Monday, August 3, 2009

Closing Bell 22 July 2009

Closing Bell 22 July 2009

The BSE-Sensex closed below the 15,000 level today as selling pressure emerged in heavyweights from the engineering and software sectors. The overall market breadth at close though, was equally poised for there was one loser for every gainer on the BSE. India was in fact the leading loser from among Asian markets, and was followed by Hong Kong (down 1.3%), and Singapore (marginally down). Key gainers in Asia included China (up 2.6%) and Japan (up 0.7%). Stocks in Europe have opened in the red today.

The BSE-Sensex and NSE-Nifty closed down by around 220 points (1.5%) and 70 points (1.5%) respectively. The BSE-Midcap and the BSE-Smallcap indices lost lesser as these were down by about 0.9% and 0.4% respectively. At the time of writing, the rupee was trading at 48.60 to the US dollar.

Key losers from the BSE-A group included India Cements, LIC Housing Finance, and IDFC. Stocks that bucked the trend today were Moser Baer, Lupin, and Gujarat NRE Coke.

HDFC, which announced its 1QFY10 results just a short while ago, emerged as the biggest loser among the Sensex and Nifty stocks. The company - among India's largest home finance lenders - has seen its net profits grow by around 21% YoY during the quarter. This has been on the back of an almost equivalent growth in interest income. More details are still awaited from the company.

Carrying on from where they had left yesterday, IT stocks emerged among the biggest losers today. HCL Tech, Tech Mahindra, and TCS saw significant selling pressure. Wipro, which announced its 1QFY10 results early today morning, was also at the receiving end. While the company's performance could be termed fair in a poor environment like now, the management has also sounded caution for the short to medium term future. It sees its clients remaining slow in their decisions with respect to discretionary spending on technology. However, the management is confident about retaining Wipro's market position on account of strong deal pipeline which is spread across geographies and industry verticals. To propel growth in the medium to long-term, the company will revamp investment in newer technologies like cloud-computing, renewable energy and environment sector, where it sees a lot of traction building. We see the dark clouds of slowdown in tech spending to still take some time to recede on the horizon, especially given that the biggest tech spenders in the US and Europe are still reeling under significant financial constraints.

Engineering stocks were also amongst the key losers today. Except stocks like Punj Lloyd and Welspun Gujarat that were amongst the gainers, others like Thermax and Voltas ended deep in the red. BHEL, which announced its June quarter results a short while ago, also closed weak. The company, India's largest public sector unit in the engineering industry, clocked a strong sales growth of 29% YoY during 1QFY10. This was helped by a 30% YoY growth in sales of the power division, which provides generation equipments to electricity utilities like NTPC in India. Importantly, the company managed to improve its operating margins to 9.2% thereby aiding a 22% YoY growth in net profits. Such results from BHEL come at a time when the capital goods sector is reeling under demand constraint led by economic slowdown and liquidity crisis. Though we still need to hear the management today evening as to what's their take on the macro environment in general, and BHEL's future in particular.

The Indian markets nosedived into the red during the previous two hours of trade on account of heavy selling activity across sectors. Stocks from the IT, engineering and auto sectors were at the receiving end, while select stocks from the realty and energy sectors are trading firm. The overall market breadth is positive, with total gainers outnumbering losers in a ratio of 2.3 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading weak, down by around 170 points and 60 points respectively. The BSE-Midcap and the BSE-Smallcap indices are also trading lower, down by around 0.6% and 0.3% respectively. The Rupee is trading at 48.53 to the Dollar.

As per a leading business daily, State Bank of India has received the government's nod to make a public offer of additional shares in order to raise capital. The bank would raise Rs 170 bn by way of sale of additional shares. The proposed offering would bring down the government's stake in the bank to 51% from 59.4%. The bank's capital adequacy ratio at the end of FY09 stood at 14.25%. SBI's management had earlier indicated that the bank will raise capital in FY10 to prop up its capital adequacy, as it is targeting a loan growth of 25% for the fiscal. The move is expected to enable the bank to cater to its targeted growth. The stock, along with its peers PNB and IDBI Bank, is trading weak.

