Closing Bell 25 May 2009

Closing Bell 25 May 2009

The Indian markets shed a considerable amount of their earlier gains during the final hour of trade. The BSE-Sensex ended the day marginally higher, gaining around 30 points while the NSE-Nifty closed lower by about 10 points. On the other hand, stocks from the mid-cap and small-cap space ended the day on a strong note, recording gains of 2.8% and 5% respectively. Stocks from the realty, healthcare and FMCG sectors emerged as the top gainers today, while profit booking was witnessed in stocks from the IT and power spaces.

Most of the other Asian markets ended the day on a mixed note. The European indices are currently trading mixed as well. Rupee was trading at 47.43 against the US dollar at the time of writing.

Capital goods stocks ended the day on a mixed note with BEML and Blue Star ending the day on a weak note, while Emco and AIA Engineering lead the pack of gainers. The stock of Suzlon was amongst the top losers in the NSE-Nifty index over news of its promoters selling a part of their stake. As per a leading business daily, the company’s promoters have sold nearly 60 m shares, which is equivalent to about 4% of company’s paid up capital. Post this sale, the promoter holding will stand at nearly 60%. As per the company’s management, these funds will be used to part-finance the buyout of the stake in RePower Systems AG from Martifier SGPS. The management added that the promoters of the company do not envisage further stake sale in the foreseeable future.

As per the International Energy Agency (IEA), investments exploration and production activities in the oil and gas industry are likely to fall by nearly 21% YoY or by almost US$ 100 bn due to the economic downturn. In addition, the agency also stated that it expects global power consumption to fall by about 3.5% YoY this year, the first annual contraction since the end of World War-II.

The Indian markets slipped into the negative territory during the previous two hours of trade on account of selling activity witnessed at higher levels. Currently the stocks from the telecom, energy and engineering sectors are leading the pack of losers, while select stocks from the pharma, construction and metal sectors are trading firm. The overall advance to decline ratio is poised at 6.6 to 1 on the BSE.

The BSE-Sensex and the NSE-Nifty are trading lower, down by around 35 points and 25 points respectively. The BSE-Midcap and BSE-Smallcap are trading higher, up by around 2% and 4% respectively. The rupee is trading at 47.38 to the dollar.

Automobile stocks are trading mixed. While Maruti is trading higher, Tata Motors is trading lower. As per a leading business daily, Maruti plans to completely revamp its portfolio of older models in the next two years in order to strengthen its leadership position. Its largest selling product, Alto, will come in two new variants. One variant will be a stripped down version to compete with Tata Motors’ Nano, while the other variant will compete against Santro, Spark and other compact cars. It may be noted that the company has introduced around 8 new cars in last three years. This revamp will help the company save on the huge incremental costs that goes into developing new cars and platforms. In fact, developing a new car requires investments of around Rs 6 bn to Rs 10 bn, while upgrading the existing models requires investments of around Rs 500 m to Rs 1 bn.

Power stocks are trading mixed. While Reliance Infrastructure and Tata Power are trading higher, NTPC is trading lower. As per a leading business daily, Reliance Infrastructure plans to raise around Rs 43 bn by issuing preference shares to the promoters. The issue price will be Rs 1,000 per share and will increase the promoter’s stake to 48%.The shares would be allotted against the warrants issued by the company in January 2008. As per the management, the issue would enable the company to increase its debt from its current Rs 72 bn to Rs 320 bn. This will be on account of an increase in the net worth from Rs 120 bn to Rs 160 bn. It may be noted that Reliance Infrastructure plans to bid for projects worth Rs 500 bn in FY10. Currently, its order book stands at around Rs 370 bn.

The Indian markets gained ground during the previous two hours of trade as buying activity intensified across sectors. Currently, stocks from the realty and metals sectors are leading the pack of gainers, while select energy stocks are trading weak. The overall advance to decline ratio is poised at 8.6 to 1 on the BSE.

Engineering stocks are trading firm led by Crompton Greaves, BHEL and LMW. As per a leading business daily, BHEL has cancelled all its overseas acquisition plans on account of various bureaucratic hurdles the company is facing. The company expressed that it has to meet a host of procedures while acquiring assets overseas, which is not the case with private firms. This leads to extended periods in contrast to quick decision making that is required for making acquisitions. It may be noted that many public companies have lost out to their private rivals in a bid to acquire assets overseas partly due to procedures that are lengthy and time-consuming. This is a negative development given that BHEL has a robust cash and bank balance of Rs 100 bn, which it will not put to use at a time when the economic slowdown globally has opened up a host of opportunities for acquisitions.

Auto stocks are also trading firm led by Hero Honda and Bajaj Auto. As per a leading business daily, Bajaj Auto has decided to re-enter the 100 cc motorcycle segment, a category, which the company had decided to exit two years back. The company will launch a new offering in this segment during the current year. Currently, this segment is dominated by Hero Honda with over 60% market share. It commands huge growth as the segment is used for the basic commuting class. It may be noted that Hero Motors also has a plan to enter the 100 cc segment with launches expected during the current fiscal.

Thermax announced its full year results last week. The company has reported 1.7% YoY growth in net sales during FY09 backed by the 24% YoY growth in the environment solutions business. On the other hand, sales of the energy business declined by 4% YoY. Operating margins contracted by 0.3% YoY on the back of higher costs of goods purchased for trading and higher other expenditure (as percentage of sales). The bottomline growth stood at 2.3% YoY. The same was supported by lower effective tax rate for the company. The stock of Thermax is trading higher currently.

Stocks from the telecom sector are trading mixed currently with major gainers being Tata Teleservices, Bharti Airtel and Reliance Communications. As per a leading business daily, Bharti Airtel has renewed talks to acquire 49% equity stake in the South African telecom major, MTN. It is also believed that MTN and its shareholders would in turn acquire around 36% stake in Bharti Airtel. The move is to create a leading telecommunications service provider group catering to emerging markets. Both companies would stand to gain significant benefits from sharing each other’s best practices in addition to savings emanating from enhanced scale.