Closing bell 18 Jun 2009

Closing bell 18 Jun 2009

Persistent selling activity during the second half of today’s trading session led the Indian markets into the negative territory, where they continued to languish for the rest of the trading session. The BSE-Sensex ended the day lower by about 260 points, while the NSE-Nifty closed lower by about 105 points. Stocks from the mid-cap and small-cap spaces too ended the day on a negative note, recording losses of 2.9% and 3.7% respectively. Barring stocks from the IT sector, selling activity was witnessed in stocks across the board led by realty, power and metals.

Most other Asian markets ended the day in the red today. The European indices are currently trading mixed. Rupee was trading at 48.25 against the US dollar at the time of writing.

Fresh deals struck by Indian IT companies in the recent past are a testimony to their eminent position in the global outsourcing arena. As per a leading daily, Infosys has bagged a US$ 10 m worth BPO project from Microsoft. As per the deal, it will provide back-end support activities like data processing to the software giant for three years. In another deal, the European telecom major Alcatel-Lucent too is all set to award an over US$ 15 m worth back-end support project to Infosys BPO. All such deals reinforcing the need for Indian IT/ITES oriented services at a global level suggest that any sort of protectionist measures may not do significant harm to the industry.

Trent Ltd. announced results yesterday. The company reported flat sales on a standalone basis during FY09, while on a consolidated basis revenues were higher by 18% YoY. The slowing economic growth impacted the lifestyle retailing business of the company. The increased cost of operations dented the company’s operating margins. Compared to a 63% YoY decrease in operating profits, the decline in bottomline was lower at 19% YoY. Higher other income and lower taxes helped restrict the fall in net profits. On a consolidated basis, net profits were down by 97% YoY. Apart from the gloomy environment, the profits were also lower on account of its Hypermarket business still being in its incubation period. The company opened 8 Westside stores, two Sisley stores and one Fashion Yatra store during the fourth quarter taking the total number of Westside stores to 36 and the total number of stores under various formats to 42. The company recommended a dividend of Rs 5.5 per share, which translates into dividend yield of 1.1% at the current price.

Inflation dropped into negative territory and stood at -1.6% (deflation) during the first week of June after an annual inflation of 0.13% in the week before that. This may be attributed to the high base effect of last year’s prices wherein commodity prices were at their peak. It may be noted that retail inflation as measured by consumer price index (CPI) is still high at around 8%. Inflation hit a 13 year high of 12.9% in August 2008, but has been decelerating steadily since then. Interestingly, this marks the first annual decline in wholesale prices since the government started releasing weekly data in 1977.

Amidst market wide selling, IT stocks are still trading in the green, led by Infosys and TCS. As per a leading daily, India’s largest IT company, TCS is foraying into the e-governance arena in order to combat the global meltdown. The company sees increased momentum for more e-governance projects, both at state and central level, as these are important for improving the government’s efficiency in delivering services. The company is already working on e-Passport scheme for the ministry of external affairs and is targeting more such areas. Other leading IT players like Infosys and Wipro are also eyeing a share of this pie.

Aluminium stocks are trading weak led by Hindalco and Nalco. As per a leading business daily, Hindalco Industries is close to acquiring coal mine assets in Australia and the deal size is estimated between Rs 3.4 to Rs 3.9 bn. It is believed that the company has already shortlisted one mine with coal reserves of around 120 m tonnes (MT). It may be noted that of late Hindalco has been scouting for acquiring coal mines down under as the commodity prices have corrected by about 50% as compared to six months back, making it the right time for acquiring resources. The proposed coal reserves will help Hindalco meets its capacity augmentation plans in Orissa. The company plans to increase its aluminium refinery capacity to 1.5 MT from 1 MT and the smelter capacity from 26 MT to 72 MT.

The Indian markets continued to gain ground during the previous two hours of trade on the back of continued buying among the index heavyweights. Currently, stocks from the software, banking and auto sectors are leading the pack of gainers, while select metal and cement stocks are trading weak. The overall decline to advance ratio is poised at 2.5 to 1 on the BSE.

The BSE Sensex is trading higher by around 70 points, while the NSE Nifty is trading weak, down by around 15 points. The BSE Midcap and the BSE Smallcap indices are trading lower, down by around 0.7% and 1.3% respectively. The rupee is trading at 48.09 to the dollar.

As per a leading business daily, following on the heels of the country’s largest lender SBI, HDFC and HDFC Bank are set to reduce their deposit rates by up to 25 basis points (0.25%). While the rates of HDFC will be effective today, the new rates for HDFC Bank will be applicable from June 19. With respect to the lending rate, HDFC usually lowers the rates when its sees decline in trend of the costs of funds. Further, HDFC will keep a close watch on the Union Budget to find a clear trend on the interest rate movement and take decision on the rate accordingly. Even after lowering the deposit rates, HDFC still offers higher returns to depositors with a gap of around 0.5% compared with that of SBI. On the other hand, HDFC Bank has cut the rates as there has been a downward bias in the bulk deposit rates on account of enough liquidity in the market. This move will help both the institution and the bank augment their net margins. Banking stocks are currently trading mixed.

