Closing Bell 27 May 2009

Closing Bell 27 May 2009

Strong buying activity during the final hour of trade led the Indian markets to end the day on a firm note as the BSE-Sensex ended the day higher by around 520 points, while the NSE-Nifty closed higher by about 160 points. Stocks from the mid-cap and small-cap spaces ended the day on a strong note, recording gains of 3.7% and 3.4% respectively. Buying activity was witnessed in stocks across sectors led by realty, banking and power. However stocks from the healthcare and FMCG spaces were less in favour.

Asian markets ended the day on a firm note. The European indices are currently trading in the green as well. Rupee was trading at 47.7 against the US dollar at the time of writing.

Software stocks ended the day on a firm note led by HCL Technologies, Tech Mahindra and Mphasis. As per a leading business daily, the respective managements of software majors, Infosys and Wipro expect higher demand from the domestic market and the Middle East going forward. In fact, Wipro plans to ramp up its expansion plans in the Middle East as the company expects growth to be in the region of 50% plus each year. It may be noted that the Middle East and the Indian markets are not highly penetrated as compared to the developed countries.

Auto stocks ended the day on a firm note led by Ashok Leyland, Tata Motors and M&M. A leading business daily reported that the management of Maruti Suzuki is concerned about its revenue growth coming from two of its models - Dzire and Swift. It believes that the company could face problems if this issue continued longer. The management added that Maruti’s performance in many other models was not up to the mark. Volumes of the company’s A1 models, which mainly includes the M-800, declined by 29% YoY during the year, while volumes of its C segment (includes Omni, Versa) declined by 13% YoY. On the other hand, volumes of its other two segments - A2 (which includes Alto, Wagon R, Swift, amongst others) and A3 (which includes SX4 and Dzire) grew by 54% YoY. As such, on account of the slowing volumes in the A1 and C segments, the company is trying to boost volumes by targeting the rural areas.

Consulting firm McKinsey in its latest report has stated that it expects the Indian pharmaceutical industry to grow rapidly in the coming years. It believes that the demand will largely grow in the domestic market. It expects the market to grow by at least 10% YoY to 12% YoY. In addition, the firm stated that it expects large pharma companies to weather the slowdown in the economy as they have comfortable cash positions. However, it expects smaller and highly leveraged firms to be under pressure.

The Indian markets continued to trade in the positive territory on account of sustained buying activity witnessed during the previous two hours of trade. Stocks from the telecom, power and construction sectors are leading the pack of gainers, while select stocks from the cement and FMCG sectors are trading lower. The overall advance to decline ratio is poised at 4.3 to 1 on the BSE.

The BSE-Sensex and the NSE-Nifty are trading higher, up by around 390 points and 95 points respectively. The BSE-Midcap and BSE-Smallcap are also trading higher, up by around 2.9% and 2.6% respectively. The rupee is trading at 47.66 to the dollar.

Energy stocks are trading firm led by ONGC, GAIL and Reliance Industries. As per a leading business daily, the government is likely to double the prices of natural gas sold through the administered price mechanism (APM) to US$ 4.2 per m British thermal unit. It may be noted that all the gas produced from the existing fields in nominated blocks of ONGC and OIL is treated as APM gas. It amounts to around 45 m cubic meters a day and accounts for around 34% of India’s total natural gas production. It may be noted that selling of gas under APM has resulted in huge losses for the producing companies. ONGC had accounted for a loss of around Rs 21.4 bn for its gas business in FY08 due to the same. As such, it is a positive development for the company.

Shipping stocks are trading firm led by G.E. Shipping and Mercator Lines. As per a leading business daily, Indian shipping companies are likely to face margin pressures in the coming quarters on account of a fall in tanker freight rates due to subdued oil demand. It may be noted that average freight rates of tankers have fallen by around 40% to 60% as compared to last year. Moreover, freight rates are expected to remain lower as vessel utilisation is likely to remain low in 2009.

The Indian markets held on their gains during the previous two hours of trade as buying activity was witnessed across sectors. Currently, stocks from the metals, realty and banking sectors are leading the pack of gainers, while select telecom and power stocks are trading weak. The overall advance to decline ratio is poised at 4.7 to 1 on the BSE.

The BSE-Sensex and the NSE-Nifty are trading higher, up by around 330 points and 80 points respectively. The BSE-Midcap and BSE-Smallcap are also trading higher, up by around 2.7% and 2.6% respectively. The rupee is trading at 47.66 to the dollar.

Aluminium stocks are trading firm led Nalco and Hindalco. As per a leading business daily, Nalco has cut aluminium prices to the tune of Rs 4,000 to Rs 5,000 per tonne on the back of increasing threat of imports. The company has been facing a threat from large exporters in Chinese and Bahrain markets as the Rupee has appreciated against the US dollar. This move will help the company to quote prices at parity with the imports. It may be noted that CMIE expects aluminium demand to remain firm during FY10 on account of a healthy requirement from the electrical power equipment and construction sectors. Nalco plans to cater to the growth in demand through its various expansion plans.

As per a leading business daily, ITC will have to suspend production at all it facilities in order to introduce sufficient changes in cigarettes packets to reflect the mandatory pictorial warnings from June onwards. This new packaging would mean application of more colours, which require advanced printing cylinders. This would increase the total cost of packaging by at least 15%. It will also put Indian manufacturers at a further disadvantage compared to the illegally imported cigarettes on account of the huge price gap. It may be noted that the tobacco industry is already facing turbulent times due to the economic slowdown. Adherence to the mandatory pictorial warnings will further slacken the industry’s revenues going forward. The stock of ITC is trading lower currently.