Tuesday, March 17, 2009

Closing Bell - Market Analysis 17-03-09

While the Indian markets managed to curb a part of their losses during the final hour of trade, they still ended the day well below the dotted line. The BSE-Sensex closed with losses of around 80 points, while the NSE-Nifty closed lower by 20 points. Stocks from the mid-cap space ended the day in the red. However, small-cap stocks remained in the limelight, as they ended the day on a firm note. Sectoral wise, stocks from the auto and power ended the day in the green. However stocks from the IT and banking space led the pack of losers. Most other Asian markets closed on a mixed note. The European indices are currently trading weak. Rupee was trading at 51.47 against the US dollar at the time of writing.

Large cap auto stocks ended the day on a firm note led by Tata Motors and Maruti. As per a leading business daily, Tata Motors’ subsidiary Jaguar Land Rover (JLR) plans to source auto components from Indian vendors going forward. As such, the team of executives from JLR is expected to visit factories of suppliers in next few weeks to initially conduct audits of the quality and production systems. On account of low cost and high quality products of Indian auto components manufacturers, the management is looking at reducing JLR’s costs. It may be noted that Tata Motors had indicated that sourcing component and a low-cost engineering and design services as one of the long term benefits for acquiring JLR. This is positive move for Tata Motors as it will help JLR to turnaround faster.

Large cap software stocks ended the day on a weak note led by TCS and Infosys. As per a leading business daily, post the unraveling of the fraud, Satyam has lost nearly 46 customers. While some clients have cancelled their plans, the others have shifted business to the company’s peer group. The reason behind the same has been on account of its unstable operations and uncertain future. The latest client to join the list was Abu Dhabi Bank which moved to 3iInfotech. Other major clients who have entered this list include Applied Materials, Kansas State Bank, Telstra, Emerson, Nissan, State Farm Insurance and Sony, amongst others. While the new management has been making efforts to restore confidence among the clients, the outlook remains uncertain.

As per a leading business daily, output from India’s special economic zones (SEZs) is growing at a faster rate than the country’s average exports. According to the commerce secretary, facilities at the existing SEZs are likely to record a 40% YoY increase in exports this fiscal as compared to country’s export growth rate of 10% YoY. In addition, he believes that in FY10, SEZ exports will further grow by 55% YoY.

After witnessing a three month slump post October, foreign direct investments (FDIs) in India have grown by 55% YoY in the month of January 2009. According to data available on the ministry's website, FDI inflows stood at US$ 2.7 bn in January as compared to US$ 1.8 bn in January 2008. In addition, inflows for the period between April 2008 and January 2009 grew by 65% YoY over the corresponding period in the previous year. The ministry expects the total inflows to stand at US$ 35 bn during FY09.

The Indian markets moved in to the negative territory during the previous two hours of trade on account of heavy selling activity witnessed across the index heavyweights. Stocks from the banking, software and energy sectors are leading the pack of losers, while selects stocks from the media, metals and auto sectors are trading firm. The overall market breadth is positive with gainers outnumbering losers by a ratio of 1.1 to 1 on the BSE.

The BSE-Sensex and the NSE-Nifty indices are trading lower, down by around 110 points and 30 points respectively. The BSE-Midcap index is trading lower by 0.2%, while the BSE-Smallcap index is trading higher by 0.4%. The rupee is trading at 51.40 to the dollar.

Energy stocks are trading lower led by Reliance Industries, ONGC and IOC. As per a leading business daily, CMIE has projected the domestic oil output to grow by around 4.8% to 36.2 m tonnes in FY10. This is mainly on account of resuming of production by Reliance Industries from KG basin D6 blocks. Furthermore, the capacity additions by Cairn India and ONGC will also enhance the production in FY10. It may be noted that oil production had declined by around 8.1% YoY in January 2009 mainly on account of strike at ONGC, the largest oil producer in India. For the current fiscal, CMIE expects crude oil production to decline by around 0.5% YoY to 34 m tonnes from the earlier estimates of 1.1% YoY growth in production.

