- Todays Market
- Indian Stock Market News February 15, 2010
Volatility plagues Indian indices
Closing
The Indian markets had a rather volatile trading session today. The morning session saw the indices fluctuating to either side of Friday's close before selling activity intensified and pushed them into the red. Any attempts thereafter to move towards the dotted line proved futile and the indices closed well into the red. While the BSE Sensex closed lower by around 114 points (down 1%), the NSE Nifty lost around 28 points (down 1%). Midcap and small cap stocks were also at the receiving end, notching losses of 1% and 0.4% respectively. Losses were largely seen in banking and oil & gas stocks.
As regards global markets, most Asian indices closed weak today while European indices have opened on a mixed note. The rupee was trading at Rs 46.36 to the dollar at the time of writing.
MNC pharma stocks showed mixed trend. While Aventis and Pfizer found favour, GSK Pharma and Novartis closed in the red. Aventis notched gains of 2% in today's session. The company has done well in the year so far with its domestic business (excluding the product 'Rabipur') and exports growing by 14% YoY and 24% YoY in 9mCY09 respectively. Aventis is a very strong player in the chronic therapy space and although there has been intense competition in certain therapeutic areas in which the company is present, it has nevertheless managed to hold on to its market share. Further, the company is also looking to tap the rural markets to augment its sales for which it has set up a separate marketing division. Thus, these moves are expected to bolster volumes going forward.
Tata Motors's has had a very strong start to 2010 with global sales for January growing by 93% on a year on year basis. As reported in a leading business daily, these sales comprise of Tata, Tata Daewoo and Hispano Carrocera range of commercial vehicles, Tata passenger vehicles along with distributed brands in India, and Jaguar and Land Rover. While commercial vehicles in January 2010 grew by 115% YoY, sales of passenger vehicles registered a growth of 76% YoY. What is more, the acquired brands Jaguar and Land Rover also grew at a dazzling rate. While Jaguar sales were higher by 122% YoY, Land Rover sales grew by 219% YoY. Having said that, cumulative sales of Jaguar Land Rover for the fiscal (April 2009 to January 2010) declined by 20% YoY. The stock, however, closed 1% lower.
The company's performance in the December 2009 was also robust with sales growing by 63% YoY and margins expanding from a paltry 1.9% in 3QFY09 to a healthy 12.8% in 3QFY10. Improved consumer sentiments, a favourable financing environment and a low base effect contributed to the robust performance both in the December quarter and in January 2010.
Inflation, meanwhile, continues to scale new heights. As per reports, the wholesale price index (WPI) rose 8.56% in January from a year earlier, the highest since November 2008. This has accelerated from a 7.3% rise in December. This means that the pressure on RBI intensifies to raise interest rates. The problem that is confronting the RBI is also the soaring fiscal deficit as a rise in interest rates will make borrowing costs dearer.
Markets continue to trade in the red
01:30 pm
Indian markets continue to trade below the dotted line. Stocks in the health care, IT and metal space are trading in the positive while stocks in the consumer durable, realty and banking space are witnessing a sell-off.
BSE-Sensex, having recovered from the day’s lows was trading low by 60 points while NSE-Nifty was lower by 18 points. BSE-Midcap Index is trading lower by 26 points while the BSE-Smallcap index is trading virtually flat. The rupee is trading at 46.32 to the US dollar.
HUL has started to feel the heat in the low-end filter water purifier segment. The company, which is the volume leader in this space with a sale of 1.3 m units last year, is being challenged by Eureka Forbes and Tata. While Eureka Forbes is the pioneer in the electric water filter space, it did not have a brand to challenge the might of HUL’s Pure-it till now. However, Eureka Forbes is set to launch a new brand to enter this segment. Meanwhile, Tata has entered the market with ‘Swach’ at a price of Rs 999. This is lower than HUL’s ‘Compact’ filter which is priced at Rs 1,200. What is attracting players to this segment is the double digit growth rate seen since the last few years. The total market is said to be worth Rs 12 to Rs 15 bn and is growing at 20% YoY. This market has infact doubled in the last 4-5 years. We believe that while the companies are engaging in price war, the quality of water delivered will be the deciding point in this war.
Although rubber prices have been moving north the past few months due to rising crude oil prices, they have not significantly affected the margins of tyre companies as yet. The reason is that companies like Apollo Tyres and MRF reaped the benefit of low cost inventory which they had piled up. Moreover, the tyre companies took a price hike which offset the price increase. However, the March quarter is expected to be difficult as the companies have exhausted their inventories and are exposed to higher raw material prices. While the demand for tyres is buoyant on the back of strong growth in the auto sector, we believe that tyre companies will not be able to pass on the entire price increase. This is especially true in the case of Apollo tyres as a large part of its revenues is derived from replacement tyre market which is more competitive than the OEM market.
TCS eyes Japanese IT market
11:30 am
The Indian markets continued to trade on a weak note during the previous two hours of trade. Currently, selling activity being witnessed in realty, telecom, banking and consumer durables sectors is weighing heavily on the indices. However, the stocks from healthcare, auto, power and IT sectors are managing to garner investors' interest.
The BSE-Sensex and the NSE-Nifty are currently trading lower, down by around 71 points and 29 points respectively. While the stocks from the midcap space are trading in red with BSE-midcap index down by 0.2%, small cap stocks are finding favor with the BSE-smallcap index trading higher by 0.3%. The rupee is trading at 45.37 to the US dollar.
As per a leading business daily, India's largest engineering company BHEL, has won an order worth around Rs 10 bn from Bhutan. This contract from Bhutan's Punatsangchhu Hydroelectric Project Authority, requires BHEL to manufacture, supply, erect and commision equipment to a 1,200 MW hydro power project. It is a bilateral contract between the government of India and Royal Government of Bhutan.