Pharma stocks are trading mixed. While Piramal Healthcare is trading firm, Dr. Reddy's and Cipla are in the red. Dr. Reddy's announced its 1QFY10 results yesterday. The company's topline reported an impressive growth of 20% YoY, driven by the drug 'Imitrex' ('Sumatriptan') and higher revenues from the key markets of North America and India. A sharp fall in raw material costs, R&D and other expenses (as percentage of sales) led to the substantial 9.8% improvement in operating margins during the quarter. The net profit recorded a splendid 160% YoY growth mainly due to the strong performance at the operating level, and reduction in interest costs and depreciation charges. The German company Betapharm and Russia did not do too well during the quarter and for the full year, Dr.Reddy's expects the US, India, the semi-regulated markets and the custom manufacturing business to be the key growth drivers.

Persistent buying activity across sectors during the previous two hours of trade led the Indian markets to gain ground. Currently, stocks from the realty, metal and banking sectors are leading the pack of gainers, while select pharma and telecom stocks are trading weak. The overall market breadth is positive, with total gainers outnumbering losers in a ratio of 2.3 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading firm, up by around 200 points and 50 points respectively. The BSE-Midcap and the BSE-Smallcap indices are also trading higher, up by around 1.4% and 1.7% respectively. The Rupee is trading at 48.38 to the Dollar.

Pharma stocks are trading mixed. While Sun Pharma and Biocon are trading firm, Glenmark Pharma and Cipla are in the red. As per a leading business daily, Ranbaxy has received the final approval from the Canadian drug regulator, Therapeutic Products Directorate (TPD) for manufacturing and marketing its cholesterol lowering drug in the Canadian markets. As such, the company will market its cholesterol lowering drug, 'Ran-Simvastatin' in strengths of 5, 10, 20 and 40 mg. The product will be priced at an affordable rate, thus garnering higher volumes in the process. The total generic market size of the drug is CAD$ 152 m (about Rs 6,660 m) in the Canadian market. During 1QCY09, the North American market (including the US) contributed around 26% to the company's total revenues. This development will help Ranbaxy bolster its sales from the North American market, which is already under strain due to the issues Ranbaxy is facing there. The stock is trading marginally higher.

UltraTech Cements announced its 1QFY10 results yesterday. The company reported nearly 31% YoY growth in the topline on account of sustained demand for the commodity. The same was the result of government initiatives to boost rural development, infrastructure and housing. The operating margins expanded by 6.9% as costs grew at a slower pace as compared to the topline. The company had set up captive power plants to contain energy costs. This captive power generation and softening of coal prices led to the 7% YoY fall in variable costs. Net profits reported a 58% YoY growth. The board has approved an additional capex of Rs 6 bn and with this, the total capital outlay for the company would be Rs 20 bn. The same will be spent over the next two years to set up a captive power plant, waste heat recovery system and a grinding facility. These moves are beneficial from a long term perspective as it will enable the company to keep a check on rising costs of operation. At the same time, in the medium term, the additional upcoming capacities are likely to pressurize realisations and hence, profitability. The stock is currently trading higher.

The Indian markets began the day on a strong note today as buying activity was witnessed in stocks across sectors with realty, metals and banking leading the pack. On the other hand, stocks from the FMCG and IT space are amongst the lowest gainers. The overall decline to advance ratio stood at 3.3: 1 on the BSE. As regards global markets, the US and the European markets ended higher yesterday. The Asian markets are currently trading firm.

The BSE Sensex is trading higher by around 190 points, while the NSE Nifty is currently trading higher by about 50 points. The BSE Midcap and the BSE Smallcap indices are trading firm, higher by 1.6% and 1.7% respectively. The Rupee is trading at 48.32 to the Dollar.

