Closing bell 26 June 2009

Closing bell 26 June 2009

Persistent buying activity during the day led the markets to end the week on a strong note. The BSE-Sensex ended higher by around 419 points, while the NSE-Nifty closed up by about 135 points. Stocks from the mid-cap and small-cap spaces ended the day on a positive note, recording gains of 2.4% and 1.9% respectively. Buying activity was witnessed in stocks from the banking, consumer goods and IT spaces, while stocks from healthcare ended on a negative note.

Most of the other Asian markets ended the day on a positive note today. The European indices are currently trading in the green. The Rupee was trading at 48.27 against the US Dollar at the time of writing.

As per a leading business daily, on account of poor natural gas offtake from the power plants, Reliance Industries (RIL) is forced to suppress the production at its D6 block in the KG basin fields. As per management reports, the company is currently producing around 28 m cubic meters a day (mcmd) gas from the above block as against a capacity of 37 mcmd. It may be noted that the government had prioritized consumers for the gas from D6 blocks, wherein the power sector was allocated 18 mcmd and fertilizers was given 15 mcmd. However, on account of lower demand, the fertilizers and power sectors are taking only 12 mcmd and 13.5 mcmd of gas respectively. Despite of all this RIL is targeting to achieve production of 80 mcmd by the end of December 2009.The stock of RIL closed the day in the green.

On the final day of the offer, the IPO of Mahindra Holidays & Resorts got fully subscribed raising a sum of Rs 3 bn for the company. The company will use the proceeds in setting up new projects to fuel its expansion plans. Full subscription of the issue signals a revival in investment appetite in the IPO market, which has lately had a dry spell on account of the credit crunch and risk aversion. The IPO got good response from institutional investors like Qualified Institutional Buyers (QIBs) and Foreign Institutional Investors (FIIs) and also from corporates and individuals. The enthusiasm from retail investors remained a little subdued. The parent company, Mahindra and Mahindra closed the day on a weaker note.

The World Bank is of the view that the emerging economies will see a 14% surge in foreign direct investment (FDI) in the next one year. This year, due to a credit crunch arising out of global recession, the FDI inflows to the emerging world fell by 34% to US $385 bn from US $580 bn in 2008. It is expected to rebound to US $ 440 bn in 2010. Significantly, emerging nations, led by the BRIC countries will increasingly invest in each other. According to Bloomberg, BRIC nations, together hold about US$ 2.8 trillion i.e. 41% of the world’s foreign currency reserves. This figure is all set to increase on account of revised confidence in the fundamentals of these countries and their potential of leading the world out of the recession

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GAIL to lay more pipelines

Markets continued to move upwards during the previous two hours of trade, on account of sustained buying activity across the index heavyweights. Stocks from the banking, energy and telecom sectors are leading the pack of gainers, while select stocks from the pharma, metal and auto sectors are trading weak. The overall advance to decline ratio is poised at 1.8 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading firm, up by around 240 points and 90 points respectively. The BSE-Midcap and BSE-Smallcap indices are also trading higher, up by around 1.6% and 1.3% respectively. The Rupee is trading at 48.42 to the Dollar.

Except for Tata Steel, majority of the steel stocks are trading higher led by JSW Steel and SAIL. Tata Steel announced its FY09 results last evening. The standalone topline grew by 23.5% YoY backed by both higher volumes and realizations. The operating profits grew by 14% YoY, lower as compared to the topline, mainly on account of higher than proportionate growth in operating costs. Thus, operating margins declined by 3.1% to 37.6% during the fiscal. Net profits grew by 11% YoY in FY09. On a consolidated basis, while the topline grew by 12% YoY, the bottomline declined by 60.6% YoY during the fiscal. It has recommended a dividendof Rs 16 per share (dividend yield of 4%).

Energy stocks are trading positive led by RIL, Cairn India and GAIL. As reported by a leading business daily, GAIL, the largest natural gas transmission and marketing company in India, is planning to invest over Rs 75 bn in laying pipelines from Dabhol on the Maharashtra coast to Bengaluru, Kochi and Mangalore. The first project comprising of laying a 1,389 km long, 16 mcmd (million cubic metres per day) pipeline between Dabhol and Bengaluru is expected to be completed by 2013 with an investment of about Rs 45 bn. The second project for laying the 1,114 km long Kochi-Kanjirkkod-Bengaluru-Mangalore pipeline will cost around Rs 30 bn. The two projects will be executed in a phased manner. Government approvals regarding these are underway. These pipelines will go a long way in advancing its capacity and reach to fulfil the ever increasing fuel demand in the country.

Sun Pharma down on US FDA move

The Indian markets continued to trade above the dotted line during the previous two hours of trade as buying activity sustains among stocks. Currently, stocks from the engineering, banking and metals sectors are leading the pack of gainers, while select pharma and auto stocks are trading weak. The overall advance to decline ratio is poised at 1.5 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading firm, up by around 90 points and 40 points respectively. The BSE-Midcap and BSE-Smallcap indices are also trading higher, up by around 1.2% and 1.0% respectively. The Rupee is trading at 48.51 to the Dollar.