It may be noted that at the end of December 2009, BHEL's order backlog stood at Rs 1,340 bn, i.e. about 4.8 times its FY09 annual sales. We believe that as BHEL continues to bag big orders, it is on track to achieve its sales guidance of Rs 320 bn for the full year FY10. BHEL is the top gainer on BSE today.
According to a leading business daily, India's largest IT services exporter, TCS is betting big on the Japanese IT market. Japanese IT market which is the second largest in the world after the US, is one of the fastest growing IT market globally and is expected to touch revenues of US $1 bn in medium to long term. However, Indian IT companies have so far not been able to make significant headways into the market. TCS is now aiming to tap this market and is working on suitable business model for the same. It may be noted that the corporate culture and business environment in Japan is very different as compared to Indian IT's largest market - the US.
TCS is exploring strategies like local hiring and acquisition in order to build relationship with the Japanese customers. It counts Toshiba and Shinsei Bank as its marquee clients in Japan. We believe that Indian IT will do well to diversify focus from the mature western markets and divert attention towards the Asia Pacific and Middle Eastern markets which have a huge potential of driving incremental growth.
Volatile start to the week
09:30 am
The Indian markets have started today's session on a volatile note. The benchmark indices opened above the breakeven mark but soon fell into the negative territory. Other key Asian markets are trading in the red with Indonesia (down 0.6%) leading the pack of losers. The US markets closed lower by 0.4% last Friday.
Currently in India, heavyweights from the BSE-Sensex are trading a mixed bag with auto and software stocks witnessing buyers' interest. However, select banking heavyweights are in the red. The BSE-Sensex is trading lower by around 31 points, while the NSE-Nifty is down by about 11 points. However, buying interest is being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.2% and 0.5% respectively. The rupee is trading at 46.39 to the US dollar.
Telecom stocks have opened the day on a mixed note. Gainers here include Spice Communication and MTNL. However, Bharti Airtel is in the red. As per a leading business daily, the Zain Telecom board has accepted a US$ 11 bn offer from Bharti Airtel to buy its African assets. Zain Telecom has over 70 m customers across 23 countries in West Asia and Africa. It has revenues of over US$ 7 bn. The deal will add 42 m customers to Bharti Airtel's 125 m subscribers placing it in the world's top five or six telecom operators. The details of the deal are likely to be worked out by the end of March. In our view, this development reflects the company's drive to ramp up its global presence. It has a foothold in Seychelles, Sri Lanka and Bangladesh. It has tried twice to strike a deal with South African telecom major MTN . The interest in Africa is not surprising given the continent is one of the world's fastest- growing telecom markets.
Cement stocks have opened the day on a mixed note. Gainers here include Madras Cements and Shree Cement. However, Ultratech Cement is in the red. As per a leading business daily, the Indian cement industry is implementing expansion projects worth Rs 500 bn to take its overall capacity to close to 300 m tonnes (MT) by 2012. Holcim, which owns ACC and Ambuja Cements, plans to invest over US$ 1 bn to add 10 MT to take its capacity to 60 MT. Similarly, the Aditya Birla Group, which owns Grasim and UltraTech, plans to invest US$ 3 bn to add 25 MT to take its capacity to 75 MT. The expansion plans are on the back of expected growth in the Indian economy. In fact, as per government estimates, India would require 600 MT of cement capacity by 2020. As a result, companies expect double digit growth in consumption demand for cement in the next five years.
Are the FIIs making a mass exit?
Pre-Open
They pumped in a whopping US$ 17 bn in the Indian stock markets in 2009. They were also to a great extent responsible for more than US$ 250 bn surge in the market cap of Sensex companies. However, 2010 has been a different story altogether. As per a leading daily, FIIs, amongst the most influential set of investors in Indian equities have collectively pulled out US$ 2.7 bn from the Indian stock markets over the past 18 trading sessions. However, it is not just India that has been at the receiving end. As per Bloomberg, investors have pulled out the most money from emerging market equity funds in 19 months as fresh troubles have begun to emerge in the form of Greece debt and US monetary policy exit.
The turn of events must certainly be worrying for an Indian investor. After all, the last time FIIs headed for the exit doors, the Sensex had witnessed a sickening loss and had led to huge wealth destruction. However, we are of the view that FII investments mostly suffer from what we feel is an investing myopia. In other words, their fascination for short term returns has opened up fantastic opportunities for investors willing to remain patient and wanting to invest for the long-term. Thus, any such panic selling by the FIIs should be looked upon as an opportunity to get into what certainly is one of the most attractive growth stories from a long term perspective. As has been proved time and again, FIIs keep coming back to India and that too in ever increasing numbers and we see no reason why it should be different this time around as well.
Will China swallow the bitter pill?
China is finally taking steps to slowdown its overheating economy. Just recently, it raised interest rates and later also asked banks to keep aside higher reserves. But that may not be all. Some experts like the renowned Goldman Sachs economist Jim O’ Neill believe that something else could also be brewing. O’Neill is of the opinion that China could also undertake currency revaluation. "I have a strong opinion that they’re close to moving the exchange rate", the economist is believed to have told Bloomberg.
Besides slowing down inflation by making imports cheaper, the appreciation in Chinese Yuan is also likely to ease tensions between China and countries like US who've been accusing the dragon nation of deliberately keeping Yuan undervalued and helping inflate asset bubbles. What more, an artificially undervalued Yuan also works to the detriment of other exporting nations as it makes their exports less competitive than China. Thus, the other nations would also heave a sigh of relief if China does undertake some sort of appreciation in its currency.
Having come to terms with the harsh reality of a export driven growth model, China now needs to increase its dependence on domestic consumption and hence, a stronger Yuan could also help lower prices of goods and encourage greater consumption by the Chinese consumer.