Pharma stocks are also trading mixed. While Dr. Reddy’s and Ranbaxy are trading higher, Glenmark Pharma is in the red. As per a leading business daily, the skincare drug major, Medicis has filed a lawsuit against Ranbaxy as it believes that the latter’s Para IV filing has infringed its patent for its branded drug ‘Solodyne’. According to the drug tracking agency IMS, the sales of ‘Solodyne’ were around US$ 365 m during CY08 in the US. ‘Solodyne’ accounts for 50% revenues of Medicis. Such litigation is common in the US as the drug innovator has to sue the generic company, which has filed the Para IV ANDA, within 45 days of intimation. If Ranbaxy wins the litigation it will get 180 days marketing exclusivity for the drug.

With some amount of volatility, the Indian markets have opened the day’s proceedings on a cautious note. Buying activity is being witnessed among banking, pharma, metal and telecom stocks. However, select software, engineering and power stocks are trading in the red. The overall decline to advance ratio is poised at of 1.08 to 1 on the NSE. As regards global markets, the NASDAQ ended positive yesterday led by a tech rally. However, the broader market ended lower after Standard & Poor's cut its outlook on 22 banks. The European markets ended weak yesterday. The Asian markets are trading mixed.

The BSE Sensex is trading lower by around 25 points. The NSE Nifty is up 5 points. Both the BSE Midcap and BSE Smallcap index are trading flat. The rupee is trading at 47.05 to the dollar.

Titan Industries has set a goal of crossing US$ 1 bn in revenues during FY10. The company expects around 65% of the targeted revenues to come from gold ornaments. The company is one of the premier players in India's Rs 800 bn jewellery market. Semi-urban and rural areas account for nearly 60% of the total market. Titan sells jewellery through its GoldPlus and Tanishq retail chains. While GoldPlus addresses the rural and semi-urban mass market and focuses on plain gold jewellery, Tanishq focuses on the metros. The company expects GoldPlus to genearte Rs 20 bn of revenues over the next four-five years. The jewellery segment grew by 36% YoY during FY09, contributing around 72% to the revenues. The jewellery sector in India has grown at a compounded annual rate (CAGR) of approximately 16% over the past three years. As against that, the organised jewellery sector has showcased over 30% CAGR during the same period. On account of jewellery retailing in India undergoing a slow transformation from a largely unorganised sector to a more organised one, the company expects good growth. Retail stocks are trading firm.

Pharma major, Wockhardt has sold its German business Esparma to Mova GmbH. Mova is a subsidiary of Germany's Lindopharm GmbH. Wockhardt had acquired Esparma business in May 2004 for around US$ 11 m. Although the company has not disclosed the size of the deal, the deal size has been pegged at Rs 1.2 bn. The company is also planning to sell its animal healthcare business, of which Pfizer is reported to be one of the interested parties. The move is part of Wockhardt’s plan to restructure its business. The company is having debt of around Rs 34 bn on its books and has sought corporate debt restructuring to tackle the situation. It is also looking to divest its stake in non-core businesses to raise money to repay the debt. Pharma stocks have opened the day’s proceedings on a positive note.

That Dr Doom aka Nouriel Roubini is not seeing any 'green shoots' (a metaphor used to describe initial signs of economic recovery) has been largely publicized in the media in the past few weeks. However, for the first time in many months, he has expressed his views on the Indian economy and its stock market and sadly, it does not make for a very good reading. Speaking to leading business daily, Roubini was of the opinion that the Indian stock markets along with other emerging market equities may have run up too soon too fast and there is a potential asset bubble building here. Although he agrees that part of the reason the stocks have rallied is because of better fundamentals in these markets, but he also remains concerned about the easy-money situation which is pushing up asset prices sharply.

Roubini also proffered his views on whether inflation because of money printing by most governments or a deflation because of rising unemployment and lower consumer spending is staring us in the face. He opined that while in the near term, the global economy will be gripped by a deflationary spiral, eventually all the money printing by the government will go into goods inflation, leading to runaway inflation. Hence, in the longer term, it will be the inflation that will act as dampener while the global economic growth will be beset with problems of deflation in the near term. Going by the man's track record, we better take his comments seriously.

Obamaspeak hits US banking stocks
Following the sell-off seen in the US markets yesterday, the Asian markets have opened today on a weak note, with most benchmark indices trading down in a range of 1-2%. This adds to the decline that was seen in these markets yesterday on the back of decline in commodity stocks. Today, the culprits seem to be banking and financial stocks given that in the US yesterday, President Obama proposed sweeping new 'rules of the road' for the country's financial system to bring it to task.

Obama has in fact blamed the financial crisis on a culture of irresponsibility that had taken root from Wall Street to Washington to Main Street. The new regulations outlined by Obama's team are likely to give new powers to the US central bank and the Federal Reserve to oversee the country's banking and financial system or rather police the entire financial system for risky products.

Infosys believes that the worst is over
The past 18 months have probably been one of the toughest for the Indian IT industry as clients, especially in the North American region, have been cutting down their spending on account of the slowdown.

However, the management of IT major Infosys expects the 'worst to be over'. As per Mr. Gopalakrishnan "Our clients are more confident about the current situation because they believe that we are at the bottom and it's highly unlikely that we see something unforeseen (such as bankruptcies and failures) in the future." As such, the company expects clients to increase spending going forward. He also did add that demand of outsourcing services, however, will take at least a year to recover.

However, the company has stuck to its revenue estimate, which it lowered for the first time ever last year.