Wednesday, June 10, 2009

Closing Bell 10th June 2009

Closing Bell 10th June 2009

Although the Indian markets pared some gains during the final hour of trade, they managed to end the day well above the dotted line. The BSE-Sensex ended higher by around 340 points, while the NSE-Nifty closed higher by about 105 points. Stocks from the mid-cap and small-cap spaces ended the day on a positive note as well, recording gains of around 1.6% and 0.3% respectively. Barring stocks from the realty sector, buying activity was witnessed in stocks across the board, led by power, capital goods and consumer durables.

Other Asian markets ended the day on a firm note today. The European indices are currently trading in the green. Rupee was trading at 47.3 against the US dollar at the time of writing.

Pharma stocks ended the day on a strong note led by Dr. Reddy's, Ranbaxy, Glenmark Pharma and Cipla. The stock of Dr. Reddy's was amongst the top gainers amidst its peers on the announcement of it receiving the USFDA's (US Food and Drug Administration) approval for its Abbreviated New Drug Application (ANDA) for Omeprazole Mg OTC. This drug is used for treating heartburns. It may be noted that the company's filing for this product was under litigation and in March, the US had ruled in favour of Dr. Reddy's granting it the exclusivity period. 'Omeprazole OTC' generated annual sales of approximately US$ 362 m in the US as of July 2008.

Software stocks ended the day on a firm note led by NIIT, Tech Mahindra, HCL Tech and Wipro. As a fallout of the downturn, the BPO space is likely to see an increased globalisation with BPO companies fishing for newer verticals and geographies. To spur growth it has become important to move up the value chain by providing more sophisticated services to the customer. The Indian BPO industry, growing at a CAGR of 37% over the last seven years, clocked in revenue of almost US$ 15 bn during FY09. But most of the revenue came from the US and was concentrated in the BFSI segment. As the US economy is worst hit by the global recession, it is high time that the sector starts looking at newer pastures. It is also altering its onshore-offshore mix for better bottom-lines. Nasscom President, Mr. Som Mittal has predicted the US$ 50 bn Indian IT-ITeS industry will reach US$ 225 bn by 2020 with 80% of the growth coming from non-traditional geographies and markets like telecom, government sector, amongst others. The sector also saw an effort to rationalise cost-structures which will boost the operating efficiency. There are also challenges from countries like China and Brazil as traditional cost-arbitrage is no longer the key driver for success. A better value-proposition is all that counts.

In a recent meeting with the banking industry, Finance Minister Pranab Mukherjee has pushed for commercial banks to cut interest rates, adding that the measures announced by the central bank were not getting adequately reflected. As per a leading business daily, public sector banks have agreed to consider reducing interest rates. However, the FM declined to comment on the extent of the potential reduction in borrowing costs.

The Indian markets continued to trade firm during the previous two hours of trade on account of sustained buying activity. Stocks from the energy, power and software sectors are leading the pack of gainers, while select stocks from the construction, engineering and auto sector are trading lower. The overall advance to decline ratio is poised at 1.2 to 1 on the BSE.

The BSE-Sensex and the NSE-Nifty are trading firm, up by around 350 points and 75 points respectively. The BSE-Midcap and BSE-Smallcap indices are also trading firm, up by around 1.2% and 0.5% respectively. The rupee is trading at 47.26 to the dollar.

As per a leading business daily, HDFC plans to raise up to Rs 40 bn through qualified institutional placement (QIP) of secured redeemable non convertible debentures (NCDs) and warrants in order to grow its loan book. It has received an in principle approval from the board regarding the same. Interestingly, the NCDs are likely to come with detachable warrants and will likely dilute up to 3.5% equity share capital if all warrants were fully exchanged for equity. These debt instruments have tenure of 3 years with rates of around 7.25%-7.5%. It may be noted that HDFC has disbursed loans worth Rs 300 bn in FY09. With these additional funds coming in, the company expects to grow its loan book at a faster rate at the time when the demand for housing loans is reviving. HDFC's net interest margins stood at 3.3% during FY09, while Gross NPA (non-performing assets) levels were at 0.8%. The stock of HDFC is trading higher along with its peer LIC Housing.

FMCG stocks are trading mixed. While HUL and Colgate are trading higher, Gillette and Marico are trading lower. As per a leading business daily, Hindustan Unilever (HUL) has decided to put on hold the sale of its leather business as it failed to find a suitable buyer. The business is run by HUL's wholly-owned subsidiary Pond's Exports. It may be noted that HUL had decided to disinvest its leather business and concentrate on its core business activities. In fact, HUL had notified its workers at the Puducherry unit about its intention to offer a voluntary retirement scheme as far back as October 2008. Also the company has deferred its divestiture of 49% stake in Capgemini Business Services (India) by end of FY10 on account of business and strategic interest of both HUL and Capgemini. In 2006, HUL had sold 51% of Capgemini (India) to Capgemini SA for Rs 520 m.

The Indian markets continued to trade in the green during the previous two hours of trade on the back of sustained strong cues from the Asian markets and heavy buying in the index heavyweights. Currently, stocks from the software, banking and power sectors are leading the pack of gainers, while select realty and energy stocks are trading weak. The overall advance to decline ratio is poised at 1.3 to 1 on the BSE.

