Sunday, June 28, 2009

Closing bell 25 June 2009

Closing bell 25 June 2009

Glenmark Generics (GGL), a subsidiary of Glenmark Pharmaceuticals, has received ANDA approval from the US Food and Drug Administration (US FDA) allowing it to sell its new anti-inflammatory drug, Alclometasone Dipropionate cream, in the US market. The product which is a generic equivalent of GSK’s Aclovate is targeted at a niche dermatology segment where the competition is limited. GGL already has ANDA approval for marketing 40 products in the US and 40 more approvals are in the offing. The stocks from healthcare space closed the day on a negative note.

According to a leading business daily, the Switzerland-based banking and wealth management firm, UBS is planning to outsource about 5000 jobs over the period of the next two years, a major chunk of which might come to India. The ailing company aims at getting benefits like improved quality, cost-savings, decreased operational risk through outsourcing. This is a great opportunity for Indian IT companies such as Wipro and Infosys which already have the bank as their client, each getting around US$ 50 m in annual revenues from UBS. The stocks from IT space ended the day in the red.

The US Federal Reserve has signaled its belief that although the recovery is still far, yet the US recession is easing by holding its monetary policy intact. The bank upheld its decision to keep the interest rates very low and buy mortgage related debt and US government bonds so as to infuse the much needed liquidity in the banking sector. The bank was earlier concerned over the possibility of deflation in the US economy as demand remained bleak despite crashing prices. Now, as the prices of energy and other commodities have risen, such fears have diminished.

Tech Mahindra to pay back 10 bn debt

The Indian markets slipped into the red during the previous two hours of trade on account of a sudden surge in selling activity. Stocks from the auto, energy and metal sectors are leading the pack of losers, while select stocks from the banking and construction sectors are trading firm. The overall advance to decline ratio is poised at 1.5 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading lower, down by around 70 points and 35 points respectively. However, the BSE-Midcap and BSE-Smallcap indices are trading firm, up by around 0.5% and 0.4% respectively. The rupee is trading at 48.57 to the dollar.

Software stocks are trading mixed. While Tech Mahindra and TCS are trading lower, Infosys is trading higher. As per a leading business daily, Tech Mahindra is planning to pay back a debt of around Rs 10 bn by raising funds by selling equity shares. The board of the company has approved the issue of around 13.6 m shares by way of private placement or qualified institutional placement. It may be noted that the company has recently acquired Satyam for around Rs 28.8 bn. Tech Mahindra had borrowed around Rs 14.5 bn from various banks, mutual funds, institutions and NBFCs for this acquisition. Funds from the equity sale are likely to be utilised for paying back some of these borrowings.

Steel stocks are trading mixed. While Tata Steel is trading lower, SAIL and JSW Steel are trading higher. As per a leading business daily, World’s largest steel producer, China has reinstated export rebate for its steel producers in order to prop up its steel exports. It is believed that it has given a tax relief of around 9% on the exports of flat rolled steel products. This can be a cause of concern for Indian steel producers who are already reeling under the pressure of lower steel prices and rising imports. It may be noted that the domestic steel industry has lately been requesting the government to impose a safeguard duty on cheaper steel imports. However, no decision has been made on the same. Currently, the difference between the landed cost of imported steel and domestic steel price is on an average Rs 4,000 per tonne. The volume of low-priced products from overseas has surged from 3% of total imports in November 2008 to 62% in February 2009.

ONGC down on poor performance

Although trading in the green, the Indian markets lost ground during the previous two hours of trade on account of selling activity among the index heavyweights. Auto and FMGC stocks are trading in the red, while select realty and banking stocks are leading the pack of gainers. The overall advance to decline ratio is poised at 2.1 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading firm, up by around 80 points and 10 points respectively. The BSE-Midcap and BSE-Smallcap indices are trading higher, up by around 1.3% and 1.4% respectively. The rupee is trading at 48.54 to the dollar.

Energy stocks are trading mixed. ONGC is trading lower on account of its subdued 4QFY09 and FY09 results, while IOC is trading firm. ONGC announced its standalone results yesterday. The company’s topline declined by 12% YoY during 4QFY09, while it increased by around 7% YoY during FY09. The company reported 28 new discoveries during the period. The company’s EBITDA margins declined by 1% to 49% in FY09. The continued subsidies to the oil marketing firms affected both the topline and the bottomline of the company during the fiscal. In fact, its bottomline declined by 3% during FY09, while it declined by 16% during 4QFY09. Higher interest charges were also responsible for the decline in net profits during both the periods under consideration. For the full year, the company paid dividend of Rs 18 per share (dividend yield of 3%).