Software stocks are currently trading firm led by Patni Computers, Satyam and Infosys. IT major Wipro announced its results this morning. The company witnessed a 3% QoQ decline in topline during 1QFY10. The reason behind the same was the slowdown in its IT services business, which contributed to about 77% of the company's revenues. However, it was able to expand its operating margin by 0.5% QoQ to 21.3% during the quarter. As per the company, this was manageable due to dedicated cost containment measures. As for profitability, the company was able to record a marginal 0.5% QoQ growth in the bottomline. This was on the back of decreased interest and depreciation charges as compared to the preceding quarter. During the quarter, the company added 26 clients in its IT services business. Its employee strength stood at 98,521 (IT services) at the end of 1QFY10, as against 95,675 in the corresponding quarter last year.

Steel stocks are currently trading firm led by Tata Steel and JSW Steel. As per a leading business daily, steel major SAIL has decided to further delay its expansion plans by about two years. As per the company's earlier targets, it was expected to increase its capacity to 26.2 m tonnes (hot metal) by 2012. SAIL now intends to have an installed capacity of 23.4 m tonnes by FY12 and the balance will be set up by 2014. The reason behind the same is the economic slowdown coupled with a slower than expected growth in domestic steel demand. It may be noted that the company had originally proposed to increase its capacity to 26.2 m tonnes by FY12. However, it brought forward its capacity addition plan to 2010 due to pressure from the steel ministry. Subsequently, the company had revised its plan due to the economic slowdown.

He may have received flak from some full-blooded capitalists but if a survey by Bloomberg is to be believed, Ben Bernanke, the US Fed Chairman has received top marks for combating the worst financial crisis since the Great Depression. And it wasn't a marginal verdict in favour of the 55-year old Bernanke. As many as 75% of those who were polled had said they were impressed with Bernanke. What more, he was ranked higher than his counterparts at other major central banks, including European Central Bank President, Jean-Claude Trichet. Indeed, ever since the crisis broke out Bernanke has moved with lightening speed, reducing interest rates to near zero levels and in no time, doubling the Fed's balance sheet by injecting trillions of dollars into the economy, a move that many believe has helped avoid a repeat of the Great Depression and has helped stoke chances of recovery sooner than expected.

However, not everyone has appreciated the move. There are some like Jim Rogers who have taken an extremely critical view of things, saying that by doing what Bernanke has done, we have set ourselves up for an even bigger crisis down the road. There is of course a lot of merit in his argument. By flooding the system with unprecedented liquidity, Bernanke has raised the threat of runaway inflation manifold and his biggest challenge would be to rein in the same without causing adverse effects on the economy. If he indeed manages to do the same, he might get top marks in our books as well.

Thank God for China, says US Inc.
At nearly US$ 600 bn, China's stimulus package is a lot less than that unveiled by the US, which stands at US$ 800 bn. But that's not the full story. If one were to compare on the basis of percentage of GDP, then China's stimulus far exceeds that of the US and this perhaps explains why a lot of US companies seem to be going ga-ga over China while announcing their most recent quarterly results. As per a leading daily, China seems to be proving one of the few bright spots during the US earnings season as the dragon nation's huge stimulus package is supporting demand for a variety of products, ranging from computers to construction equipment. Although the earnings season is far from over, the list of companies that have already mentioned China as a positive has already reached notable proportions. In fact, the number of China admirers is only likely to grow in the second half of the result season as investment in the country picks up and the multiplier effect of the stimulus further kicks in. Little wonder, people are expecting the country to recover the fastest from the global financial crisis. India isn't in a very bad position either. Although Planning Commission Deputy Chairman Montek Ahluwalia has stated that there could be no further fiscal stimulus packages for India, successful implementation of the ones that have already been approved is likely to see us through a decent enough economic growth. Furthermore, if the monsoon holds up well, we might end up with a GDP growth in the region of 6%-7%, which given the circumstances elsewhere, we would happily accept.