Monday, August 3, 2009

Closing Bell 24 July 2009

Closing Bell 24 July 2009

The Indian benchmark indices began the day's proceeding on a volatile note, but ended the day well above dotted line on account of intense buying activity witnessed in post noon session. The BSE-Sensex ended the day higher by around 145 points, while the NSE-Nifty closed higher by about 44 points. Stocks from the mid-cap and small-cap spaces also closed in the green, recording gains of 1.6% and 1.8% respectively. While buying activity was witnessed across sectors, stocks from the banking sector were at the receiving end. The advance to decline ratio was poised at 2.4 to 1 on the NSE.

Other Asian markets also ended the day in the positive. The European indices are currently trading firm. Rupee was trading at 48.34 against the US dollar at the time of writing.

As per a leading business daily, Shriram Transport Finance company (STFC), one of the largest asset financing NBFCs in India is raising Rs 10 bn with yield-on-redemption of up to 11.5% annually. The company is coming out with an issue of non-convertible debentures (NCDs) of Rs 5 bn. The company will have an option to retain over-subscription of up to Rs 5 bn. The commercial vehicle financer has raised funds in order to support the incremental growth in its loan book. The company is also looking to enter the equipment financing business with a focus on retail borrowers. The company's capital adequacy ratio stood at 16.35%. The stock of STFC closed in the red.

Ambuja Cements announced its results late last evening. The company reported a topline growth of 19.9% YoY during 2QCY09 led by higher volumes and realisations. The sales volumes were higher by 9.1% YoY, while the growth in realisations stood at 9.9% YoY. The growth in demand was sustained on account of the delayed monsoon, ongoing construction activity in rural and semi urban areas along with infrastructure activity. Operating profits growth was capped at 9.9% YoY as cost of operations continued to grow at a faster rate as compared to the topline. While power and fuel costs were moderate, the overall cost of operation was pushed upwards by higher raw material costs. Net profit declined by 43.7% YoY on account of an absence of extraordinary income which was present in 2QCY08. Growth in profits excluding extraordinary income stood at 7.1% YoY, which is equal to the growth in profit before tax. The board declared an interim dividend of 1.2 per equity share. Cement sector stocks closed mixed.

Total rainfall in India was 15% above normal in the week to 22 July, but was still 19% below normal for the 1st June to 22nd July period. Weak monsoons especially in the state of Bihar, the country's leading corn producer, and Uttar Pradesh, which produces more than half of India's sugarcane is likely to impact sowing of the crops adversely. Sugar output in UP is likely to fall by at least 500,000 tonnes, or 11%, in the new season that begins in October because of poor rains. The sugar production in the current year is expected to be the lowest in the last three years. During the sugar season 2007-08, the sugar production in the country fell to 26 million tons (MT) from 28 million tons in 2007-08. As against that, the production in the current year is estimated to be only 16.5 MT. From being an exporter, India's shift to importer is widely seen as one of the most important dynamics affecting the global sugar market. Expectations are growing that it will need substantial imports again in the new season to satisfy its domestic needs. This has pushed the sugar prices up. In fact, in the last one year sugar prices have registered a 70% increase.

The Indian markets gained ground during the previous two hours of trade led by heavy buying activity across sectors. Buying activity is led by stocks from the auto, realty and metal sectors, while select banking and energy stocks are trading weak. The overall market breadth is positive, with total gainers outnumbering the losers in the ratio of 1.9 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading firm, up by around 130 points and 50 points respectively. The BSE-Midcap and the BSE-Smallcap indices are also trading higher, up by around 1.5% and 1.7% respectively. The Rupee is trading at 48.33 to the Dollar.

