Tuesday, March 3, 2009

Closing Bell 03-03-09

After opening the day on a positive note, the Indian indices quickly moved into the negative territory. Thereafter, they moved in a volatile manner and hovered around the dotted line. However, the indices nosedived into the red on account of heavy selling activity during the final hour of trade. The Sensex closed lower by around 180 points, while the Nifty closed lower by around 55 points. Stocks from the mid-cap and small-cap indices ended the day on a weak note as well. Selling activity was witnessed in stocks across sectors, with stocks from the energy and FMCG space leading the pack of gainers. Rupee closed at 52.04 against the US dollar. The Asian markets ended the day on a mixed note. The European indices are currently trading mixed as well.

Engineering stocks ended the day on a weak note led by Alstom Projects, Voltas and Siemens. Suzlon Energy’s wholly owned Chinese subsidiary has entered into an agreement with Inner Mongolia North Longyuan Wind Power Corporation. As part of the agreement, the company will provide wind turbine technology for 100 megawatts (MW) capacity. The company will deliver 80 units of Suzlon's S64 - 1.25 MW turbines in two lots of 50 MW each in FY10 and FY11. While the company has not disclosed the value of the order, as per industry estimates (1 Mw being worth Rs 55 m), the order value is expected to be in the range of Rs 5.5 bn. It may be noted that Suzlon Energy had hit a rough patch over the past few months as the order intake had slowed down significantly. However, in the recent past, the company has won a handful of orders of similar magnitude.

Hotel stocks ended the day on a weak note led by Taj GVK, EIH and Hotel Leelaventure. Concerns over increasing terrorism in and around South Asia are likely to have an adverse impact on the tourism sector in the region. After the 26/11 attack, the latest victims are the players of the Sri Lankan cricket team, whose bus was attacked by terrorists in Lahore, Pakistan. Also the ongoing conflicts in India’s neighbouring countries are likely to add to the woes of the sector.

As per a leading business daily, Japanese car maker Toyota Motor expects a 30% YoY drop in the overall European car market this year. In fact, the company plans to sell nearly 15 m cars as compared to 21 m cars last year. The company is banking on its new launches in the region to gain market share this year. In addition, Toyota, which is also the world’s biggest automaker, expects its global production to fall by about 12% YoY during FY10.

Markets witnessed a volatile session during the previous two hours of trade as alternate bouts of buying and selling led the indices to hover around the dotted line. Currently stocks from the realty and energy sectors are leading the pack of gainers, while stocks from the FMCG and IT space are bearing the brunt of profit booking. The overall decline to advance ratio is poised at 1.4 to 1 on the BSE.

The BSE Sensex is trading lower by almost 25 points, while the NSE Nifty is trading flat. The BSE Midcap and Smallcap indices are trading lower, down by 0.6% each. The rupee is trading at 51.7 to the dollar.

Banking stocks are currently trading mixed. Yes Bank is trading weak, while SBI is trading marginally firm. As per a leading business daily, SBI, IDBI and Yes Bank have lowered their deposits rates in the range of 0.25% to 0.75% across various maturities. SBI has reduced deposit rate by 0.4% and 0.5% for deposits up to 2 years and between 2 to 3 years respectively, while IDBI Bank has reduced rates in range of 0.25% to 0.3%. The private player, Yes Bank has also lowered deposit rates by 0.25% to 0.75%. SBI’s term deposits account for 62% of the total deposits, while for IDBI Bank it stands at 69%. The banks had recently reduced the lending rates. Hence to ease of the pressure on the net interest margins, the banks had to reduce the cost of funds.

Realty stocks are trading mixed. DLF is trading lower, while Omaxe is trading lower. As per a leading business daily, property developers like DLF, Omaxe and a few others have delayed their office projects in Delhi and Mumbai - the two key office markets in the country. According to the reports, the vacancy levels (unoccupied property as a percent of developed property) have touched 5% in both places. In Hyderabad, the vacancy levels stood at 10%. On account of recent slowdown and liquidity crisis, the demand is on the lower side. As such, these real estate companies are delaying their proposed plan.

