Sunday, June 28, 2009

Closing bell 24 Jun 2009

Closing bell 24 Jun 2009

Buying activity during the second half of today’s trading session led the markets to recover their losses and end the day on a positive note. The BSE-Sensex ended higher by around 98 points, while the NSE-Nifty closed up by about 45 points. Stocks from the mid-cap and small-cap spaces ended the day on a positive note, recording gains of 2.3% and 2.2% respectively. Buying activity was witnessed in stocks from the power, consumer durables and health-care spaces, while stocks from oil & gas and banking space led the pack of losers.

Other Asian markets also ended the day on a positive note. The European indices are currently trading in the green as well. Rupee was trading at 48.45 against the US dollar at the time of writing.

Stocks from the IT sector are trading firm led by TCS and Infosys. According to a leading business daily, Japan’s third largest automaker, Nissan is scouting for outsourcing bids from Indian IT majors like Infosys, TCS, Wipro and Mahindra Satyam. The automaker plans to outsource application development and maintenance worth around US$ 250 m. With Japanese majors like Nissan, Toyota and Sony are expected to spend around US$ 2 bn in outsourcing IT and back-office operations to Indian companies; this development is unlikely to be a one-off event for the Indian IT industry. It’s worth noting that Japanese firms prefer significant local presence or tie-ups with Japanese IT vendors while awarding contracts.

As reported by a leading business daily,BHEL has won an order worth Rs 1 bn from Indian Oil Corporation (IOC) for installing a captive power plant at its Barauni refinery complex. The project will augment the existing captive power plant in supplying uninterrupted power supply to its refinery. BHEL will oversee all the activities from design, engineering, manufacture, supply, erection and commissioning of the power plant. It may be noted that BHEL currently has an order book of Rs 1,174 bn which will be executed over the next 3-4 years. The stock is trading in the green while IOC stock is trading in the red.

According to the latest predictions of the Organization for Economic Cooperation and Development (OECD), the combined economy of the most industrialized countries of the world will shrink by 4.1% this year and grow at 0.7% in 2010. This is better than the previous projections of a fall of 4.3% this year and a growth of just 0.1 percent next year. It is particularly upbeat about the bottoming out of the US economy around mid-2009. It predicts that the US will contract by 2.8% this year and grow at 0.9% next year, which is much better that what was previously estimated for the world’s largest economy. These projections are in contrast with the recent estimates of the World Bank which is still pessimistic about any short-term recovery at the global level.

Markets moved further up during the previous two hours of trade on account of buying activity witnessed across the index heavyweights. Almost all stocks in the Nifty are trading higher except for select metal and banking stocks. The overall advance to decline ratio is poised at 2.3 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading higher, up by around 100 points and 40 points respectively. The BSE-Midcap and BSE-Smallcap indices are also trading higher, up by around 2% each. The Rupee is trading at 48.48 to the US Dollar.

Led by Idea Cellular, Reliance Communications and Bharti Airtel telecom stocks are trading higher currently. As per a leading business daily, Idea Cellular is planning to raise around Rs 60 bn to fund its expansion in the new telecom circles and strengthen its operations in the existing circles over the next two years. The company plans to raise these funds through a mix of foreign currency and rupee debt. A large part of these funds will be raised as a fresh line of credit from export credit agencies of Finland, Sweden and China for a period of 8 to 10 years. It may be noted that export-credit agencies provide loans at a lower rate to companies that place bulk orders with entities based in their countries. As a matter of fact, Idea is buying equipment from Finland’s Nokia Siemens Networks, Swedish major Ericsson and China’s ZTE and Huawei. This capex of Rs 60 bn does not include any outlay for the 3G (third generation) spectrum auction. Currently, the company has a cash balance of Rs 50 bn and debt of around Rs 78 bn.

Power stocks are trading higher led by Reliance Infrastructure, Tata Power and NTPC. As per a leading business daily, NTPC is in advanced stage of acquiring mining assets in Mozambique and Indonesia in order to secure raw materials for its expansion plans. The company has identified two coal mines each in these countries and the due diligence process for the same is already in progress. The company plans to add around 3,300 MW of power generation capacity in FY10, while it had set a target of adding a capacity of around 22,000 MW during the 11th five year plan. This is a positive move by the company as it would enable it to prop up its coal reserves to help in building up future capacities at a faster rate.

The Indian markets remained volatile during the previous hour of trade on the back of alternate bouts of buying and selling activity. Currently, stocks from the realty, engineering and telecom sectors are leading the pack of gainers, while select banking and metal stocks are trading in the red. The overall advance to decline ratio is poised at 1.9 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading firm, up by around 20 points and 10 points respectively. The BSE-Midcap and BSE-Smallcap indices are also trading higher, up by around 1.4% and 1.5% respectively. The Rupee is trading at 48.49 to the Dollar.

Auto stocks are trading mixed. While Ashok Leyland and Tata Motors are trading firm, M&M is in the red. As per a leading business, Ashok Leyland has put on hold its expansion plans for new factory near Chennai. This move by the company comes in the wake of a contraction in demand. As such, lower demand has increased the company’s inventory levels and subsequently lowered the capacity utilisation at its plants. The facility at Chennai was supposed to manufacture light commercial vehicles (LCV) for its joint venture with Japan’s Nissan Motor. However, the company now proposes to instead utilise its existing capacity in Hosur for producing these LCV’s. It may be noted that the company’s sales have plummeted by 67% YoY in the month of May and the inventories have increased to 45 days from the normal level of 15 to 20 days.

