Thursday, March 5, 2009

Closing Bell 05-03-09 - Indian Stock Market Analysis

No cheers for rate cuts
After opening the day on a positive note, the markets slid into the red right way. Thereafter, persistent selling activity led the indices to fall deeper in the negative territory till the very end. The indices ended much lower as compared to the previous day’s closing level. The Sensex closed lower by around 260 points, while the Nifty closed lower by around 70 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 banking and energy space leading the pack of losers. Rupee closed at 51.89 against the US dollar. While, the Asian markets ended on a mixed note today, the European indices are currently trading weak.

Auto stocks ended mixed today. While pack of gainers was led by Ashok Leyland and Hero Honda, Tata Motors and Maruti Suzuki were at the receiving end. As per a leading business daily, Ashok Leyland has recorded a 57% YoY decline in February sales to 3,245 units as against 7,501 units sold in the corresponding period last year. The maximum drop was registered in the medium and heavy duty vehicles segment. In this segment, the company sold 1,438 vehicles in February compared to 5,554 vehicles in the corresponding period previous year. However, the company’s sales increased by one-third over January. The recent excise duty cut and government stimulus package led to the higher demand for the auto segment.

Energy stocks ended weak led by Reliance and Chennai Petro. As per a leading business daily, ONGC is planning to raise Rs 90 bn for its petrochemicals project in joint venture with Gujarat State Petroleum Corp to build a petrochemical plant at Dahej in Gujarat. The company is planning to finance this deal through syndicated loans. It is likely to complete the transaction in March or early April. It may be noted that several mega petrochemical projects in India have been put on the back burner due to sluggish petrochemical prices. As such, it was expected that ONGC would go slow with its plans for the Dahej petrochemicals project.

The inflation numbers hit a seven year low. For the week ended February 21, it stood at 3.03% as against 3.36% a week ago. The inflation has declined mainly on account of lower prices of food items. Food inflation declined from a 10 year high of 11.5% in the beginning of the year to 8.24% in the week under consideration, on back of higher base effect and easing prices of fruits, vegetables and certain cereals. Furthermore reduction in prices of metals and transport equipments also aided the decline. The RBI has already reduced interest rates yesterday in expectation of lower inflation.

Banks on a crash course

The markets continued their southward journey on account of sustained selling activity witnessed during the previous two hours of trade. Stocks from the banking, telecom and power sectors are trading lower, while select stocks from the auto, software and energy sectors are trading higher. The overall decline to advance ratio is poised at 2.5 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading lower, down by almost 260 points and 80 points respectively. The BSE-Midcap and BSE-Smallcap indices are also trading lower by 1.5% each. BSE’s banking index is the worst loser currently, as the index is down almost 4.5%. The rupee is trading at 51.83 to the dollar.

Power stocks are trading mixed. While Tata Power and NTPC are trading lower, Gujarat Industrial Power and CESC Ltd are trading higher. As per a leading business daily, NTPC plans to borrow around Rs 124 bn for its capex plans for FY10. The company plans to invest around Rs 177 bn during FY10 in order to expand capacity by 18,180 MW during the same period. The company incurred a capex of around Rs 124 bn during FY09. It may be noted that as per regulations, power generation companies are required to fund their projects in a debt to equity ratio of 70:30 and NTPC’s borrowing plans are in line with the same.

Aluminium stocks are trading lower led by Hindalco and Nalco. As per a leading business daily, NALCO has cut down the prices of aluminium by Rs 3,000 per tonne on account of a slowdown in demand. It may be noted that the London Metal Exchange prices of aluminium have declined by more than 50% during last six months. This is on account of major inventory build up at the LME due to falling demand from major aluminium consuming industries like auto, construction and consumer durables. This price reduction will adversely impact the company’s realisations. However, the steep depreciation of the rupee against dollar is likely benefit Nalco as a significant portion of its revenues comes from exports.