PSU Bank stocks are trading lower led by SBI and PNB. As per a leading business daily, government has extended the period for the profitable PSU’s to park their surplus funds with PSU banks by one year. This is mainly to ensure that the PSU banks have enough cash at a reasonable cost which they could lend at current reduced interest rates. It may be noted that in June 2008 the government had ordered PSUs to park funds or at least 60% of the corpus with PSU banks. This came in on account of debt waiver and fresh loans for the farm sector that were announced last year. This order was issued for a year only but now with the economic slowdown continuing, it has been extended to help banks to maintain lower lending rates for all borrowers. PSUs are likely to renew their deposits with the same bank. This will ensure that the cost of funds remains low for banks and provides flexibility in reducing lending rates further. However, for PSUs like ONGC, NTPC, SAIL and BHEL which are believed to have together a cash surplus of Rs 1,000 bn, the extension would mean a loss in additional other income for one more year.

The Indian markets remained volatile during the previous two trading hours due to alternate bouts of buying and selling activity. Stocks from the metals, realty and power sectors are leading the pack of gainers, while select stocks from the software and energy sectors are trading weak. The overall advance to decline ratio is poised at 1.6 to 1 on the BSE.

The BSE-Sensex and the NSE-Nifty are trading higher, up by around 45 points and 20 points respectively. The BSE-Midcap and BSE-Smallcap indices are also trading higher, up by 1.3% and 1.7% respectively. The rupee is trading at 51.27 to the dollar.

Pharma stocks are trading mixed with Pfizer trading firm, while Novartis is trading in the red. As per a leading business daily, the drug price regulator, National Pharmaceutical Pricing Authority (NPPA) has revised prices of 285 medicines marketed in the country. Accordingly, the regulator has cut prices of 263 medicines. However, prices for the remaining 22 medicines have been revised upward in the range of 2% to 30%. The new prices will be effective by the end of the current month. This move will make anti-allergic, antibiotics, multi-vitamins and eye-drops’ prices cheaper. Further, the authority has also found around 260 drugs are sold without getting NPPA’s approval for the retail prices. This development would affect the MNC companies like Pfizer, Novartis and GSK Pharma.

Power stocks are trading firm led by NTPC and Tata Power. As per a leading business daily, Tata Power is planning to dilute stake in its Mundra Ultra Mage Power Projects (4,000 MW) and Maithon Project (1,050 MW) to finance its total capacity addition of 5,660 MW. The company has 100% stake in the former project, while has 74% stake in the latter. The company has borrowed Rs 157 bn and would need to infuse equity capital of around Rs 23 bn by the next year for the power projects. The company is also looking at divesting its stake in the group’s telecom companies to raise further capital. Tata Power holds around 7% stake in the listed telecom entity, Tata Teleservices (Maharashtra) and based on the latter’s current market cap, the stake value stands at Rs 3 bn.

Infosys plans inorganic growth

The markets opened on a subdued note as selling activity was witnessed at higher levels after three strong trading sessions. While stocks from the software and energy sectors are trading lower, realty, metals and banking stocks are leading the pack of gainers. The overall market breadth is positive with gainers outnumbering losers by a ratio of almost 1.2 to 1 on the NSE. As regards global markets, the US markets closed on a mixed note, while the 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 3 points and 5 points respectively. On the other hand, the BSE Midcap and Smallcap indices are trading higher, up by 0.7% and 1% respectively. The rupee is trading at 51.29 to the dollar.

Software stocks are currently trading in the red with TCS, Satyam, Infosys and Wipro leading the pack of losers. As per a leading business daily, Infosys is planning to acquire small companies in the range of US$ 100 m to US$ 200 m. These acquisitions are intended to benefit the company by adding more services to its existing portfolio. In addition, the acquisitions are also aimed at expanding the company’s geographical presence. Further, the management stated that it is specifically looking at increasing its presence in the healthcare segment. However, it did not mention the possible acquisition target for the same. It may be noted that the company has nearly US$ 1.6 bn as cash on its books. As such, a few small sized acquisitions will not impact its liquidity position significantly.

Hotel sector stocks are trading mixed with major gainers being Oriental Hotels and Taj GVK. As per a leading business daily, Indian Hotels is continuing with its plans to roll out 30 Ginger hotels by 2010. The company is incurring capex as planned despite the sector witnessing a slowdown led by a fall in occupancy rates and cut in tariffs in the wake of flagging demand. Ginger is Indian Hotels’ budget hotel brand, operated by 100% owned subsidiary Roots Corp. Ltd. The company has 17 hotels under this brand currently. It is investing Rs 1.2 bn and has the necessary funds.