Thursday, March 19, 2009

Closing Bell BSE / NSE Daily Market report 19-03-09

Deflation scare pinches stocks
The Indian markets bounced back into the positive territory during the final hour of trade to end the day marginally above the dotted line. The BSE-Sensex closed with gains of around 25 points, while the NSE-Nifty closed higher by 10 points. Stocks from the mid-cap and small-cap space ended the day on a firm note as well. Buying activity was witnessed in stocks from the realty and IT space, while stocks from the capital goods and auto sectors bore the brunt of profit booking.

Most other Asian markets closed on a mixed note. The European indices are currently trading firm. Rupee was trading at 50.5 against the US dollar at the time of writing.

Metal stocks ended the day on a mixed note. SAIL and Hindustan Zinc closed higher, while Tata Steel ended in the red. As per a leading business daily, SAIL is planning to cut costs by improving its techno economic parameters such as reduction in coke rate, energy consumption and manpower costs. The company is renegotiating the 2009 coking coal contracts with its suppliers. It may be noted that SAIL had entered into a coking coal contract for 2009 (July 2008 to June 2009) at a higher price of around US$ 300 per tonne as against US$ 95 per tonne during the corresponding period in the previous year. The higher price of coking coal increased its overall raw material cost by around Rs 2.7 bn in 3QFY09.

Pharma stocks ended the day on a mixed note with Matrix Labs and Sun Pharma trading firm, while Wockhardt and Dishman Pharma ended weak. As per a leading business daily, the Indian government is planning to ban the anti-obesity drug ‘Rimonabant’, which has already been banned around the world. Launched just two years ago, the drug allegedly causes suicidal tendencies in consumers. Pharma companies such as Ranbaxy and Sun Pharma will be affected if this ban takes place as they manufacture generic versions of this drug, which was invented by Sanofi Aventis. It may be noted that the Drugs Controller General of India (DCGI) had earlier asked pharmaceutical companies to stop manufacturing this drug. However, as it is still available in the market, the DGCI has approached the central government to ban the same. In 2008, total revenues from the drug stood at nearly Rs 130 m.

Inflation, as measured by the wholesale price index (WPI), fell to 0.44% in the week ending March 7 as compared to 2.4% recorded a week ago. This is the lowest inflation recorded in nearly two decades. The decline is due to lower prices of food and fuel items. The sharp fall in inflation is also due to the high base effect as the number stood at 7.8% during the corresponding week last year. It may be noted that economists now believe that deflation is on the cards within the next two months.

Lower inflation fails to cheer

The Indian markets slipped into the negative territory on account of selling activity witnessed among the index heavyweights during the previous two hours of trade. Stocks from the banking, metals and engineering sectors are leading the pack of losers, while select stocks from the pharma and realty sectors are trading firm. The overall decline to advance ratio is poised at 1 to 1 on the BSE.

The BSE-Sensex and the NSE-Nifty indices are trading lower, down by around 60 points and 15 points respectively. However, the BSE-Midcap and the BSE-Smallcap indices are trading higher, up by 0.1% and 0.6% respectively. The rupee is trading at 50.77 to the dollar.

Pharma stocks are trading mixed. While Dr. Reddy and Ranbaxy are trading lower, Sun Pharma is trading higher. As per a leading business daily, if the recent US bill that seeks ban on MNC pharma companies from transferring authorized generics to third parties becomes a law, it would affect the growth plans of Dr. Reddy in the US markets. It may be noted that Dr Reddy had launched the generic drug ‘Imitrex’ of Glaxo Pharma in November 2008 in the US markets. This helped the company to increase its North American sales to US$ 137 m during the December 2008 quarter as against US$ 36 m during the corresponding period previous year. North American sales contributed around 36% to the total revenues of the company during the 3QFY09.

Energy stocks are trading mixed. While ONGC is trading higher, Reliance Industries and HPCL are trading lower. As per a leading business daily, ONGC-Teri Biotech (OBTL), a joint venture between ONGC and The Energy and Resources Institute, has qualified to bid for a contract for cleaning the oil spill left over from the 1991 Gulf war in Kuwait. It involves US$ 3 bn first phase of the bioremediation project. This contract has been floated by the Kuwait Oil company and is backed by the United Nations. Interestingly, OBTL is the first company to successfully demonstrate cleaning the oil spill with their Oilzapper technology. This project will open up many potential opportunities for ONGC in Kuwait in the future.

Ashok Leyland to finance vehicles

The Indian markets lost their ground during the previous two hours of trade on account of heavy selling activity among the index heavyweights. The news of a lower inflation rate of 0.44% for the week ended March 7 failed to cheer the markets. Stocks from the FMCG, auto and power sectors are leading the pack of losers. However, select telecom and software stocks are trading firm. The overall market breadth is positive with gainers outnumbering losers by a ratio of almost 1.6 to 1 on the BSE.

The BSE-Sensex index is trading higher by around 20 points, while the NSE-Nifty index is currently trading flat. The BSE-Midcap and BSE-Smallcap indices are trading higher, up by 0.7% and 1.2% respectively. The rupee is trading at 50.80 to the dollar.

Auto stocks are trading mixed. While Maruti and Ashok Leyland are trading firm, Tata Motors is trading in the red. As per a leading business daily, commercial vehicle major, Ashok Leyland plans to set up its captive vehicle finance arm. The unit will finance the company’s vehicles and will cater to places which lack banking presence. This arm will start its operations in the next fiscal with an initial capital of Rs 1 bn to Rs 1.5 bn. With banks becoming wary of lending vehicle finance due to the risk of default, many auto makers have been starting their own captive financing operations. It may be noted that, M&M and Tata motors have already launched their own financing arm.

Energy stocks are also trading mixed. ONGC is in the green, while GAIL and BPCL are in the red. As per a leading business daily, Reliance Industries plans sell petrol and diesel in the US markets directly. The company has already acquired storage facilities in the US and has started selling petrol in the market. It may be noted that the company has shut down its domestic fuel outlets due to the price regulations in India. In fact, the company is unable to compete with the public sector retailers who receive government subsidies and has been making losses on the sale of its products. Hence, the aggressive marketing of its products in the global markets is a positive development.