Auto stocks are trading firm led by M&M, Ashok Leyland and Tata Motors. As per a leading business daily, Ashok Leyland has reported a 64.5% YoY decline in overall sales volumes during the month of May this year. The fall in exports sales was lower at 33% YoY during the period, as compared to the domestic market witnessed a huge fall of almost 67% YoY. It may be noted that Ashok Leyland has a strong presence in the TIV (Tornado Intercept Vehicle), tractor and MAV (Multi Activity Vehicle) segments of medium and heavy commercial vehicles, which are supposed to be the company's strong suit and these have been witnessing decline in sales in the domestic market.

Hotel stocks are also trading firm led by Indian Hotels and TAJ GVK. As per a leading business daily, the domestic hotels industry continues to face challenging times. The terror attacks coupled with swine flu and economic slowdown continue to hamper the industry's prospects. Thus, to cope with a fall in demand and occupancy levels, Hotel Leela has cut room rates by around 25% YoY in its properties in Mumbai and Bangalore. The company's Bangalore property contributes to almost 38% to total revenues. It may be noted that the industry's occupancy levels have fallen to around 63% in the first four months of 2009 from 78% a year ago. The stock is currently trading firm.

Australian phone firm Telstra has awarded US$ 1.2 bn outsourcing contracts to Infosys along with EDS and IBM. Infosys Australia has been chosen by Telstra as a key strategic partner to support its five-year US$ 450 m application development and maintenance contracts. In addition to the base spend for maintenance and support, the Infosys-Telstra agreement covers a sizable discretionary spend over the next five years. The contract from the telecom firm is the second win in Australia for the Indian IT major in the last few months. Rio Tinto had earlier selected Infosys over Accenture for a US$ 50 m application development deal announced in October last year. This would further aid the company in increasing its presence in the Australian region. Also, it will reduce Infosys' dependence on the US, which currently accounts for 63% of its revenues. Software stocks have opened the day's proceedings on a positive note.

As per a leading business daily, the Netherlands-based ING Group NV is looking to sell its India operations. However, ING officials have not commented on this. ING officials in Amsterdam had made a presentation recently that the bank is looking to exit from 10 out of the 48 countries in which it has operations, without naming the nations. ING owns 43.8% of ING Vysya Bank. It is the only foreign-owned bank to be treated like an Indian bank as it does not face any restrictions in opening branches, unlike other foreign banks. Its deposits at the end of March 2009 stood at Rs 248 bn, while advances stood at Rs 168 bn. The domestic company is struggling to catch up with its peers in India such as Citibank NA and the Hongkong and Shanghai Banking Corp. Ltd. Further, on account of lack of focus by the parent company, ING Vysya's growth has been slow. Despite the parent's infusion of capital by way of perpetual bonds in FY09, ING Vysya continued to have one of the lowest capital adequacy ratios of 11.7% at the end of FY09. Its net NPAs also increased from 0.7% to 1.2% in FY09. Banking stocks are trading firm.

9% GDP growth could still be achieved

If Dr. Manmohan Singh, India's prime minister is to be believed, India is capable of growing by 8%-9%, even after the recent global financial meltdown. And the reason it can do so is because of its high savings rate. "Since our savings rate is as high as 35%... if all work together, we can achieve a growth rate of 8%-9%, even if the world economy does not improve", is how the man, who many consider as the architect of India's modern reforms, chose to put it across. He further added that the country is expected to log in a growth rate of 7% this fiscal, a number which is good enough given the turmoil the rest of the world, especially the developed world is into.

Indeed, with a savings rate of such a magnitude, India has to rely very little on external sources of capital and can thus, undertake big ticket projects on its own, without worrying about the global economic environment. Although the ability to do the same has been impaired a bit on account of the high fiscal deficit, Mr. Singh is of the opinion that there is still considerable scope for increasing public expenditure, particularly on infrastructure projects. Are we in for some big bang announcements during the upcoming budget? Well, only time will tell.



China may overtake US sooner than imagined

Jim o'Neill, Chief economist of Goldman Sachs and the one who became famous for coining the term BRIC has now made another bold prediction. He believes that the Chinese economy could become bigger than the US in 20 years, much before the earlier prediction of 30 years. Speaking to a leading business daily, he also opined that the current crisis has actually done China some good in the sense that it has made the Chinese authorities realize that it cannot rely on an export driven model alone if it were to chart its next stage of growth. And the country has already started taking measures as it unveiled a huge stimulus package of the magnitude of US$ 586 bn to offset the slump in demand from exports. Little wonder, experts are still gung ho about the Chinese economy and believe that it will sustain a growth of 9%-10% well into the distant future.

The US on the other hand may be undergoing a structural downward shift in its economic growth. Years of excesses has left both its government as well as its citizens knee deep in debt and thus, it could see economic pain for years to come as its citizens cut back on spending and the government becomes frugal. Infact, Bill Gross, one of the world's foremost bond experts has gone to the extent of saying that the era of 3% economic growth in the US could be a thing of the past and growth of 1%-2% is likely to be the new standard. Thus, with US economic growth contracting and that of China remaining constant and may be even increasing, it looks quite possible that China could overtake US earlier than expected