BSE / NSE Closing Bell 15 July 2009

Closing Bell 15 July 2009

The Indian markets put up a strong show today as persistent buying activity led the indices to gain momentum right from the opening session of trade. The BSE-Sensex ended the day higher by around 400 points, while the NSE-Nifty ended with gains of about 130 points. The BSE-Midcap and BSE-Smallcap indices ended the day higher by about 4.2% and 4.6% respectively. Buying activity was witnessed in stocks across the board with the pack of gainers led by stocks from the realty, metal and capital goods space. At the time of writing, the overall advance to decline ratio stood at 3.7 to 1 on the BSE.

Most of the other Asian markets ended the day on a firm note today. The European indices are currently trading in the green as well. Rupee was trading at 48.7 against the US dollar at the time of writing.

Steel stocks ended the day on a firm note led by Bhushan Steel, Ispat Industries and JSW Steel. Steel consumption numbers for the first quarter were recently announced. As per a leading business daily, the consumption of finished steel rose by 5.2% YoY to 12.8 m tonnes (MT) during the first quarter. In addition, the steel ministry also mentioned in its report that finished steel production went up by 3.4 YoY to almost 14 MT during the quarter. However, the situation for the commodity’s export figures is quite the opposite. It is believed that steel exports dropped by 38% YoY during the quarter to 0.6 MT from a little over 1 MT in the same period last year. On the other hand, imports dropped by over 5% YoY during the period. It may be noted that as per the World Steel Association reports, while steel consumption in India is projected to grow by around 2% in 2009, the global steel consumption is projected to decline by around 14.9%.

Telecom stocks ended the day on a firm note led by Spice Communications, Idea Cellular and Reliance Communications. Mobile number portability (MNP), a service which allows subscribers to switch networks without changing their numbers, was slated to be rolled out by September this year. However, it is now believed that the implementation of MNP is likely to get delayed further as various telecom service providers informed Department of Telecommunications that the phased roll out is not possible. A leading business daily has now reported that the launch of MNP is likely to be delayed by another few months. It may be noted that the launch of MNP is likely to benefit the well established telecom service providers as it would allow them to capture subscribers using services of other operators. While India has been growing its subscriber base at a significant pace, the launch of MNP would mainly allow the larger players to eat into the share of the smaller players.

In a recent announcement, India’s Finance Minister stated that the government is making efforts to bring the fiscal deficit rates down. Giving his assurance, the FM mentioned that the country’s fiscal deficit will be brought down from 6.8% to 5.5% next year and 4% in the following year. The FM also mentioned that the government is identifying PSUs for disinvestment. He added that the amount raised from stake sales would be used for modernisation, upgradation and expansion of these units. However, he also made it clear that the government will retain ownership of these units by keeping 51% equity to itself.

The markets continued to scale higher during the previous two hours of trade on account of sustained buying activity witnessed across the index heavyweights. Stocks from the telecom, construction and power sectors are leading the pack of gainers, while select stocks from the cement, FMCG and software sectors are trading lower. The overall advance to decline ratio is poised at 3.5 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading firm, up by around 280 points and 90 points respectively. The BSE-Midcap and the BSE-Smallcap indices are also trading higher, up by around 3.7% and 3.9% respectively. The Rupee is trading at 48.70 to the Dollar.

Banking stocks are trading higher led by ICICI Bank, HDFC Bank and Axis Bank. HDFC Bank announced its 1QFY10 results yesterday. The interest income grew by 13% YoY on account of lower growth in consolidated advances. Consolidated advances (including Centurion Bank of Punjab’s (CBoP) loans) grew by 8% YoY during the quarter. This was primarily on account of shedding of some erstwhile CBoP loans - particularly those on two wheeler loans and credit cards during the quarter. While the CASA (current and savings account) level improved to 45% of total deposits in 1QFY10, net interest margins remained stable at 4.2% due to downward re-pricing of loans. Fee income base grew by 27% YoY in 1QFY10, thus the proportion of fee to total income improved to 22% during the quarter as against 20% in 1QFY09. The net profits grew by 30.5% YoY during the quarter. While due to the merger with CBoP the quality of HDFC Bank's asset book was impacted in FY09, the bank successfully contained further slippages and the net NPA to advances ratio remained at 0.6% in 1QFY10.

Power stocks are trading higher led by Reliance Power and Tata Power. As per a leading business daily, the Power Ministry is leaving no stone unturned in order to overcome the power deficiency and meet the rising demand in the country. As per the power ministry, the target for the 11th five year plan of adding 78,750 MW is on track and is likely to be completed by March 2012. The Power ministry is also mulling over a capacity addition target of 100,000 MW for the 12th five year plan. It may be noted that as per reports around 80,000 MW capacities are under construction and the government would be able to deliver 65,000 MW capacity additions. The government is encouraging contribution from private capital goods companies in order to meet the increasing demand for power equipments. In fact, as per reports four new indigenous factories are being set up to ensure there is no shortage of power equipments. The ministry has also set up a committee to look into the problems faced by independent power producers in executing the projects. It has also instructed Power Finance Corporation and Rural Electrification Corporation to increase lending for the projects. Currently, India has an installed generation capacity of 149,391 MW and faces a peak hour deficit of 12%.

The Indian markets remained firm during the previous two hours of trade on the back of persistent buying activity. Gains are being seen in stocks from the realty, metal and engineering sectors, while select stocks from the software and FMCG spaces are trading weak. The overall market breadth is positive, with gainers outnumbering losers in the ratio of 3 to 1 on the BSE.

The BSE-Sensex and NSE-Nifty are trading firm, up by around 150 points and 40 points respectively. The BSE-Midcap and the BSE-Smallcap indices are also trading higher, up by around 2.7% and 3.1% respectively. The Rupee is trading at 48.71 to the Dollar.