Pharma stocks are trading mixed on the bourses currently. While Dr. Reddy's and Glenmark Pharma are trading firm, Sun Pharma is trading deep in the red, riding on the news that the USA FDA has seized drugs manufactured by its US subsidiary, Caraco. It is believed that the US FDA has seized some 30 drugs manufactured from Caraco's Michigan facility on the back of manufacturing deficiencies. However, the company currently is waiting for more clarity from the US FDA on this move. It may be noted that earlier the US FDA had also seized drugs manufactured in the Caraco's Detroit facility, which had led to Sun Pharma's exports formulation business to witness a drop of 57% YoY in 4QFY09.

Power stocks are trading firm led by Reliance Power and Tata Power. As per a leading business daily, Tata Power plans to build a 525 MW power plant at the Tata Steel's Corus facility in the Netherlands. For this, the company is close to signing an MOU with Tata Steel and Corus Steel BV. Under the agreement, Tata Power and Tata Steel will set up a joint venture company that will develop the project on BOO (build, own and operate the power plant) basis. The plant will use most of the excess gas produced in the plant to produce steam and power for the facility. It is expected that the new plant will operate by 2013 and Corus will partly replace its existing power supply arrangements. The development will ensure Tata Power's long term engagement with Corus.

Low growth fear hits FMCG stocks

Mirroring the global markets, the Indian markets have opened the day's proceedings on a positive note today. Barring select pharma stocks, all the stocks on the NSE Nifty are trading higher. Energy, banking and engineering stocks are leading the pack of gainers. As regards global markets, the US markets found momentum yesterday as buying was witnessed at lower levels. The European markets ended in the green yesterday, while the Asian markets are trading mixed.

The BSE Sensex is trading higher by around 80 points. The NSE Nifty is up 40 points. The BSE Midcap and the BSE Smallcap indices are also trading firm. The rupee is trading at 48.53 to the dollar.

As per the latest Nielson report, a slowdown has been witnessed in the FMCG sector growth. The year on year growth in April and May was seen at 16.2%. This is lower than that of April and May 2008, at 19% YoY. Overall growth was broad-based, as all categories, except toothpaste and edible oils, grew over 10% YoY. However, washing powder and detergent cakes continued to witness declining volumes. This is inspite of price cuts taken by the companies during the start of the year. Out of the big FMCG players, only Nestle recorded a good sales growth of 20.1% YoY during the April-May period on the back of strong growth experienced in noodles, milk food and milk powder. Further, as per the report, a sharp volume and market-share dip in key categories for HUL was witnessed. FMCG stocks are trading mixed. FMCG stocks are trading weak currently.

Banking stocks are trading firm. As per a leading business daily, the Reserve Bank of India (RBI) is planning to tighten prudential norms for banks to provide a cushion for financial dependability especially in turbulent times like these. The central bank is considering suggestions to increase the capital adequacy ratio from the present 9%. The additional capital will be used by banks to tide over a financial crisis or other eventualities during an economic downturn. It is also considering the option of making additional provisions during good times. This could mean provisioning of 120% of risk weightage when the actual requirement may be 100%. The RBI may also stipulate a leverage ratio for banks to prevent excess strain on capital. At present there are no leverage ratios. This ratio would be made applicable for internal and external operations of the bank. The move is in line with the recommendations of the G-20 working group on enhancing sound financial regulation and strengthening transparency. While Indian banks are currently safeguarded from the financial crisis being witnessed across global banks, these measures would certainly benefit them.

Change is coming to India...

...or so we can hope, with one of India's most revered corporate citizens getting down to a new role in India's governance. We are talking about Nandan Nilekani, the co-Chairman of India's second largest and among the most respected companies, Infosys. He has quit from the company's board after being appointed the chairperson of the Unique Identification Authority of India, an estimated Rs 20 bn national project to build India's database of her billion-plus population.

This database will comprise a unique permanent identity number assigned to every resident Indian, and will be created over the next 12 to 18 months. The biggest benefit for us citizens will be that we then won't have to produce multiple proofs of identity, while the country is expected to become more secure.

Nilekani, who will now have to shift base to Delhi, has been roped in by Prime Minister Dr. Manmohan Singh himself to lead this project. And while his inclusion is expected to provide a big boost to India's mismanaged governance, it might leave some gaps in the management of Infosys, with which he has been associated for the past three decades. And this is especially at a time when the company is going through a tough phase owing to a global slowdown in technology spending.

When asked by a news channel on the pains of leaving the company he helped create, Nilekani said, "Definitely it was a very big decision, because it was a company which I was the co founder, which I had nurtured for 30 years. Certainly it was a very emotional decision. But at the end of the day when the PM requests you take up a project of national importance and says please take this and do something in five years, that's an offer you can't refuse."

Coming back to the project, we see this presenting Indian IT companies with a big chance to showcase their skills for the Indian market. While the project size in itself is not too big for the kind of work that the large Indian IT companies do for their US and European clients, it certainly will be a game changer in times when these companies are looking to the domestic market for some respite from a global tech slowdown.

As far as Infosys is concerned, Nilekani has indicated that he will ensure that there is no conflict between his new role and the interests of the company. True to what was expected of him, he has said, "I will make sure that we have the highest standards of integrity, openness, transparency and process in all procurement. A slightest issue (and) I will recuse myself from the decision."

Overall, in a country where corporate chieftains have never played any key in the governance (despite many being part of the government), Nilekani's appointment is like a breath of fresh air. It also is a hope that the country's governance will see a change for the better. As for Infosys, we need to hear what they have to say when they come in front of investors with their quarterly results in the second week of July.