Wednesday, June 17, 2009

Closing Bell 17th June 2009

Closing Bell 17th June 2009

Panic set into the markets today as profit booking during the last hour of trade led the indices to fall deep into the red. The BSE-Sensex ended lower by around 430 points (2.9%), while the NSE-Nifty closed around 160 points (3.6%) down. Stocks from the mid-cap and small-cap spaces ended the day weak as well, recording losses of 4.5% and 4.3% respectively. Selling activity was witnessed in stocks across the board today. Realty, metals and oil and gas stocks were severely hit.

Other Asian markets ended the day in a sea of red as well. The European indices are currently trading weak. Rupee was trading at 47.99 against the US dollar at the time of writing.

Commodity stocks were amongst the biggest losers today, with the BSE-Metal Index and BSE-Oil and Gas Index ending lower by 6.1% and 4.4% respectively. In fact, commodity stocks across the world witnessed, or are witnessing, a negative trend given the fears that commodity prices have entered a bubble phase following China massive purchases, not for satisfying the current demand but for stock piling. Indirectly, this would suggest that once the country stops this buying binge, it would be difficult for commodities (like oil and metals) to sustain the recent advance. It may be noted that crude oil prices have already doubled in price since mid-February.

A leading business daily has reported that telecom major, Reliance Communications (RCom) is in talks with French telecom infrastructure provider Alcatel-Lucent to sign a deal worth US$ 500 m (approx Rs 25 bn). This contract would include operations and maintenance of RCom’s GSM and optical fibre cable services. The deal, which is expected to be one of the largest outsourcing deals in the Indian telecom space, will be finalised in a few weeks. The contract is expected to be executed independently by Alcatel-Lucent or by the joint venture between Alcatel-Lucent and RCom, which was formed last year. This is a positive development for the company as it will allow it to enhance its network quality and reduce operational expenditure. It may be noted that RCom will be the latest addition to such kind of out sourcing model in the Indian telecom space. Other players such as Bharti Airtel, Idea Cellular and Vodafone have signed similar contracts with various companies.

Engineering stocks ended the day on a weak note led by Bharat Electronics and Punj Lloyd. As per a leading business daily, the management of Suzlon Energy expects to end the current fiscal with a flat performance. It has attributed the same to the global meltdown. The company expects the growth to be affected as global economic slowdown has either impacted or deferred its clients’ plans. Further, the company also expects to be impacted by the fall in prices of non-renewal energy sources. The company’s current order book stands at around 1,900 MW. In addition to all this, Suzlon has been facing troubles internally on account of its huge debt to equity ratio, which is over one time. However, the company has been evaluating various options to reduce the same.

The Indian markets slipped further into the red during the previous two hours of trade on account of persistent selling witnessed across the index heavyweights. Stocks from the telecom, steel and energy sectors are leading the pack of losers, while select stocks from the power, auto and software sectors are trading firm. The overall decline to advance ratio is poised at 1.6 to 1 on the BSE.

The BSE Sensex and NSE Nifty are trading lower, down by 250 points and 120 points respectively. The BSE Midcap and the BSE Smallcap indices are also trading lower, down by 2.1% each. The rupee is trading at 47.92 to the dollar.

FMCG stocks are trading mixed. While HUL and Dabur are trading lower, Britannia Industries is trading higher. As per a leading business daily, Britannia plans to revive its marketing strategy by introducing lower priced variants of its popular biscuit brands in order to stimulate sales. It plans to sell Good Day, Bourbon and Treat brands in Rs 5 packs. The company plans to make these brands available at tea kiosks in urban, semi urban and rural areas so as to attract more customers. It may be noted that the new pricing strategy is likely to contribute large volumes particularly from rural areas as such small packs are affordable and likely to instigate high impulsive buying in customers. Britannia is a leader in the biscuits segment commanding around 39% market share in India. This is positive development for the company as it will help it grow its revenues and increase its market share.

Power stocks are trading mixed. While Tata Power and Reliance Infra are trading higher, Power Grid and NTPC are trading lower. As per a leading business daily, Power Grid is planning to enter the US markets and bid for transmission projects in the country. The company is in advanced talks with a US firm to jointly bid for transmission projects there. However, the management did not disclose the name of the US entity. It is also believed that the company is considering a partnership with Kalpataru Power Transmission for the same. It may be noted that Power Grid transmits around 45% to 50% of electricity in India. The company is targeting revenues of around Rs 80 bn in FY10, while it expects bottomline to be over Rs 18 bn during the same period. It plans to spend around Rs 550 bn during the 11th five plan period and around 75% of funding for the same has been already tied up by the company.

