Saturday, July 4, 2009

Closing Bell 3 July 2009

Closing Bell 3 July 2009

Persistent buying activity led the indices to surge upwards during the final hour of trade. The BSE-Sensex ended higher by around 250 points, while the NSE-Nifty closed higher by about 75 points. Stocks from the mid-cap and small-cap spaces ended the day on a firm note as well, recording gains of 0.8% and 0.4% respectively. Buying activity was witnessed in stocks across sectors led by banking, capital goods and power. IT, metals and FMCG were amongst the lowest gainers today.

Most of the other Asian markets ended the day on a weak note today. The European indices are currently trading in the red. Rupee was trading at 47.93 against the US dollar at the time of writing.

Two-wheeler stocks ended the day on a mixed note. While Bajaj Auto closed on a firm note, TVS Motors and Hero Honda ended in the red. Bajaj Auto announced its sales volumes for the month of June 2009 recently. The company reported a 2% YoY fall in total sales as compared to the same month last year. Its total two-wheeler sales dropped by 5% YoY, while its total three-wheeler sales increased by 26% YoY. The company also saw a 4% YoY increase in exports on a year on year basis. It may be noted that a large part of the two-wheeler sales (about 29%) was on account of its new launch, Pulsar 220 DTS-I, which saw a good response in the market. The company believes that this model will help it record a high double digit sales growth from August 2009. As for the sales volumes of the first quarter of the current fiscal, the company reported a 12% YoY decline in total sales over the same period in the previous year.

As per a leading business daily, truck rentals are set to move upwards following the recent price hike of fuels. The increase is expected to be in the range of 6% to 12%. It is believed that truck transport accounts for about 78% of total goods transported across India. The recent fuel price rise is expected to reverse the current trend of the inflation numbers. Indirectly it would lead to even higher prices of foods. This is possible because in India, 40% of the total goods traded by truckers are agri-products.

Concerned over the impact of lower energy demand, crude oil prices fell to US$ 66 a barrel yesterday. This was due to the announcement of high unemployment numbers across the US and Europe. In addition, these numbers also raised concerns over the global outlook. The data released has painted a very sorry picture indeed, with the US economy losing 467,000 more jobs in June and the unemployment rate edging up to 9.5%. It may be noted that this rate is the highest the US has witnessed in 26 years. The unemployment rate in Europe also rose to 9.5%, a 10-year high.

Led by intense buying activity during the previous two hours of trade, markets continued to climb higher in the positive territory. Currently stocks from the banking, pharma and steel sectors are garnering investors’ interest, while select stocks from the energy, auto and software sectors are trading weak. The overall advance to decline ratio is evenly poised on the BSE.

The BSE-Sensex and NSE-Nifty are trading higher, up by around 130 points and 40 points respectively. The BSE-Midcap and BSE-Smallcap indices are also trading higher by around 0.5% and 0.2% respectively. The Rupee is trading at 47.99 to the Dollar.

Aluminium stocks are trading lower led by Nalco and Hindalco. As per a leading business daily, Hindalco has received the consent of its lenders for the relaxation of its debt covenants. This will allow the company some flexibility in raising more funds in order to implement its huge capacity expansion plans in India over next three years. It may be noted that Hindalco had taken a loan of US$ 2.8 bn to fund the acquisition of Novelis. Under the new agreement, the payment schedule and the cost of debt remain unchanged although certain other requirements have been waived. The company plans to invest around Rs 260 bn in 3 years time for its greenfield and brownfield expansion projects in India. Thus, the company would be able to raise funds for the same.

Steel stocks are trading mixed. While Tata Steel and SAIL are trading higher, JSW Steel is trading lower. As per a leading business daily, Tata Steel plans to raise US$ 500 m through global depositary receipts (GDRs) in order to fund the brownfield expansion project at its Jamshedpur plant. The company is expanding the capacity at Jamshedpur by 2.9 m tones, which is likely to be completed by December 2010. As a matter of fact, Tata Steel had last year raised the capacity of the same plant from 5 m tonnes to 6.8 m tonnes. It is estimated that the expansion project will require investments of around Rs 90 bn. Despite the slowdown in the steel sector globally, expansion plan remains a high priority for the company as it expects its operating margins to be around 35%. Moreover, the company also expects the demand for steel in India to remain robust and is targeting a volumes growth of around 25% in the current fiscal.

The Indian markets remained firm during the previous two hours of trade as buying activity was witnessed across sectors. Currently, stocks from the power, pharma and banking spaces are leading the pack of gainers, while select software and energy stocks are trading weak. The overall advance to decline ratio is poised at 1.1 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading higher, up by around 70 points and 20 points respectively. The BSE-Midcap and BSE-Smallcap indices are also trading higher by around 0.3% and 0.4% respectively. The Rupee is trading at 47.99 to the Dollar.

