Closing Bell 23 April 2009

Closing Bell 23 April 2009

Strong buying activity led the indices to spike upwards during the final hour of trade as the BSE-Sensex ended the day with gains of around 320 points (2.9%), while the NSE-Nifty closed higher by about 90 points (2.8%). Stocks from the mid-cap and small-cap space also ended the day on a positive note, higher on an average by 1.5% and 0.9% respectively. Buying activity was witnessed in stocks across sectors led by IT, metals and realty. At the time of closing, the overall advance to decline ratio was poised at 1.4 to 1 on the BSE.

Other Asian markets also ended on a firm note today. The European indices are currently trading strong as well. Rupee was trading at 50.06 to the US dollar at the time of writing.

Undeterred by the slowdown in growth of companies in the near to medium term, stocks from the IT sector closed strong today. The pack of gainers was led by Wipro, whose management had shown a bullish stance for the industry in its conference call held yesterday. The stock was followed by Tech Mahindra, Infosys and TCS in that order on the gainers’ pedestal. Factoring in the short term concerns surrounding offshoring, a report from the consulting major, McKinsey, has projected the Indian IT sector to miss its US$ 60 bn export target set for 2010 by around a year. However, McKinsey has also put forward its belief in the value proposition that Indian IT companies can provide to their clients in the long run, while predicting that the industry is sitting on a potential opportunity to treble exports from the current level by the year 2020. That might bring some sigh of relief for long term investors in IT stocks.

Stocks from the telecom sector closed mixed today. While gains were seen in Reliance Communication and Idea Cellular, weakness marked trading in Bharti Airtel. In fact, selling in Bharti came in despite the company’s announcement earlier today that it might consider giving out a dividend to shareholders this year. What is remarkable here is that, if recommended by the board of directors, this would be the first time Bharti will give a dividend to its shareholders since it got listed in the year 2001. As is widely known, the company has grown strongly over the past few years but has ploughed back a lot of the profits back to the business to spread its network across the length and breadth of the country. Today, the company is India’s largest mobile services provider with around 93 m GSM subscribers and covering towns and villages with around 79% of India’s total population. The company’s announcement of the maiden dividend might definitely bring some cheer to investors who have held the stock for many years, only benefiting in terms of capital gains.

Latest inflation figures came in today. As reported, inflation measured by the wholesale price index or WPI rose to 0.26% for the week ended April 11, from 0.18% in the previous week. Rise in prices of essential food articles like cereals, eggs, salt, fruits, and vegetable is reported to be the reason for the rise in inflation for the said week. But did the prices of these essential items did fall anytime in the recent past while inflation was on a decline? We wonder!

While investors and analysts around the world and in India remain worried about the ‘E’ in the P/E as companies come out with their quarterly results, there are some companies that do not seem perturbed by the slowdown or so it seems. Take the case of McDonald’s, your neighbourhood fast food joint. As reported in the international media, while the company’s global sales grew by 4.3%, growth in Asia, the Middle East and Africa combined stood at 5.5%. And here is what the company’s CEO Jim Skinner had to say, "Our well-known value proposition and unparalleled convenience continue to resonate with customers."

The markets continued to trade higher into the positive territory on account of sustained buying activity witnessed during the previous two hours of trade. Stocks from the auto, metals and cement sectors are trading higher, while select stocks from the construction, pharma and software sectors are trading lower on the Nifty. The overall advance to decline ratio is evenly poised on the BSE.

The BSE-Sensex and NSE-Nifty indices are trading higher, up by around 170 points and 50 points respectively. The BSE-Midcap and BSE-Smallcap indices are trading higher, up by 0.3% each. The rupee is trading at 50.17 to the dollar.

Pharma Stocks are trading mixed. While Glenmark Pharma and Aurobindo Pharma are trading higher, Sun Pharma and Ranbaxy are trading lower. As per a leading business daily, Israeli pharma major Teva and Glenmark Pharma have made an out of court settlement over the patent dispute on various generic versions of 'Coreg', a drug used in treating congestive heart failure. Teva had filed a case against Glenmark Generics, a US based subsidiary of Glenmark Pharma, over the process patent for preparing 'Carvedilol', the main pharmaceutical compound used in the generic version of 'Coreg'. In return Glenmark filed a lawsuit challenging two of Teva's patents related to the same drug. It may be noted that annual sales of drugs using 'Carvedilol' as API in the US were around US$ 1.7 bn at end of June 2007. 'Coreg' was GSK's fifth best-selling drug in the second-quarter of 2007. However in 2007 the USFDA approved 14 generic versions of 'Coreg' belonging to various companies that include Aurobindo Pharma, Sun Pharma, Dr Reddy's Laboratories, Lupin, Ranbaxy and Zydus.