As per a leading business daily, Suzlon plans to sell part of its stake in the Belgian based subsidiary, Hansen Transmission. It is believed that the company might sell significant minority stake of about 33% in the subsidiary to US based United Technologies Corporation. It may be noted that Suzlon has a debt to equity ratio of over 1:1 and plans to deleverage the same. However, the company has not confirmed the same. Currently, the company hold over 61% stake in Hansen. The stock is currently trading firm on the bourses.

In line with the Asian peers, the Indian markets too have opened the day’s proceedings on a high note. Stocks across sectors are trading firm with construction and engineering stocks leading the pack of gainers. The overall advance to decline ratio stood at 3.7 to 1 on the NSE. As regards global markets, the US after starting on a firm note, lost ground on account of the Federal Reserve keeping the short-term interest rate near zero. The European markets end firm yesterday, while the Asian markets are also witnessing a positive trend currently.

The BSE Sensex is trading higher by around 120 points. The NSE Nifty is up 20 points. The BSE Midcap and the BSE Smallcap indices are trading higher by 1% each. The rupee is trading at 48.44 to the dollar.

FMCG stocks are trading mixed. This situation arrives on the back of the predictions of below normal monsoon rains. Rural India buys more than half the country’s FMCG sales, including feeder supply from wholesalers in urban India to tertiary markets. As per National Council of Applied Economic Research (NCAER), the rural market accounts for 70% of toilet soap consumption. FMCG sector in rural areas is expected to grow by 40% as against 25% in urban areas in the coming quarters. Hence, we can say that if the rain gods do not smile, the growth of the FMCG sector is likely to get affected. Worst hit among the companies would be HUL and Dabur as rural regions account for 50% of sales. Colgate and Marico earn sales from these regions in the range of 20% to 30%.

As per a leading business daily, Tata Motors has put its future product development plans on hold. Several products that were on the drawing board have been delayed by 6 to 8 months. The company has decided to take a call on some of the products depending on the larger economic scenario and its own financial condition. The company saw a tough time last year with a 14% YoY drop in volumes (excl. traded vehicles). Also it has a huge capex plan to the tune of Rs 100 to 120 bn. Further, on account of the recent JLR acquisition, the interest payments rose by nearly 140% YoY. Auto stocks are trading firm.

Once upon a time, the US auto industry was the poster boy of American industrial might. Given the license quota raj, most Indians could not even dream of driving the prized vehicles, let alone compete with their makers. How times change! Today the US auto industry is in shambles and Indian auto major Mahindra & Mahindra's (M&M) small trucks will be available in there by the end of 2009, while Tata Motors' Nano will debut in 2011.

In all likelihood, they will succeed too. According to an article on CNNMoney, the US auto makers are in an all out cost cutting mode, leaving their dealers interested in signing up new car manufacturers. In fact, M&M already has tie ups with 350 dealerships in its kitty. Interestingly, the company already has a strong presence in the US as one of the biggest tractor manufacturers.

Of course, mere presence is not enough. Both M&M and Tata Motors will have to match the high quality standards the US consumers are used to. And they have to do it at an attractive price. But the fact remains that the present situation was unthinkable a couple of years ago. Just goes to show how far some Indian companies have traveled over the years.

Housing and car finance to get cheaper
A couple of days ago, Finance Minister Pranab Mukherjee had urged public sector banks to reduce their lending rates. The largest of them all has responded. As per a leading business daily, the State Bank of India (SBI) has cut its benchmark lending rate (BPLR) by 0.5% to 11.75%. This is likely to have a ripple effect, with other banks and financial institutions also lowering their rates.

It may be noted that the bank had previously cut the BPLR by 0.75% with effect from January 1, 2009. Of course, this means that the bank's NIMs will go down. In order to take care of that, it has also reduced the deposit rates by 0.25% earlier this month.

This move is likely to help people finance housing and car purchases. But we believe the real issue still persists. As Mr. Deepak Parekh has said , "Affordable housing is not about box-sized, budget homes in far-flung places where there is no connectivity to work places and little surrounding infrastructure. Affordable housing has to be able to cut across all income segments and has to make economic sense in terms of proximity to work place."