The indices continued to decline during the previous two hours of trade on the back of persistent selling activity. Stocks from the FMCG, oil & gas and power sectors are leading the pack of losers. However, select stocks from the engineering and realty sectors are trading firm. The overall market breadth is negative with losers outnumbering gainers by a ratio of almost 1.7 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading lower, down by around 170 points and 50 points respectively. The BSE-Midcap and BSE-Smallcap indices are also trading lower by 0.5% each. The rupee is trading at 52.09 to the dollar.

Software stocks are trading mixed. While TCS is trading firm, Infosys and HCL Technologies are trading in the red. As per a leading business daily, HCL Technologies has secured a contract of Rs 3.9 bn from the National Insurance Corporation. The contract is for 7 years and involves supporting the IT infrastructure and developing, implementing and maintaining software applications for verticals like customer relationship management, human resources and business analytics. The design and implementation for the project is expected to take 18 months before commercial operation takes off. This is a positive development for HCL Technologies as it will improve its presence in the domestic market.

Pharma stocks are also trading mixed. While Ranbaxy is trading weak, Cipla and Sun Pharma are trading firm. As per a leading business daily, the Australian drug regulator - Therapeutic Goods Administration - has been reviewing Ranbaxy’s 62 drugs manufactured and sold in Australia from the company’s Paonta Sahib plant in Himachal Pradesh. The regulator has so far not found any quality problems with these drugs. It may be noted that last week the US FDA has stopped the sale of Ranbaxy’s drugs in the US which are manufactured from the same plant on charges of falsifying data. Also, the company has quarantined all products manufactured from the plant and imported into Canada following a request by the country’s drug regulator.

After opening the day on a positive note, the Indian markets soon dipped into the red during the opening session of trade. While buying activity is being witnessed in stocks from the realty, metals and banking space, stocks from the power and energy sectors are trading weak. The overall advance to decline ratio is poised at 1.7 to 1 on the BSE. As regards to the global markets, both the US and European markets ended in the green yesterday. The Asian markets are currently trading mixed.

The BSE Sensex and the NSE Nifty are trading lower, down by around 30 points and 15 points respectively. However, the BSE Midcap and Smallcap indices are trading firm, up by 0.6% and 0.4% respectively. The rupee is trading at 51.66 to the dollar.

Energy stocks are currently trading mixed with stocks of Cairn India and Gujarat Gas trading firm, while stocks of ONGC and BPCL are leading the pack of losers. As per a leading business daily, Reliance Industries is in talks with HPCL for an agreement in which the latter will run the former’s fuel retail outlets. Reliance’s fuel retail outlets have been closed for almost a year now. The company had shut over 1,400 petrol pumps, wherein 900 were owned and the balance retail pumps were managed by dealers. RIL had shut its fuel retail operations on account of increasing losses. The company was not able to match the government oil marketing companies (OMC) in terms of pricing due to compensation received by the OMCs. It is believed that HPCL has issued a limited tender to five merchant bankers to advise it on the deal. This comes as a positive development for HPCL considering that it will be able to expand its retail without spending additional capital on setting up the infrastructure.

Aluminium stocks are currently trading firm led by Hindalco and Nalco. Hindalco has decided to shut its foreign subsidiary, Novelis’ aluminium sheet mill in the United Kingdom on account of a significant decline in orders. It is believed that the company is losing nearly 1 m pound per week. The company yesterday mentioned that the plant would be closed down by the end of April. The closure of this plant is expected to affect nearly 440 jobs. It may be noted that Novelis had witnessed a 20% YoY decline in sales during the quarter ended December 2008. This decline in sales was mainly on account of lower volumes and realisations. The prices of aluminium at London Metal Exchange have declined by over 50% in the last six months.

Market Commentary :

ndian market further cracked to a new three year low on Thursday as interest rate cuts and easing inflation numbers failed to boost the sentiments on Dalal-Street. The marlets reaction to the latest RBI measures was quiet lukewarm as the same had been anticipated for the past few days.