Although volatile, the Indian markets gained ground during the previous two hours of trade as buying activity intensified across stocks. Currently, stocks from the realty, banking and power sectors are leading the pack of gainers, while select metal and software stocks are trading weak. The overall advance to decline ratio is poised at 1.4 to 1 on the BSE.

The BSE Sensex is trading lower by around 40 points, while the NSE Nifty is trading flat currently. However, the BSE Midcap and the BSE Smallcap indices are trading higher by 0.7% each. The rupee is trading at 47.85 to the dollar.

As per a leading business daily, IDBI Bank has approached the government for infusion of capital to the tune of Rs 80 bn. For this, the bank plans to allot preferential shares to the government. The bank is also planning to raise debt of around Rs 50 bn for strengthening its capital adequacy. Further, the bank plans to come out with a follow on public offer to fund its growth plan. The bank expects its advances to grow by 20% to 25% per annum. As of March 2009, its capital adequacy ratio (CAR) was lower at 11.9%. Therefore, given its lower capitalization, the bank is in immense need improve its CAR, which is lower than minimum requirement of 12% and also for financing its growth plan. It may be noted that recently the bank had filed an application for 300 branch licenses with the central bank. The stock of IDBI Bank, along with SBI, is trading weak, while PNB is trading firm on the bourses.

Auto stocks are trading mixed. While Ashok Leyland is trading firm, M&M and Tata Motors are in the red. As per a leading business daily, M&M expects to beat Chinese manufacturers in the US market as it plans to sell the diesel version of a small two and four door pickup truck in that market. It may be noted that the company plans to launch the vehicle in the US at a time when the country's auto industry is already under severe pressure. But, the fact is that there is no real competition in the country for the compact truck in the diesel segment. Further, with M&M's competitive price tag for the vehicle and lower price of diesel, the company may find some takers in the US. Moreover, the company expects volumes to gain ground as it establishes its brand in the country.

The Indian markets have opened today's session on a volatile note as cautious sentiments are being seen among the investors. While power and telecom stocks are leading the pack of gainers, software, auto and engineering stocks are among the losers. The overall advance to decline ratio stood at 1.9 to 1 on the NSE. As regards global markets, the US markets ended in the red for a second consecutive day of the week on account of persistent worries on recession. The European markets ended mixed, while the Asian indices are currently trading in the red.

The BSE Sensex is trading lower by around 90 points. The NSE Nifty is down 30 points. Both the BSE Midcap and BSE Smallcap indices are trading marginally up. The rupee is trading at 47.84 to the dollar.

As per a leading business daily, FMCG companies, on account of slowdown witnessed in modern retail sales, are upping the ante on kirana stores. Modern trade at just 3-5% of the total national FMCG sales had grown aggressively at over 35-40% contributing to over 15-25% of sales for most consumer goods companies last year. However, sales have been almost flat since January this year, mainly due to closure of several retail outlets and halt on fresh expansions. Hence, these companies are now focusing on the traditional trade channels. HUL and Godrej Consumer Products (GCPL) have raised trade margins on some brands to traditional retailers recently. HUL offered an 8% incremental trade margin to retailers on Lux and 4% additional margin on Breeze while GCPL hiked margins by 4% on dyes. The move is also beneficial as the companies have increased their focus on the rural areas . The traditional channels are more widespread in these regions, thereby aiding FMCG sales. FMCG stocks are trading firm currently.

Auto major, Tata Motors is planning to launch a 'crossover' sports utility vehicle (SUV) platform. Currently undergoing testing at the Tata Motors European Technical Centre, the company's research and development (R&D) outfit in UK, and at the Engineering Research Centre (ERC) at Pune, the product is likely to be launched sometime in 2010. The vehicle could be based on the crossover Tata Xover that was unveiled at the 75th Geneva Auto Show in 2005. Currently, Tata Motors has the Sumo and the Safari in the UV-SUV segment. As per SIAM, overall UV-SUV sales have been going down for sometime now with sales declining by around 29% YoY in May 2009. The launch could be Tata Motors' biggest bet to arrest the falling sales in the utility vehicle space. While the company's net passenger car sales in May 2009 declined by 11 % YoY, its UV-SUV sales dropped by 49% YoY. Auto stocks are trading mixed on the bourses.