Cement stocks are trading mixed. While Ultratech Cement and India Cements are trading lower, Ambuja Cements and ACC are trading higher. Ambuja Cements announced its 1QCY09 results last evening. The standalone topline grew by 12% YoY during 1QCY09 backed by higher volumes and better realisations. While sales volumes were up 5.8% YoY, realisations grew by 5.5% YoY during the same period. Cost of operations outpaced growth in topline resulting into 2.7% contraction in EBITDA margins mainly on account of increase in raw material costs and higher coal prices (opening inventory). During the quarter, profits were flat at the PBT level, while bottomline expanded by 2.4% YoY. If one excludes extraordinary expense incurred in 1QCY08, bottomline growth was also stagnant.

The Indian markets started the day's proceeding on a volatile note. While buying is being witnessed in stocks from the software and energy space, stocks from the realty, consumer durables and banking sector are at the receiving end. The overall decline to advance ratio is poised at 1.2 to 1 on the BSE. As regards global markets, while the US markets ended mixed, the European markets closed in the green. The Asian indices are currently trading in the green.

While the BSE Sensex is trading higher, up by around 30 points, NSE Nifty is trading lower, down by 10 points. The BSE Midcap and Smallcap indices are trading lower by 0.5% and 1% respectively. The rupee is trading at 50.31 to the dollar.

Power sector stocks are trading weak led by NTPC, Tata Power and Reliance Power. As per a leading business daily, NTPC is planning to spin off its coal mines division as a separate unit that will offer consultancy and mining services to companies which have been allotted captive mines. The company is also in talks with Bharat Earth Movers (BEML) to forge an alliance to offer the services. It may be noted that NTPC had signed a MoU with BEML in February 2007 for a long-term strategic and business partnership wherein BEML provides its range of mining equipment and services for NTPC's coal mining operations. This move of spinning off will help NTPC in exploiting opportunities in the area of consultancy and mining services as most of other companies operating in this space have no experience in coal mining.

Engineering stocks are currently trading mixed. While Voltas, Crompton Greaves and Engineers India are garnering investors' interest, Punj Lloyd, ABB and Thermax are at the receiving end. Praj Industries announced its FY09 result yesterday. The sales grew by 10% YoY during FY09, however, it fell by 2% YoY during 4QFY09. The operating margins expanded by 3% YoY during the year. This is largely on account of lower raw material costs as a percentage of sales. During 4QFY09, operating margins contracted by 3.2% YoY. Net profits declined by 16% YoY during FY09 on the back of forex losses (on advances received from customers and extraordinary losses to the tune of Rs 343 m as compared to Rs 218 m forex gain in the previous year). Excluding these adjustments (for both the years), net profit for FY09 has grown by 25% YoY. Order backlog stood at Rs 8 bn, which is slightly higher than the company's FY09 net sales.

IMF's gloomy forecast

Going by the latest projections of the IMF and the World Bank, it looks like the global financial crisis is far from over. The IMF has pegged the losses from the global economic crisis at a mind boggling US$ 4.1 trillion and is of the opinion that around US$ 1.1 trillion will be needed to fix this problem. These numbers more than amply highlight the depth of the crisis. Out of these losses, US$ 2.7 trillion is from loans and assets originating in the US, followed by Western Europe, whose financial institutions will have to write down US$ 1.2 trillion in loans and securities originating there. The silver lining in the cloud is that IMF has spotted the first glimmers of stabilization in the global financial system. But the hard work is not yet over and rather than resting on laurels, the IMF has stressed on the need for "continued decisive and effective action" by governments, banks and institutions like itself if the system has to be prevented from going down under. While many world leaders pledged US$ 1.1 trillion more for the fund this month, the latter's mettle will now be tested as it will have to work out a way of bailing out economies on the brink of a collapse.

Worldwide, banks have been caught in a vicious cycle. Mounting losses translated into serious liquidity problems as a result of which banks became vary of lending further. This in turn impacted the corporate world resulting in shrinking economic activity which in turn has again impacted the balance sheets of banks. India and China, despite the slowdown in their respective economies, seem to be in a better shape than their developed peers. Further as per IMF, Europe is likely to be hit harder than the US as the former has been slower than its American counterpart in addressing the crisis.

Compiled and Brought to you by 

Equity Research Team

Intelligent Investor -

Invest Advisory Arm of

Ravina Consulting

Bangalore India

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