Risk aversion continues to remain the order of the day as investors lack conviction to resume buying even as stocks have fallen to attractive levles. FIIs continue to be net sellers in the emerging markets including India. Global investors sold Rs85.3bn of shares this year.

Investors remain skeptical about the government measures to combat deteriorating economic conditions. The Nifty ended below the 2,600 mark for the second straight trading session, the sharp downfall was led by the banking and the oil & gas stocks. Also the second rung stocks were heavily offloaded. 

The BSE Sensex lost 248 points to close at 8,197 and the NSE Nifty declined 68 at 2,576.

Among the 30-components of Sensex, 25 stocks ended in negative terrain and only 5 stocks ended in the green. Ranbaxy, ICICI Bank, Tata Power, Reliance Industries, HDFC Bank and HUL were among the major losers. Among the major gainers were, Sun Pharma, JP Associates, TCS, Wipro and Sterlite.

Among the major BSE Sectoral indices only BSE Consumer Durable index was the only gainer, the index rose 0.5%. All the other major sectoral indices ended in the red. BSE Bankex index was the top loser, the index lost 4.5%.

Among the other major losers were BSE Oil & Gas index (down 4%), BSE Power index (down 3.5%) and BSE FMCG index (down 3.2%).

However, the BSE Mid-cap and the BSE Small-cap index slipped 1.5% each.

Market breath was negative, 1,679 stocks declined against 703 advances, while, 86 stocks remained unchanged.

Shares of ONGC slid by 2% to Rs651 after Goldman Sachs reiterated a Sell on the public sector oil & gas major, citing five major concerns, including corporate governance issue with cash withdrawals by promoter (Government of India).

So far the Government has taken cash of almost US$20bn from ONGC without consulting the minority shareholders, the report added.

Shares of Ranbaxy Labs plunged by over 9% to Rs144 after reports stated that the company is being investigated by Australia’s medicine regulator after one of the plants was banned by U.S. authorities for “falsified test results. The scrip touched an intra-day high of Rs163 and a low of Rs140 and recorded volumes of over 4.2mn shares on BSE.

Shares of Reliance Industries dropped by over 5% to Rs1149 after the company reported a 12.1% dip in production to 2.8mn tons. The company also started another 580,000 barrels per day refinery adjacent to its existing 660,000 barrels per day unit on Dec. 25, 08.

FMCG counters were under the bear attack as stocks like HUL, ITC witnessed heavy selling. Hindustan Unilever dropped by over 5% to Rs230, the stock has nose-dived 20% after its hitting 52-week high on February 5, 2009. HUL came under pressure after JP Morgan Chase cut HUL’s outlook to underweight from Neutral.

Among the other major losers in the FMCG sector were, ITC plunged by over 3.5% to Rs167 and Colgate slipped by 2%.

Edserve Software was locked at 20% lower circuit for the third straight trading. The stock has lost 60% in the last three days. The scrip rallied significantly and more than doubled on its debut translating into a premium of 129% against its issue price of Rs60. The stock finally ended at Rs70.60 after hitting an intra-day high of Rs77 and a low of Rs70 and recorded volumes of over 2.6mn shares on BSE.

Shares of Hindustan Zinc surged by over 2.5% to Rs345 after the company announced that it raised Zinc prices by 5% to Rs71,300 per metric ton. On the other hand, lead were kept unchanged at Rs68,900 per ton. The scrip touched an intra-day high of Rs350 and a low of Rs340 and recorded volumes of over 53,000 shares on BSE.

Shares of Sun Pharma managed to stay in the green and surge by over 2.5% to Rs997. The scrip touched an intra-day high of Rs1020 and a low of Rs962 and recorded volumes of over 46,000mn shares on BSE.  The stock had hit a 52-week high of Rs1557 on September 10, 2008 and a 52-week low of Rs953 on March 4, 2009.

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