hours of its employees by 10%. As a result, this will add around half-a-million billable hours for TCS as its 55% of the contracts are based on time and materials billing, where charges are paid on basis of hours of work. TCS currently employs around 140,000 employees. It may be noted that around 60% to 70% of company’s clients are seeking for re-negotiations in prices. On account of the recent global crisis and lower growth in contracts, the company is resorting to cost cutting measures.

Banking stocks are trading firm led by Union Bank, IOB and Corporation Bank. As per a leading business daily, SBI is planning to restructure about 15,000 small and medium enterprise (SME) loan accounts by the end of FY09. This is in addition to the 26,000 accounts that have been restructured since December 2008. This move has been made in line with the RBI’s directive in December asking banks to restructure loans of SMEs in wake of the ongoing economic slowdown. Restructuring of loans would mean an extension of the repayment period and reduction in the equated monthly installments. Those accounts which are restructured would not be considered part of non-performing assets. This would thereby not increase the NPA’s which currently stands at 1.5%. It may be noted that advances to SME sector account for around 25% of SBI's total portfolio. SBI has 800,000 SME accounts with a loan portfolio of Rs 1,000 bn. 

Software stocks are trading weak led by Tech Mahindra, Infosys and Satyam. As per a leading business daily, Indian IT majors TCS, Infosys and Wipro are eyeing around US$ 2 to US$ 3 bn outsourcing contracts from the Department of Work and Pensions, the HM Revenue and Customs and the Ministry of Justice in UK. These state-owned departments are planning to outsource to India to reduce the cost of managing IT systems by 25% to 40%. These contracts will help Indian IT majors to grow its revenue from the UK region when the world’s biggest IT market, the US, is facing economic slowdown and is also evaluating protectionist measures against offshoring of IT jobs. It may be noted that the UK government’s IT spending is estimated to be over US$ 36 bn every year. This will provide huge opportunity for Indian IT firms.