Closing Bell 05-05-09

Closing Bell 05-05-09

Alternate bouts of buying and selling led the indices to move around in a volatile manner during the final hour of trade. However, at the closing bell, the BSE-Sensex ended lower by around 4 points while the NSE-Nifty ended higher by around 8 points. On the other hand, stocks from the mid-cap and small-cap space ended the day on a firm note, higher by 1.9% and 2% respectively. While selling activity was witnessed in stocks from the IT, FMCG and energy spaces, realty and metals led the pack of gainers today.

Other Asian markets ended the day on a firm note. The European indices are currently trading firm as well. Rupee was trading at 49.45 against the US dollar at the time of writing.

Software stocks ended the day’s session on a weak note. This was on the back of the US President Obama’s reiteration that US firms need to cut back on offshoring in order to bring the ailing economy back on track. This time around, the US government, in its tax policy reform, has threatened to stop tax incentives to US companies which create job opportunities outside the US. Instead, it will continue the benefits for those companies that operate within the US.

Retail stocks ended the day on a firm note led by Pantaloon, Shopper’s Stop and Trent. As per a leading business daily, Shopper’s Stop is planning to go ahead with its expansion plans by opening twelve new stores in the next three years. This expansion is likely to be funded with a mix of internal accruals, debt and equity. In addition, the company is also planning to close unviable stores. As per the company, the rationale behind this expansion is the fall in rentals and a reversal of service tax. It also believes that the Indian economy is on its revival path. It is believed that the company will require a capex of Rs 910 m for the store openings and Rs 325 m for the inventory for these stores. It may be noted that the company recently closed down a handful of stores/ shops including its catalogue retailing venture, food business, book stores, and airport retail stores.

As per a leading business daily, investment bank Goldman Sachs believes that the Indian economy will recover in the second half of FY10. The rationale behind this is the strong domestic market. In addition it believes that the improving financial sector along with the excess liquidity in the system, easing financial conditions, declines in some key interest rate spreads and the removal of election uncertainty are factors that will help in picking up the economy. However, the chief economist of the bank stated that the key risk is “the formation of an unstable coalition and the ratcheting up of long bond yields due to greater borrowing by the government to finance the post-election budget”.

Though still trading in the red, the Indian markets have recouped most of their early losses. Currently, stocks from the banking, software and FMCG sectors are leading the pack of losers. Select stocks from the construction, steel, and engineering stocks are however trading firm. The overall advance to decline ratio is poised at 1.4 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty indices are trading lower, down by around 10 points and 5 points respectively. However, the BSE-Midcap and BSE-Smallcap indices are trading firm, up by around 1.5% each. The rupee is trading at 49.46 to the dollar.

Engineering stocks are trading mixed. While BHEL and L&T are trading higher, ABB and Crompton Greaves are trading weak. As per a leading business daily, L&T plans to form a joint venture (JV) with Europe’s EADS Defence & Security (EADS DS) to manufacture defence electronics in India. As per the report, the JV will aim at design, development, manufacturing and other related services in the fields of electronic warfare, radar, military avionics and mobile systems for military applications which will cater to the domestic as well as international markets. However, the formation of JV will be subjected to approval from the Indian government. It may be noted that L&T has been a major supplier of critical systems to India’s defence forces over the past many years, while EADS DS is a high-tech company involved in driving the development of integrated systems solutions for armed and civil forces across the world.

FMCG stocks are trading mixed currently. While Dabur and Godrej Consumer are trading higher, Colgate is trading lower. Godrej Consumer announced its FY09 results last week. The consolidated topline grew by 27% YoY during the fiscal wherein the international business grew by 43% YoY and domestic business grew by 23% YoY. Soaps segment reported a 25% YoY growth. The company’s operating margins declined by 4.7% YoY to 14.8% during the fiscal. This was mainly on account of higher raw material costs, which increased to 55% of sales, from 47% in FY08. The bottomline grew by 9% YoY during FY09. As reported in a leading business daily today, the company is eyeing acquisitions worth around US$ 1 bn in the emerging markets in the current fiscal.

The Indian indices remained volatile during the previous two hours of trade led by continuous bouts of buying and selling. Stocks from the realty and engineering sectors are trading firm on the bourses currently. However, selling pressure is being witnessed among the software and financial stocks. The overall advances to decline ratio is poised at 1.5 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty indices are trading weak, lower by around 140 points and 25 points respectively. However, the BSE-Midcap and BSE-Smallcap indices are trading firm, up by around 0.7% and 0.9% respectively. The rupee is trading at 49.65 to the dollar.

Pharma stocks are trading mixed. While Ranbaxy and Cipla are trading firm, Fresenius Kabi Oncology and Dr. Reddy's are in the red. As per the BSE website, Ranbaxy has started Phase-III clinical trials for its new anti-malaria combination drug in India, Bangladesh and Thailand. The Phase-III trial is the final-stage in the clinical trial process, which is followed by marketing. Ranbaxy is targeting to apply for marketing authorisation for the drug by late 2010. The company plans to sell the drug in the developing markets including India, Africa, Latin America and the Asia-Pacific region. Since realisations for this drug will be lower in these developing markets, benefits will most likely accrue through higher volumes.

P&G announced its 3QFY09 and 9mFY09 results recently. The company's topline grew by 20% YoY during both the periods under consideration. However, the margins declined by 9.2% YoY and 7% YoY during 3QFY09 and 9mFY09 respectively on account of increase (as percentage of sales) in all the major expense heads. For instance, advertising expenses were higher due to marketing initiatives undertaken by the company to accelerate usage and penetration of the feminine products in the semi-urban and rural markets. Higher other income and lower tax outgo helped the bottomline register a growth of 27% YoY during 3QFY09. The stock of P&G is trading marginally lower currently.