Closing Bell 28 April 2009

Closing Bell 28 April 2009

While other Asian markets recorded losses in yesterday’s trading session, India ended on a positive note. However, the markets caved in today as selling activity persisted till the very end. In fact, India is the top loser amongst its Asian peers today. The BSE-Sensex ended the day with losses of around 370 points, while the NSE-Nifty closed lower by about 110 points. Stocks from the mid-cap and small-cap space ended the day on a negative note, lower by 3.8% and 3.4% respectively. Selling activity was witnessed in stocks across sectors led by realty, metal and banks.

Other Asian markets ended the day on a weak note. The European indices are currently trading weak as well. Rupee was trading at 50.52 against the US dollar at the time of writing.

Software stocks ended the day on a weak note led by Geometric, Hexware Technologies and Mastek. Geometric announced its FY09 results yesterday. The company recorded a 23% YoY growth in topline. However, on the back of a 35% YoY increase in expenditure, the company’s operating margins contracted by 8.4% YoY to 5% mainly on account of forex losses. In fact, the company was impacted by forex losses in 4QFY09. On the back of a poor operating performance, Geometric recorded a fall in net profits by 89% YoY. During the year, the company added 55 new clients. At the end of the quarter, its attraction rate stood at 9.2%, much lower as compared to 17.2% during the previous quarter. As for its 4QFY09 performance, the company’s topline dropped by 13% YoY. Further, the company recorded a net loss of Rs 205 m during 4QFY09 as against net profits of Rs 18 m recorded in 3QFY09.

As per a leading business daily, Britannia has entered into an agreement with Fonterra Brands, its joint venture (JV) partner in Britannia New Zealand Foods (BNZF) to acquire latter’s 49% equity and preference shareholdings in the JV. The joint venture company, BNZF is engaged in the dairy business. Britannia will hold the entire equity and preference capital of BNZF after the transaction. The business is currently worth Rs 2 bn and had reported a topline of Rs 1.4 bn in FY08. Britannia is expected to merge the company going forward. However, this acquisition is subject to central bank’s approval. The stock of Britannia ended the day on firm note while its peer ITC ended in the red.

Industrial body Assocham expects India to miss the US$ 200 bn export target for FY10 by about 10%. The continuous drop in demand in overseas markets, especially the developed regions, will lead to the shortfall. The slowdown in the US markets will especially be harmful for India’s exports. It may be noted that US accounted for about 60% of the fall of India’s export proceeds during the last two quarters of FY09.

he Indian markets continued their southward journey on account of sustained selling activity witnessed during the previous two hours of trade. Stocks from the banking, power and construction sectors are leading the pack of losers currently. The overall decline to advance ratio is poised at 2.5 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty indices are trading weak, down by around 260 points and 70 points respectively. The BSE-Midcap and BSE-Smallcap indices are also trading weak, down by 2.8% and 2.6% respectively. The rupee is trading at 50.53 to the dollar.

Auto stocks are trading mixed. While M&M is trading higher, Ashok Leyland and Tata Motors are trading weak. As per a leading business daily, Ashok Leyland is considering reviewing its joint venture (JV) with Nissan Motors to manufacture light commercial vehicles (CV) on account of no revival in the commercial vehicles segment which has been witnessing a major slowdown since the last six months. Both the companies are in process to review the investment and capacity plans of the JV. Last year, Ashok Leyland had struck a deal with Nissan Motors to form three JV companies involved in manufacturing commercial vehicles, power trains and technology development. The total investment involved in these projects was about Rs 24 bn with both the partners investing Rs 6 bn each and remaining Rs 12 bn coming through debt. However, with the revised plans, the investments would be downsized. Interestingly, Ashok Leyland is not the only company to review its CV plans. Hero Honda has exited its JV with Daimler that was to manufacture trucks in India. It may be noted that the domestic commercial vehicle volumes were down by almost 23% during FY09.

Software stocks are also trading mixed. While Mindtree and Infosys are trading higher, TCS and Wipro are trading weak. Mindtree announced its FY09 results yesterday. The company’s topline (including Aztecsoft) grew by 67% YoY during the fiscal, while declining by 7% QoQ during the fourth quarter. Operating margins expanded by 9.8% YoY during the fiscal mainly on account of acquisition of Aztecsoft. Furthermore, cost containment and rupee depreciation also aided the improvement in margins. The company added 22 new clients thus taking the total number of active clients to 261 at the end March 2009. Attrition came down to 11.8% during 4QFY09 from 13.8% in the previous quarter. The company’s net profit declined by 49% YoY during FY09. This decline can mainly be attributed to high forex losses. Excluding these losses, the bottomline has grown by 163% YoY during the fiscal.

The Indian markets continued to slip further during the previous two hours of trade due to intense selling pressure across sectors. Stocks from the metals, realty and power sectors are leading the pack of losers, while select auto and pharma stocks are trading firm. The overall decline to advance ratio is poised at 2.1 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty indices are trading weak, down by around 180 points and 60 points respectively. The BSE-Midcap and BSE-Smallcap indices are also trading weak, down by 1.8% each. The rupee is trading at 49.94 to the dollar.

Energy stocks are trading mixed. While Indian Oil and BPCL are trading firm, ONGC is trading weak. As per a leading business daily, the government is likely to issue oil bonds worth Rs 100 bn to Indian Oil, BPCL and HPCL. They have incurred huge losses on the sale of petrol, diesel, kerosene oil and LPG at subsidised rates during FY09 even as crude oil prices touched nearly US$ 150 per barrel. Though prices have come down to US$ 50 per barrel, these companies have not yet made good their earlier losses. It is estimated that the three companies would close FY09 with under-recoveries of Rs 1,039 bn. It may be noted that these losses are partly shared by way of discounts from the upstream players and through bonds issue from the government.

Barring Bank of Baroda, most other banking stocks are trading weak on the bourses currently. Bank of Baroda (BOB) announced its 4QFY09 and FY09 results yesterday. The banks interest income grew by 28% YoY during FY09 on account of 35% YoY growth in the advances. The bank’s low cost deposits (CASA) recorded a growth of 20% YoY during the fiscal, which has resulted in a decline in cost to income ratio from 51% FY08 to 45% during FY09. BOB’s net profits increased by 55% YoY in FY09 due to 0.5% YoY increase in the net interest margins to 3.2% in FY09. The net NPA level has fallen to 0.3% compared to around 0.5% a year earlier and the capital adequacy for the bank stood higher at 14% at the end of the fiscal.

Compiled and Brought to you by 

Equity Research Team

Intelligent Investor -

Invest Advisory Arm of

Ravina Consulting

Bangalore India

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