Energy stocks are trading mixed. While ONGC is trading firm, Reliance Industries is in the red. ONGC announced its 1QFY10 results yesterday. The company's standalone topline declined by 26% YoY in 1QFY10. This was mainly on account of discontinuance of trading of MRPL products during the quarter as compared to Rs 25 bn from the same in 1QFY09. However, on a like to like basis, ONGC's topline declined by 15% YoY in 1QFY10. Operating margins increased from 58% to 64% as trading of MRPL products were stopped during the quarter. However, on a like to like basis operating margins showed a decline of 3% during the quarter. The standalone bottomline declined by 27% YoY, despite lower subsidy during the quarter. The impact of subsidies on the topline stood at Rs 4 bn in 1QFY10 as compared to Rs 98 bn in 1QFY09, while the impact on the bottomline stood at Rs 2 bn as compared to Rs 55 bn in 1QFY09.

Power stocks are trading firm led by Reliance Infrastructure and NTPC. As per a leading business daily, Reliance Infrastructure has invited bids to procure 1,500 MW of power in order to meet the demand for its Mumbai distribution license area. As per the tender document floated by the company, power will be procured for a period of 25 years. The company has already received the approval for inviting the bids for power procurement. Currently, Reliance Infrastructure distributes around 1,400 MW power in the suburbs of Mumbai for which 500 MW of power is procured from its own plant in Dahanu and 500 MW comes from Tata Power, while the remaining is purchased from the open markets. It may be noted that Tata Power has informed the company that it will not be supplying power from 2010 onwards. As a matter of fact, the company had purchased 11% more electricity from external sources during FY09. Also, its cost of electricity purchased had risen from Rs 5.1 per unit in FY08 to Rs 7.9 per unit in FY09 which had adversely impacted its margins during the fiscal. While, the procurement through tender will not solve the company's immediate power requirement, it would certainly help it increase the power supply in the future.

The Indian markets moved into the negative territory during the previous two hours of trade on account of selling activity among the index heavyweights. Currently, stocks from the energy and banking sectors are leading the pack of losers, while select auto and IT stocks are trading firm. The overall market breadth is positive, with total gainers outnumbering the losers in the ratio of 1.4 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading weak, down by around 10 points and 5 points respectively. However, the BSE-Midcap and the BSE-Smallcap indices are trading higher, up by around 0.9% and 0.7% respectively. The Rupee is trading at 48.40 to the Dollar.

Hotel stocks are trading mixed. Oriental Hotels is trading weak, while both Hotel Leelaventure and Indian Hotels are trading marginally higher. Oriental Hotels announced its 1QFY09 results yesterday. The company's topline has declined by 30% YoY during the period, mainly on account of the global economic slowdown that led to lower tourist arrivals. The company mainly caters to business and leisure travellers and both the segments were affected on account of the slowdown. This resulted in lower room rates and occupancy levels for the company. In fact, the industry occupancy rates have declined by 30% YoY during the first two months of the quarter in all major cities, which resulted in 10% to 15% fall in the room rates. While fixed costs remained intact on account of lower realisations and occupancy levels, overall it led to a fall in operating margins by 18% YoY to 16.2% during the quarter. All the cost heads rose during the quarter (on a % of sales basis) as compared to the corresponding quarter in the previous year. Lower sales, decline in operating profits along with higher depreciation and interest expenses resulted in a 94% YoY decline in net profits.

The competition in the IT outsourcing space is getting stiffer by the day. According to a leading business daily, Indian IT majors like Infosys, TCS, Wipro, Tech Mahindra etc. are vying with global players like Accenture and IBM in gaining a share in the US$ 1 bn IT outsourcing deal from British Petroleum (BP). BP's IT outsourcing contracts pertains to application development, system integration and infrastructure management across its different business units, which are fragmented between 30 different IT service providers, resulting in increased costs and complexity. BP seeks to cut its IT cost by 30% by consolidating its outsourcing between fewer vendors, for catering to more work at a lower rate. While the company has not disclosed the consolidated number of vendors, this will definitely benefit those who emerge as winners of the competition. It goes without saying that prospects are better for firms like Tech Mahindra and Infosys, which already work with the European oil major. The stocks from the IT space are trading in the green led by Infosys.

