Closing Bell 11 May 2009

Closing Bell 11 May 2009

Taking cues from their global counterparts, the Indian markets ended the day on a weak note as the BSE-Sensex closed the day with losses of around 190 points, while the NSE-Nifty closed lower by about 70 points. Stocks from the mid-cap and small-cap space also ended the day on a weak note, lower by 1.9% and 2.4% respectively. Selling activity was witnessed in stocks across sectors led by realty, capital goods and metal.

Most of the other Asian markets ended the day on a weak note. The European indices are currently trading in the red as well. Rupee was trading at 49.41 against the US dollar at the time of writing.

Pharma stocks ended the day on a weak note led by Cipla, Ranbaxy and Glenmark Pharma. As per a leading business daily, pharmaceutical major Lupin has settled all ongoing disputes with Wyeth relating to its ‘Venlafaxine’ capsules. As per the settlement, the company will be allowed to launch a generic version of the drug in the US after June 1, 2011. ‘Venlafaxine’ is the generic name of antidepressant drug, ‘Effexor XR’, a brand name of Wyeth. While the size of the market is unknown, it is believed that Wyeth earned a little above US$ 3 bn of sales for ‘Effexor XR’ in 2008. Of late, given the uncertainty surrounding patent challenges, many Indian generic players including Lupin are looking to settle patent suits, which provide some semblance of certainty with respect to future revenues.

ICICI Bank today surged to an intraday high of over 5% on the news of a hike in stake by Temasek Holdings and Government of Singapore Investment Corporation (GIC). As per a leading business daily, these companies plan to increase ICICI’s stake to 10% each. Currently Temasek and GIC have a stake of 8% and 2.3% respectively in the bank. Post the hike in stake, the Singapore government will become the largest shareholder in ICICI. Further, this will trigger an open offer for an additional 20% stake. Currently, Life Insurance Corporation is single largest shareholder in the bank with 9.4% stake. However, SEBI is examining the proposal from the perspective of the takeover code. The stock of ICICI Bank ended the day marginally in the green while its peer, HDC Bank closed on a flat note.

Industry body CII believes that the manufacturing industry is showing signs of recovery. As per a survey conducted by it, there has been a reasonable improvement in the number of sectors reporting high and production growth in the last quarter of FY09. As per the survey, sectors such as fertilisers, pig iron, steel and mopeds have moved from negative to a moderate growth in production of up to 10%. Sectors reporting production growth of over 20% include industrial gases, power transformers and electric two-wheelers. On the other hand, edible oils, commercial vehicles, multi-utility passenger vehicles and capital goods reported a sequential production decline in the fourth quarter. It may be noted that on a year on year basis, the overall manufacturing sector has slowed down. However, in comparison with the first half of FY09, things have started improving marginally.

The Indian markets continued their southward journey on account of sustained selling activity witnessed during the previous two hours of trade. Currently, selling is being witnessed in stocks from across the sectors with realty and capital goods stocks leading the pack of losers. The overall decline to advance ratio is poised at 2 to 1 on the BSE.

The BSE Sensex and NSE Nifty are trading weak, down by around 220 points and 80 points respectively. The BSE Midcap and Smallcap indices are trading lower by around 2% and 2.3% respectively. The rupee is trading at 49.35 to the dollar.

SBI announced results over the weekend. The bank’s interest income grew by 30% YoY in FY09 and 28% YoY in 4QFY09. Its other income grew by 46% YoY in FY09 as the bank reaped the benefits of a drop in interest rates in its SLR portfolio. While SBI’s provisions increased by 40% for the full year, its cost to income ratio dropped to 46.6% in FY09 from 49% in FY08. It may be noted that the ratio would have been at around 42% for FY09, if not for the wage and pension provisions. Its capital adequacy ratio stood at 14.25% at the end of FY09 and net NPAs at 1.76% (from 1.78% at the end of FY08). SBI’s board has recommended a dividend of Rs 29 to be paid per share.

As per a leading business publication, car sales in India rose 4.2% YoY for the month of April. This is the third consecutive month for which car sales have increased. Decreasing interest rates on car loans and introduction of new vehicle models by some companies have been factors that have helped improve car sales numbers. The higher demand from rural areas and government employees also helped sales which rose to 102,899 cars from 98,752 a year earlier. It may be noted that car sales in India had risen 1% in March and 22% in February, which was the first growth in sales since September 2008. What has also helped April sales numbers is a lower sales base in April 2009. While the stock of Tata Motors is currently trading in the red, Maruti and M&M are trading in the positive.

The Indian markets lost ground during the previous two hours of trade as selling activity was witnessed among the index heavyweights. Stocks from the metals, engineering and auto sectors are leading the pack of losers, while select banking and energy stocks are trading firm. The overall decline to advances ratio is poised at 1.3 to 1 on the BSE.

The BSE Sensex and NSE Nifty are trading weak, down by around 60 points and 40 points respectively. The BSE Midcap and Smallcap indices are also trading weak, down by around 1% and 0.9% respectively. The rupee is trading at 49.21 to the dollar.

As per a leading business daily, Essel Propack, manufacturer of laminated plastic tubes for oral care and FMCG products, is exploring the opportunity of a possible acquisition of the England based Betts. Betts is in the same business of packaging tube manufacturing. While Essel Propack has a global market share of 32%, Betts has a global market share of 14%, with a presence in markets where Essel Propack does not have operations. This move comes after the England based company was placed under administration for breaching the banking covenants and for fear of it not fulfilling the loan obligation. Though the financial details cannot be traced as the company is under administration, it may be noted that Betts was acquired by a private equity firm for around Rs 8 bn in 2007. However, Essel Propack has been facing pressures in its own plants due to high interest costs and lack luster growth during the last year. Hence, if it is successful in acquiring Betts, the benefits, if any, will only be known in the future. The stock is trading firm on the bourses.

Pharma stocks are trading mixed. While Dr. Reddy's is trading firm, Ranbaxy and Glenmark Pharma are in the red. As per a leading business daily, the domestic pharma industry plans to seek an upward revision in drug prices. For this, the industry plans to submit a report on the increase in conversion and packaging costs to the Indian drug price regulator, National Pharmaceutical Pricing Authority (NPPA). Drug prices are fixed by NPPA through a formula, which factors in packaging, conversion and material costs, in addition to the excise duty. The packaging and conversion costs constitute about one-third of the drug price. It is estimated that the drug production cost has witnessed an increase of 25% YoY. It may be noted that if the drug regulator does not agree to the industry’s proposal then there could be a possibility of margin contraction in the future.