Closing Bell 30-03-09

Closing Bell 30-03-09

After putting up a strong performance in the last week, the Indian markets began this week on a bleak note. The indices bore the brunt of profit booking as they ended the day deep in the red. The BSE-Sensex closed with losses of around 460 points, while the NSE-Nifty closed lower by about 120 points. Stocks from the mid-cap and small-cap space ended the day in the red as well. Selling activity was witnessed across sectors led by banking and metals stocks.

Most other Asian markets closed on a weak note. The European indices are currently trading in the red as well. Rupee was trading at 51.1 against the US dollar at the time of writing.

Capital goods stocks ended the day on a weak note led by Suzlon Energy and Punj Lloyd. Engineering and construction (E&C) major, L&T has won a Rs 3.5 bn order from the Nuclear Power Corporation of India (NPCIL) for manufacturing and supplying four steam generators. The generators will run the 700 MW (megawatt) pressurized heavy water reactors being built by NPCIL at its plant in Gujarat. It may be noted that L&T’s peer, BHEL won a similar contract last week. As per the management, L&T is aiming to win new orders from power and atomic-energy companies to offset the slowdown in its parts making segment. During its 9mFY09 performance L&T’s E&C business contributed nearly 80% of the topline, higher by more than 5% YoY as compared to the corresponding period in the previous year. At the end of December 2008, the company’s E&C segment had an order backlog of Rs 670 bn, which is nearly 3 times its FY08 sales.

Banking stocks ended the day on a weak note led by ICICI Bank and Kotak Bank. As per a leading business daily, starting 1st of April 2009, banks will not be allowed to levy any charges on cash withdrawals made by customers of other banks using their ATMs. At present, banks charge around Rs 20 per transaction. This development may hurt the fee income of banks that have a large ATM franchise and used to garner a sizeable fee income through arrangement with other banks for use of their ATMs. At the same time, this move is a positive as it will save banks the cost of setting up ATMs in new geographies.

As per a leading business daily, Japan's industrial production sank by 9.4% in February compared to the previous month. It may be noted that the country recorded a 10% drop in the previous month as well. The reason behind this sharp fall in industrial production has been on account of lower demand for Japanese cars, electronics and other export goods, which are largely consumed by the developed markets such as the US and Europe, in addition to fast growing economies like China.

The indices fell further on account of sustained selling activity witnessed during the previous two hours of trade. Stocks from the banking, metals and realty sectors are leading the pack of losers currently. The overall decline to advance ratio is poised at 1.6 to 1 on the BSE.

The BSE Sensex and the NSE Nifty are trading lower, down by almost 430 points and 120 points respectively. The BSE Midcap and BSE Smallcap indices are trading lower by 1.2% and 1.1% respectively. The rupee is trading at 51.09 to the dollar.

As per a leading business daily, the government has asked leading Indian auto manufacturers to cut back all the price hikes they have undertaken recently. This comes on the back of the recent 4% excise duty cut implemented by the government on all types of vehicles. Now the government has warned auto companies that it will not consider any additional measures or stimulus packages for the industry unless they reduce the prices of their popular brands. It may be noted that many auto companies, including Maruti Suzuki, have increased the prices of their top brands over the past two to three months. Such a move by the government would surely be unfavorable for the shareholders of these companies. Ideally the government should refrain from interfering in the pricing policy of private companies. Auto stocks are currently trading lower on the bourses with Tata Motors and M&M leading the pack of losers.

Pharma stocks are trading mixed. While Cadila Healthcare is trading firm along with Lupin, Ranbaxy and Cipla are trading in the red. Cadila Healthcare has signed a collaborative drug discovery and development deal with US-based Eli Lilly to develop drugs for cardiovascular diseases. The collaborative program is likely to continue for a span of 6 years. As part of the agreement, Lilly will have an option to license any resulting molecules at different stages. Zydus will initiate the drug discovery along with conducting preclinical studies and clinical trials up to Phase II human proof-of-concept. The company could receive revenues to the tune of US$ 300 m as payments and royalties from sales of a drug developed from the collaboration. This alliance will help the company increase its productivity in drug discovery and development.

The Indian markets continued on their southward journey on account of sustained selling activity witnessed during the previous two hours of trade. Stocks from the banking, metals and telecom sectors are leading the pack of losers, while select stocks from the energy, power and pharma sector are trading firm. The overall decline to advance ratio is poised at 1.3 to 1 on the BSE.

The BSE Sensex and the NSE Nifty are trading lower, down by almost 340 points and 110 points respectively. The BSE Midcap and BSE Smallcap indices are trading lower by 0.7% and 0.4% respectively. The rupee is trading at 51.04 to the dollar.

Pharma stocks are trading mixed. While Glenmark Pharma and Sun Pharma are trading higher, Dr. Reddy is trading lower. As per a leading business daily, Sun Pharma has received ANDA approval from the USFDA for a generic drug ‘Topamax’ (topiramate tablets) used in the treatment of partial onset seizures. The company will be able to market topiramate tablets in the strengths of 25 mg, 50 mg, 100 mg and 200 mg in the US markets. It may be noted that topamax tablets have an annual sales of around US$ 2.5 bn in the US market. This is a positive development for the company as it will help the company to boost its revenue from the highly competitive US market.

Cement stocks are trading mixed. While ACC and Ambuja Cements are trading lower, Mysore Cements is trading higher. As per a leading business daily, cement companies are facing pressure on their margins on account of increased cost of transportation. This is mainly on account of a change in railway freight classification for cement during the recent budget. This has affected the margins of most companies by around 3% to 4%. It may be noted that companies typically sell cement in markets close to their manufacturing facilities in order to control transportation costs. However, if there is low demand in the areas adjacent to plants, cement is transported to distant locations, which puts a pressure on margins. Hence, companies like ACC plan to increase the prices of cement by around Rs 50 per bag in order to protect their margins and support capex plans.

Mirroring their global peers the Indian indices began the day’s proceeding on weak note. While buying activity is being witnessed in select stocks from the pharma and consumer durable space, stocks from the banking, realty and metal sector are at the receiving end. The overall decline to advance ratio is poised at 1.14 to 1 on the BSE. As regards global markets, the US markets and European markets ended in the red last Friday. The Asian indices are currently trading weak.

The BSE Sensex and the NSE Nifty are trading lower, down by around 208 points and 68 points respectively. While the BSE Midcap index is trading marginally lower, BSE Smallcap index is trading marginally higher. The rupee is trading at 50.96 to the dollar.

Stocks from the retail sector are trading weak led by Trent, Kouton Retail and Pantaloon Retail. As per a leading business daily, growth of the organised retail industry has slowed to 5% YoY in 4QFY09 as against 35% YoY during 4QFY08. In the wake of ongoing financial crisis and economic slowdown, many retail companies have kept their expansion plans on hold. This has negatively impacted the growth of organised retail industry. The share of retail trade in India's gross domestic product is currently pegged at around 12%. This share is projected to reach 22% by 2010. Since a large number of stores have been closed and expansion plans have been delayed it will be difficult to achieve the projected growth in next few years.

Banking stocks are currently trading mixed. While pack of gainers is being led by Corporation Bank, Central Bank and Allahabad Bank, the pack of losers is being led by Indian Bank, PNB and IOB. As per a leading business daily, SBI is planning to further cut its interest rate in FY10. There is a possibility of a downward revision in lending as well as deposit rates. The move is in line with government’s directive to bring down the interest rates further. Although the bank will get benefit of lower cost of funds, this move may affect SBI’s NIMs going forward.