Closing Bell 3rd June 2009

Closing Bell 3rd June 2009

After falling into the red during the afternoon session, persistent buying activity during the second half of trade led the indices to end the day on a flat note. The BSE-Sensex ended the day lower by around 5 points, while the NSE-Nifty closed higher by about 5 points. Stocks from the mid-cap and small-cap spaces continued their upsurge as they ended the day with gains of around 1.5% and 2.1% respectively. While buying activity was witnessed in stocks from the FMCG, consumer durables and healthcare spaces, stocks from the banking and IT space ended the day on a negative note.

Most of the other Asian markets ended the day on a positive note. The European indices are currently trading in the red. Rupee was trading at 46.97 against the US dollar at the time of writing.

Aluminium stocks ended the day on a firm note led by Hindalco and Nalco. As per a leading business daily, the government is likely to impose a 10% safeguard duty on the imports of key aluminium products that are used in the automobile and machinery sector. It may be noted that of late, the aluminium industry has been under pressure due to cheaper imports from China, South Korea, Oman and Iran. This move by the government can be viewed as a step to support the domestic aluminium producers.

Cement stocks ended the day on a firm note led by Ambuja Cements and ACC. The month of May 2009, was a strong one for the cement industry as it recorded high volumes sales on account of higher demand. A leading business daily reported that Ambuja Cements increased its shipments by around 8.3% YoY, while that of Grasim Industries and UltraTech Cements grew by around 20% YoY each. As for Shree Cement, the company has recorded an increase of 32% YoY during the month. However, this is mainly on account of new capacity additions. It may be noted that the period before the monsoon season is usually the peak season for the construction sector.

In a recent meeting between the Finance Minister and exporters, issues and possible measures to tackle the falling exports were discussed. A leading business daily reported that the exporters have asked for an exemption from fringe benefit tax as well as faster refunds of service tax. In addition, they have also called for an interest rate of 7% for exports-related credit. In addition to all this, they proposed a Rs 50 bn fund which would allow them to market their products in emerging overseas markets like East Europe, Latin America or Africa. It may be noted that exports have been falling continuously for the past seven months on account of the falling demand from markets such as the US and Europe.

Profit booking at higher levels led the indices to move into the negative region during the previous two hours of trade. However, the overall advance to decline ratio continues to remain in favour of the former at 2.2 to 1 on the BSE. Currently, stocks from the IT and banking spaces are leading the pack of losers, while stocks from the consumer durables, FMCG and healthcare sectors are trading firm.

Two-wheeler stocks are currently trading mixed with Bajaj Auto trading firm, while Hero Honda and TVS Motor are trading in the red. In a move to safeguard itself from declining domestic volumes growth in addition to boosting sales, Bajaj Auto is looking to expand its business in markets such as Africa and Europe. As per a leading business daily, the company is looking at exploring these regions for marketing and selling its motorcycles particularly models such as the Boxer, CT 100 and Pulsar. While the company did witness a fall in volumes sales (even in export markets) during the month of May 2009, it may be noted that during FY09, nearly 29% of its total unit sales (including other two-wheelers and three-wheelers) comprised of motorbikes sold in the export markets. In fact, exports (as a whole) witnessed a 25% YoY growth in over all volumes over the previous year.

FMCG stocks are trading firm led by Dabur, Marico and HUL. As per a leading business daily, FMCG companies continued to witness high volume growth in the key products like detergents, soaps, biscuits and toothpastes. The industry volumes have grown by 20% YoY during the month of April and May 2009, mainly attributed to lower raw material costs and excise benefits that companies passed on to the customers. The growth was witnessed both, in the urban and rural areas. In fact, the industry expects volume growth of around 30% YoY for the entire FY10 led by strong demand in the rural areas. Further higher brand promotions and new launches (variants and price points) by the company are also expected to drive growth.

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 auto, telecom and aluminium sectors are leading the pack of gainers, while select stocks from the banking, software and energy sector are trading weak. The overall advance to decline ratio is poised at 4.2 to 1 on the BSE.

Pharma stocks are trading mixed. While Dishman Pharma and Ranbaxy are trading higher, Wockhardt is trading lower. As per a leading business daily, Dishman Pharma is likely to start its operations in China by August-September of 2009. The company is setting up a facility at Shanghai which will produce quaternary salts and medicine intermediates for international clients. It may be noted that Dishman Pharma is a leading player in the contract research and manufacturing services (CRAMS) space. It has invested around US$ 10 m in the Chinese facility. The management expects the facility to generate revenues of around US$ 10 m in first year of operation and US$ 20 m to US$ 25 m annually thereafter. While the company imports around 20% of active pharmaceutical ingredients (API) from China, the new facility in Shanghai is likely to reduce the cost of raw materials for it. Also, it plans to invest around Rs 1 bn in FY10 in order to boost the capacities at the Shanghai facility and the oncology facility at Ahmedabad.

Steel stocks are trading mixed. While Tata Steel and JSW Steel are trading higher, SAIL is trading lower. As per a leading business daily, India’s largest steel producer, SAIL managed to grow its domestic sales by 12% in May 2009 as compared to same period last year. It sold around 1 m tonnes (MT) during the period, which is the highest ever monthly sale recorded by it. It may be noted that the saleable steel production grew by 5% to 1.1 MT during the same period. SAIL’s domestic sales in the first two months of the current fiscal now stand at around 1.9 MT. The management of the company has planned a target of selling around 13 MT of steel in FY10. As per reports, demand for steel is likely to fall across the world except for India where it will likely grow by 6% to 7%.