Auto stocks are trading firm led by Ashok Leyland and Tata Motors. As per a leading business daily, Ashok Leyland has received Rs 3 bn order from the Tamil Nadu State Transport Corporation for the supply of 1,500 buses. Under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) scheme, funding is allotted to various state transport undertakings for purchase of up to 15,000 buses. Ashok Leyland has so far roped in an order of around 5,000 buses. This development will help Ashok Leyland to reduce its inventory, which had off late increased on account of poor demand of medium and heavy commercial vehicles. Further, the lower demand has led the company to reduce its capacity utilisation rate considerably in the 4QFY09. The company’s sales were down 53% YoY during the quarter.

As per a leading business daily, DLF has raised around Rs 10 bn through the sale of land and other assets across various cities in the past 4 to 5 weeks. Further, it plans to close deals worth Rs 5 bn in the coming weeks. Some of the assets that are put on the block were not marked by the company for any specific purpose, and it had not obtained licenses from the government for any specific use. The slump in the Indian real estate sector has made the company’s cash flow position vulnerable. It may be noted that DLF plans to raise around Rs 55 bn through sale of assets in order to halve its Rs 140 bn debt by end of the current fiscal year. Its debt to equity was more than 1 at the end of FY09. The stock, along with its peer Unitech, is trading marginally lower.

The Indian markets have opened the day’s proceedings on a negative note in line with its global peers. While pharma and power stocks are leading the pack of gainers, energy, software and FMCG stocks are trading lower. The overall decline to advance ratio stood at 1.9:1 on the NSE. As regards global markets, the US markets fell yesterday led by a worse-than-expected jobs report. The European markets too ended lower yesterday, while the Asian markets are trading in the red currently.

The BSE Sensex is trading down by around 20 points. The NSE Nifty is down 10 points. The BSE Midcap and the BSE Smallcap indices are trading lower. The rupee is trading at 47.93 to the dollar.

The economic survey announced yesterday recommended the decontrol of some sectors like sugar and fertiliser. The move is in order to put a tab on the rising Government subsidy bill. The survey has recommended changing the subsidy policy by giving government assistance directly to consumers instead of producers. Currently, the sugar sector is totally controlled by the government. The industry is witnessing tough times due to regulations whereby the raw material prices, quantity of sugar to be sold, and setting up of sugar plants are decided by the government. In case of fertiliser, the maximum retail prices of all major fertilisers provided to the farmers are fixed at cheaper rates while manufacturers are subsidised on the difference between cost of production and MRP. The fertiliser subsidy bill increased to Rs 1,170 bn in FY09 from Rs 457 bn in the previous fiscal, due to unprecedented rise in the prices of farm nutrients. Once industry decontrol is implemented, manufacturers will be free to produce different products and sell them at a reasonable price. If implemented, this move is likely to help in increasing farm productivity. With agriculture witnessing a decline in growth, the move is positive. The sugar and fertiliser stocks are trading mixed currently.

Glenmark has received first-to-file (FTF) status for three of its abbreviated new drug applications (ANDAs) that have a combined revenue of over US$ 2 bn in the US. The company has received FTF status for 'Zetia' 'Tarka' and 'Cutivate'. Currently, the litigation for all three filings is in various stages. If Glenmark wins, it will get a 180-day exclusive marketing period. During this period, the company can reap huge benefits on the sale of the generic drug, which is typically sold at a price ranging from 70-80% of the brand product price. During the last year, Glenmark's revenues from the US markets grew by 30% YoY. It has a total of 45 products in this region and has over 40 ANDAs in various stages of the approval process with the US FDA. Pharma stocks are trading mixed currently.

Govt. expects a 6.25% to 7.75% growth
At a time when the global economy has been hit by one of the worst recessions ever, the Indian economy managed to log in a respectable GDP growth of 6.7% during FY09. While this was lower than the average growth rate of 8.8% achieved during its high growth phase (FY04-FY08), the performance was still much better than the 5.5% growth achieved during the period from FY99 to FY03.

Source: Economic survey; E - Government estimate
In its Economic Survey for 2008-09, the government has stated that it expects the economy to grow by 6.25% to 7.75% during the current fiscal (FY10). However, it also believes that a lot will depend on the recovery and health of the global economy (especially the US) in the coming few months. "If the U.S. economy bottoms out by September, there could be a good possibility for the Indian economy repeating last financial year's performance," the survey says. It may be noted that expectations of the growth rate have been made on the basis that the country will have a normal monsoon, a clear picture of which will emerge only by the end of July.

A lot will also depend on how the government pushes second-generation reforms related to energy pricing, managing the fiscal deficit, tax structures, the public distribution system and education.

Inflation lower by 1.3%
Inflation as measured by the wholesale price index (WPI) fell 1.3% during the week ending June 20. It was lower by 1.14% in the week before. It may be noted that wholesale prices in India fell for the third successive week. However, prices of primary and manufacturing goods remained firm. The RBI governor Dr. D. Subbarao is of the belief that India is not in the grip of deflation as food price inflation still remain in double digits.

We believe that the inflation figure is unlikely to remain in the negative territory for long as fuel prices have been hiked recently which will percolate to food prices.