Sintex Industries announced its consolidated 1QFY10 results yesterday. The company's topline declined by 9% YoY during the quarter. The fall in sales was attributed to both the plastic and textile divisions. While the revenues from the plastic division, which contributes around 84% to total sales, witnessed a decline of 9% YoY during the quarter, the revenues from the textile division declined by 8% YoY (contributes 11% to total sales). Since the growth in expenses was proportionately lower, operating margins grew by 0.5% YoY to 13.2% in 1QFY10. Subsequently, higher other income and lower interest charges helped the bottomline in logging a growth of 7.3% YoY during the period. The stock is currently trading higher.

As per a leading business daily, the FMCG sector is expected to witness a modest double digit growth during the quarter ended June 2009. This is on account of various discounts offered by the FMCG companies on account of fall in input costs. Hence, the growth will primarily be volume driven rather than a value led growth. However, on account of down trading, regional players may see higher growth. It may be noted that as per the AC Nielsen report, the sector had witnessed a growth of 16.2% YoY during April to May 2009. This is lower than the 19% YoY growth reported last year. During the period of April to May 2009, we believe that the growth was lower due to lower inflation which led to price cuts. But, volume growth remained robust. Again most of the categories witnessed strong demand except for the soap and detergent segments. Companies like HUL and Marico had taken price cuts in some categories at the start of the year as down trading was seen. The FMCG stocks are currently trading lower led by HUL and Dabur India.

Continuing from where they left off yesterday, the Indian markets have opened the day's proceedings on a positive note. Engineering, metal and power stocks are leading the pack of gainers. However, select FMCG stocks are trading lower. The overall advance to decline ratio stood at 4.6: 1 on the NSE. As regards global markets, the US markets ended marginally higher yesterday led by Goldman Sachs' better-than-expected results. The European markets ended in the green, while the Asian markets are also trading higher currently.

The BSE Sensex is trading higher by around 120 points. The NSE Nifty is up 25 points. The BSE Midcap and the BSE Smallcap indices are trading higher by 2% each. The rupee is trading at 48.78 to the dollar.

Tata Steel is planning to go in for another round of layoffs at its European subsidiary, Corus, to overcome the slump in global demand. The news of layoffs comes barely 15 days after the company had announced the sacking of 2,045 employees. Tata Steel has already retrenched 5,500 employees across Europe since the beginning of the year. As per Worldsteel, an international trade body, steel consumption is expected to fall by 15% YoY in 2009. However, on the domestic front, the situation is improving. The company is raising the capacity of its Jamshedpur plant from 7 million tonne (MT) to 10 MT. The work will be completed by the middle of FY12. Further, as per the company's management, it does not foresee any problems related to demand in the company's domestic operations. While Indian steel demand is expected to go up by 6%-7% this year, Tata Steel's Indian operations is expected to sell about 25% more than what it did last year. Steel stocks are trading firm.

As per a leading business daily, cement consumption has increased 11% YoY during 1QFY10. The cement consumption during 1QFY10 was supported by delayed monsoon, at least in the western and northern regions. Also, large infrastructure projects were taking off across the country coupled with stimulus packages announced by the government which supported rural housing demand. In FY09, about 23 million tonnes (MT) of cement capacity went on stream, taking the total installed capacity in the country to 212 MT. As per the industry players, the additional cement capacity that came on stream in FY09 has been absorbed by the market, indicating that demand continues to be robust. The companies expect demand growth to sustain as government spending on infrastructure projects, as outlined in the Budget, gathers momentum. While this is a positive from a long-term perspective, however, in the medium term the upcoming capacities are expected to exert downward pressure on cement prices. Cement stocks are trading firm.

The stock markets had given thumbs down to the budget, as it lacked any clear signals for economic reforms. In what seems like a damage control exercise, the Finance Minster Pranab Mukherjee assured everyone yesterday that the reforms are definitely on. He has also promised return to fiscal prudence as soon as the crisis is over and a roadmap for disinvestment.

Mr. Mukherjee has said that while the government's borrowing programme was vital to supporting growth, the debt would not be monetised. He said that monetisation (refers to the printing of banknotes by central banks) occurs when the RBI lends to the government directly. As of now, the central bank will support the government through its open market operations. As for disinvestment, the Finance Minster has said that he is in talks with other ministries for finalising the list of public sector units for divesting the government's stake.

The government has so far signaled a great deal of emphasis on the aam aadmi. While the minister's assurances are welcome, it is finally action that counts. We have nothing against the 'aam aadmi' stand, but we hope it is not used as an excuse for stalling genuine reforms that are critical to improving the standard of living of the same 'aam aadmi'.

Recovery has begun slowly, says Roubini

Nouriel Roubini, the man who famously foresaw the global financial meltdown, says that the economy is beginning to make a recovery. He writes in his blog - "After the sharp contraction in economic activity in 2009, growth will reenter positive territory only in 2010."

However, he warns GDP growth is not the only metric to measure recessions. "Unemployment, industrial production, real manufacturing, wholesale retail trade sales and real personal income (less transfer) are all considered", he says.

As such, while the GDP will stop shrinking at the end of 2009, it will not be at least till mid 2010 before the other indicators turn positive.

Talking of recessions, we are reminded of what Warren Buffett had to say about stock picking during bad times - "You don't want to not buy stocks just because business is lousy at the time. That may be the very best time to buy stocks. In 1954, the Dow was up 50% and the country was in a recession. It was the best year I ever had in my life. And I've had other good years in recessions, so you don't want to say, it's a big mistake to say business is bad therefore I shouldn't buy stocks. That usually is the time to buy stocks."