Software stocks are also trading mixed. Tech Mahindra and TCS are trading firm, while Infosys is trading lower. As per a leading business daily, the top clients of TCS and Infosys have started discussions on their outsourcing contracts in order to reduce their operational costs. While TCS expects a slow recovery, Infosys is more upbeat. The revival in IT spending will accrue on account of the clients’ focus on cost reduction, thus driving higher volumes going forward. But realisations might take a setback. In fact, according to the research firm, Gartner, prices of IT outsourcing are likely to decline by 5% to 20% during the current fiscal.

The Indian markets have started the day's proceedings on a cautiously positive note. The overall advance to decline ratio stood at of 2.5 to 1 on the NSE. Barring select banking and software stocks, buying is witnessed across stocks on the Nifty. Energy and metal stocks are leading the pack of gainers. With regards to the global markets, the US markets ended flat on account of weaker-than-expected housing market reports, while the European markets ended mixed yesterday. The Asian markets are also witnessing mixed sentiments currently.

The BSE Sensex is trading higher by around 5 points. The NSE Nifty is up 12 points. The BSE Midcap and the BSE Smallcap indices are trading firm. The Rupee is trading at 48.40 to the Dollar.

As per a leading business daily State Bank of India (SBI), is planning to buy a mid-sized overseas bank. The deal size is estimated to be between US$ 1.5 to US$ 2 bn. The company already has major overseas operations with 92 branches spread over 32 countries. The bank's international loan book stood at 863 bn as on March 2009. Its' international loan book grew 18% YoY and international loans made up almost 16% of the bank's overall loans portfolio. Remittances to India make up a significant portion of the bank's international operations. The move is in line with SBI's strategy to expand its global operations. SBI had during 2005, picked up stakes in three overseas banks. It picked up 51% in Mauritius-based Indian Ocean Bank, 76% in Kenya-based Giro Commercial Bank and 76% in Indonesia's PT Bank IndoMonex. PSU banks are currently witnessing buyers' interest.

Auto major, Mahindra & Mahindra (M&M) is looking at intensifying its focus on Africa to compensate the loss of volumes from the US market. The company is planning to set up small assembly plants in Africa. Initially, it will focus on some of the main African markets like Mali, Ghana, Nigeria and Zambia. More than one-third of tractors sold in Africa are imported, thus providing M&M a huge opportunity. It is also increasing its presence in China and Australia. To expand into the growing tractor market in China, Mahindra has acquired majority stake in Jiangling Tractors. It has a combined capacity of more than 50,000 tractors in China. M&M has over the last few of years increased its geographical presence in order to reduce its dependence on India. The management aspires to increase the share of exports to 20% of revenues over the next five years. Auto stocks are trading firm.

The doubters seem to be back with a vengeance. And this time around, with a lot more firepower. The QIP funding route, which a clutch of companies used to good effect in the not so recent past, seems to be running a bit dry again. Apparently, a couple of firms that were inspired by the fund raising spree of their counterparts have not met with a very good response. Although part of the blame could be attributed to the huge run up in the stock markets that have made valuations far more steep, the liquidity tap may not be fully open after all. This fact has also been highlighted in sufficient detail in a recent report released by the World Bank.

The report states that net private capital inflows to developing economies that stood at a whopping US$ 1.2 trillion in 2007 and fell to US$ 707 bn in 2008 is likely to drop further to a measly US$ 363 bn in 2009. Not a comforting number indeed. It should be noted that our economy may not be dependent on exports like that of other emerging markets like China and Russia but we do have reasonable capital linkages and hence, if there aren't enough capital inflows, the domestic economic growth may suffer to some extent. Thus, finding an appropriate source of capital that could make up for the shortfall is likely to emerge as the biggest challenge for Indian companies in the near term. For the medium to long term though, things are likely to ease up what with the same World Bank expecting the domestic economy to grow at 8% in 2010 and an even better 8.5% in 2011. Interestingly, the financial institution believes that even the Chinese juggernaut will grow at 8.5% in 2011, of course, on a higher base than India.

China draws the West's ire
In an important development that can have far reaching implications on world trade and may even slow global economic growth, The New York Times has reported that the US and the European Union have filed a complaint with the WTO (World Trade Organisation) alleging that China is deliberately trying to limit exports of certain commodities like bauxite and zinc of which it is the largest producer, to give its exporters that use these materials an upper hand. Not only this, accusations are also flying thick and fast in the wake of a recent ruling by the Chinese government that has mandated all government institutions to buy only Chinese made goods and resort to imports only when there are no domestic substitutes available.

These allegations are likely to further dent China's reputation as a strict enforcer of WTO rules, doubts over which have been regularly surfacing ever since the dragon nation joined the WTO in 2001. "China is not only continuing but accelerating many of the protectionist approaches they've taken in the past to promote economic development", is how the article chose to put it across. What also added further fuel to the protectionism fire was a less than expected 12% drop in the country's exports to the US in the first four months of the year. In comparison, Japan, another economy that is hugely export reliant, has seen its exports plunge a huge 45%. Secondly, the country has also been successful in halting the rise of renminbi against the dollar by intervening heavily in currency markets by buying dollars and other currencies and dumping its own. Needless to say, such moves have not gone down well with its major trading partners.