The Indian markets started the day’s proceeding on a weak note. Stocks from the consumer durables and banking sectors are leading the pack of losers. However stocks from the auto sector are leading the gainers. The overall market breadth is negative with losers outnumbering gainers by a ratio of almost 1.9 to 1 on the BSE. As regards global markets, both the US and the European markets ended in the red yesterday. The Asian markets are currently trading mixed.

The BSE Sensex and NSE Nifty are trading lower, down by 50 points and 10 points respectively. The BSE Midcap and Smallcap indices are trading lower by 0.8% and 0.6% respectively. The rupee is trading at 51.67 to the dollar.

As per a leading business daily, Tata Motors has raised production of its commercial vehicles (CVs). The company has said that demand for CVs has gone up in recent weeks across the country. The company had cut down on its inventory in earlier months by way of cuts in production. However, the demand has recently picked up and the company is currently facing a supply constraint, with demand exceeding supply. Government stimulus packages, higher credit availability and easing up of interest rates may have led to the higher demand. Ashok Leyland too has seen an upswing in demand. The company feels that the worst is over for the CVs industry.

As per a leading business daily, the Indian telecom industry and the Indian government together stand to lose about US$ 13 bn in revenues by 2012 if the third generation (3G) spectrum is not promptly allocated to the telecom operators. As per the Associated Chambers of Commerce and Industry (ASSOCHAM), the telecom industry will lose revenues of US$ 3 bn each year on account of delay in spectrum allocation. This is prohibiting private telecom operators from providing high speed wireless connectivity to potential subscribers. This deferment of the auction of 3G spectrum comes at a time when the government is facing a substantial fiscal deficit which could be alleviated to some extent out of the revenues that can be gained out of the auctioning of 3G spectrum. Telecom stocks are trading lower currently.

Worst quarterly loss ever

Stocks across Asia are trading weak currently, taking a leaf out of the books of their European and American counterparts, both of which ended deep in the red yesterday. In fact, the US benchmark Dow Jones Industrial Index ended below the psychologically crucial level of 7,000 for the first time since 1997 amidst concerns of deepening recession. These concerns were stoked by a massive US$ 62 bn quarterly loss reported at the troubled financial behemoth AIG, the biggest quarterly loss ever in the US corporate history.

Continued deterioration in the credit markets forced the largest US insurer to undertake billions of dollars in write downs and restructuring charges, thus leading to massive net worth erosion. The loss also forced the US government to provide extra US$ 30 bn funding to the troubled giant on top of the US$ 40 bn that it has already received through the TARP program. Investors of course took this event as harbinger of things to come and thus made a hasty retreat from stocks, evident from the 4% decline that the Dow suffered yesterday.

Indian auto makers have a good February

Auto sales numbers of some of the leading players in the domestic market raised hopes that the worst may indeed be over for the industry. While Maruti, the market leader in the passenger car market saw its domestic sales jump by 19% in February over same month last year, Hero Honda, leader in the two-wheeler pack, witnessed a sharp 24% jump in sales during the same period. What is more, some of the other players like Hyundai and TVS Motor also witnessed strong growth in sales. As per Mint, a slowing economy coupled with rising interest rates had led to sales dipping sharply for all the months since July (with the exception of September).

However, certain measures like the government stimulus package and increased salaries for government employees, courtesy the sixth pay commission, seemed to have played a key role in reversing the trend. Furthermore, interest rate reductions by certain PSU banks have also played their part in reviving the demand.

Not all segments are benefiting from the measures though. Sales of commercial vehicles have continued to go downhill, as evident from leader Tata Motors’ numbers, where sales have come lower by a significant 25%. However, even here the performance has been better than the previous months where sales had been battered out of shape. All in all, while the numbers are indeed heartening, waiting for a couple of more months before passing the verdict could be the right thing to do.