Closing Bell 19 May 2009

Closing Bell 19 May 2009

After making history yesterday, the Indian markets opened below the dotted line on account of profit booking at higher levels. This was, however, not for long. Intensified buying activity at lower levels pushed the indices back into the positive territory. While the rest of the day saw markets remaining firm, towards the closing session markets pared gains as investors’ choose to book profits. While the BSE-Sensex managed to end the day with gains of around 15 points, the NSE-Nifty closed lower by about 5 points. Stocks from the mid-cap and small-cap space also ended the day on a firm note, higher by 3.5% and 2.6% respectively. While banking and realty sectors led the pack of gainers, stocks from the software and energy sectors were at the receiving end.

All the other Asian markets ended the day on a positive note. The European indices are currently trading in the green as well. Rupee was trading at 47.86 against the US dollar at the time of writing.

While auto stocks ended the day mixed, Ashok Leyland ended on a very strong note. The company recently announced its 4QFY09 and FY09 results. It reported a fall in topline by 23% YoY during FY09 as a result of a 35% YoY decline in volumes during the period. The EBITDA margins contracted by 2.8% YoY to 7.6% during the year as fixed costs remained intact on lower sales volumes. During the year, the interest costs increased by 139% YoY, while depreciation remained flat. As a result, net profits witnessed a fall of 60% YoY. Though the results were bad during FY09, the management has indicated strong growth in volumes and margins in the current fiscal.

Retail stocks ended on a firm note led by Trent and Shopper’s Stop. As per a leading business daily, retail majors plan to restructure their existing frontline formats. The leading players in the industry such as Future Group’s Pantaloon, Vishal Retail and Shopper’s Stop plan to right size their formats by replacing slow moving categories with specialty formats under the shop-in-shop model. As such, Shoppers’s Stop had recently tied up with Café Coffee Day in order to manage cafes in their stores. These formats help to effectively utilise their unused space area as well as increase the number of foot falls. The move will also help retailers improve their gross margin return per sq. ft.

A labour ministry report has highlighted that employment in certain Indian manufacturing and service sectors, which laid off about half a million employees last year, has gone up by 0.6% indicating a revival of the economy. The report has also mentioned that hiring of employees in non-export oriented industries has witnessed increase of 0.92% as against 0.28% in exporting firms. The same is the result of slowdown in export sector owing to the slowdown in the global economy. While sectors like gems and jewellery, handloom/powerloom, automobiles and IT/BPO were on a hiring spree, employment in sectors like leather, metals and transport witnessed decline during the period.

The Indian markets continued to stay in the positive territory during the previous two hours of trade on the back of intense buying activity. Stocks from the construction, aluminium and engineering sectors are leading the pack of gainers, while select stocks from the pharma, software and telecom sectors are trading weak. The overall advance to decline ratio is poised at 2.5 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading firm, up by around 350 points and 70 points respectively. The BSE-Midcap and BSE-Smallcap indices are also trading higher, up by around 3.8% and 2.3% respectively. The rupee is trading at 47.60 to the dollar.

Engineering stocks are trading mixed. While L&T and BHEL are trading higher, Suzlon and Punj Lloyd are trading lower. As per a leading business daily, L&T has signed a memorandum of understanding (MoU) with GE Hitachi Nuclear Energy (GEH), a US based company, for cooperation on advanced boiling water reactor (ABWR) and BWR nuclear power plants. GEH’s ABWR technology is the only commercially proven generation III advanced reactor design in world. It may be noted that nuclear agreement between India and US has opened up new opportunities in nuclear power for both countries. The MoU will facilitate L&T to manufacture and construct ABWR power plants in India. This in line with L&T’s plan of expanding its business in the nuclear power segment. L&T’s engineering and construction segment accounted around 80% of the total revenue in 9mFY09.

Automobile stocks are trading mixed. While Tata Motors and Maruti are trading higher, Eicher Motor is trading lower. As per a leading business daily, despite the gloomy conditions in the automobile sector, Tata Motors is planning a wage hike to its staff for FY10. As per the management, the increment in wages would be in single digits. This will be lower as compared to the average increment of around 13% in the last three years. The company also ruled out the possibility of downsizing during the current fiscal. It may be noted that Tata Motors’ staff cost accounted for around 6.3% of its topline during 9mFY09. The likely increment in staff wages is likely to impact the company’s operating margins during the current fiscal. 

Follow us on www.twitter.com/SmartInvestor