Tracking its global counterparts, the Indian indices have opened the day's trade on a buoyant note. While telecom, FMCG and energy stocks are witnessing selling pressure, power, construction and metal stocks are in favour. The overall advance to decline ratio is poised at 3.5:1 on the NSE. As regards global markets, the US and the European markets ended higher yesterday. The Asian markets are trading firm currently.

The BSE Sensex is trading higher by around 110 points. The NSE Nifty is up 20 points. The BSE Midcap and the BSE Smallcap indices are trading higher by more than 1% each. The rupee is trading at 48.32 to the dollar.

ITC announced its first quarter results yesterday. The net sales increased by 5% YoY on account of 23% YoY growth in sale of cigarettes and 16% YoY growth in sales from the paperboard, paper and packaging business. Price hike, volume growth and product mix improvement led to the strong growth by the cigarette division. However, this was offset by a decline of 49% YoY and 28% YoY in sales from the agri and hotels businesses respectively. For hotels, the cutting back on corporate travel along with the steep reduction in international travel as a fallout of the global financial crisis triggered a significant slide in occupancies and average room rates at ITC hotels. The FMCG segment saw a 10% YoY growth. The operating margins increased to 34% in 1QFY10, from 30% for 1QFY09. This improvement comes due to a drop in cost of goods sold which fell from 46% of sales in 1QFY09 to 39% this quarter. Net profits grew by 17% YoY. While the growth in the cigarette segment is positive, performance of the FMCG and hotel segment would continue to be under pressure. FMCG stocks are trading mixed.

Italian auto giant Fiat and Tata Motors are in talks for a joint marketing project to sell Ferraris and Maseratis in India. Both Ferrari and Maserati brands are under Fiat's control. Tata Motors with the acquisition of Jaguar and Land Rover for US$ 2.3 bn last year had marked its entry in the luxury segment. In India, Tata Motors and Fiat have a 50:50 joint venture Fiat Automobiles India Ltd, which manufactures engines, among others. Further, the two auto majors are also planning to introduce Nano in the Latin America market. Fiat has a strong presence in this region with Brazil being its second-biggest market after Italy. Tata Motors has plans to export Nano to Europe, South America and Southeast Asia. The Nano has passed the European "crash test" safety standard allowing it to be sold in the European market and a launch can be foreseen at the end of 2011. Identifying exports as a major growth area, over the past few years, Tata Motors has given a significant thrust on increasing its geographical presence. The revenues from exports accounted for 18% of the consolidated revenues in FY08. The management aims to increase this share to 25%. This will help the company to reduce its dependence on the domestic region. Auto stocks are in the green currently.

If the financial meltdown was truly global in scale, it also brought out a unified response from governments and central bankers worldwide, including Asia. And there was a broad consensus on the solution to the crisis - economic stimulus. Now that a few months have passed since the stimulus packages were announced, it is perhaps time to look around to see if the results are starting to show.

The results in Asia at least seem to be positive. For example, as per government data released yesterday, India's core industrial sector i.e., crude oil, oil products, coal, electricity, cement and steel has registered a growth of 4.8% YoY in the April-June quarter of this fiscal. This is as compared to 3.5% YoY growth that was recorded during the corresponding period last year.

Countries like South Korea are also doing well. As per Bloomberg, its economy in the last quarter grew at the fastest pace in almost six years. China and Singapore are also participating in a regional turnaround. In fact, the Asian Development Bank says that the East Asian economies (i.e., excluding Japan, South Asia and Central Asia) will rebound from the global economic crisis in a 'V-shaped' fashion.

It would seem that the stock markets have presaged this development as can be seen from the rise in the benchmark indices of India, China and South Korea since the start of this fiscal. Investors who kept their faith at a time when there was no cheer from economic data would be reaping rich rewards now. This opportunity was also available to long term investors in India.