- Todays Market
- Indian Stock Market News February 24, 2010
Auto, banks drag indices lower
Closing
A bout of profit booking during the closing stages tipped the markets into the negative territory and ensured they end the day marginally in the red. While BSE Sensex edged lower by around 30 points (down 0.2%), Nifty lost around 10 points (0.2%). BSE Midcap and Smallcap indices also toed the line of their larger counterparts and ended the day marginally in the red. Nearly two stocks decline or stayed flat for every stock that gained on the Sensex today. Auto and banking heavyweights in particular proved to be a drag today.
Among other regional indices, while those in Asia mostly ended the day in red, their European counterparts are also trading weak currently. The rupee was trading at Rs 46.3 to the dollar at the time of writing.
This is the third day in succession that the markets have not shown any definitive trend. With one of the most important events in the annual economic calendar round the corner, no one is willing to take a chance. There isn't much happening internationally as well. The Greece deadlock remains. A big question mark continues to loom over China's immediate future and contrasting news keep coming out of the US. Thus, truly market shattering events like the ones that happened in 2008 and 2009 seemed to be absent so far in 2010. And what would be consistent with this observation would be the fact that the current calendar year is likely to turn out to be a year of sideways movement absent some major blow ups. India's chance to break away from this trend largely hinges upon whether the Finance Minister manages to pull out a few rabbits from the hat. Any strong evidence has been missing so far. But you never know. Some positive surprise can just spring up from somewhere. It's over to the honorable Mr. FM now.
REC, one of the leading public financial institutions in the country flared up 5% on the bourses today. The buying interest seemed an outcome of the favorable response that the company's FPO has generated especially from large institutions. As per latest reports, the offer was subscribed over three times with the heartening aspect being the lack of any support from LIC and SBI. Mostly FIIs and a clutch of domestic mutual funds helped the issue to sail through without any major hiccups. The retail portion however, remained undersubscribed, with only 23% of the portion reserved for retail receiving bids. The company is looking to raise nearly Rs 35 bn through the offer with the sole objective of augmenting its capital base so that the company's capital requirements are met.
Maruti Suzuki, which was amongst the top losers yesterday, managed to do a complete U-turn today as it emerged one of the top gainers among Sensex stocks. Clarification by the company's management that the car recall issue is likely to have a negligible financial impact on the company seemed to have boosted investor sentiment towards the counter. It should be noted that the company has decided to recall around 1 lakh cars sporting the A-Star logo as it fears that they might have been fitted with a faulty fuel pump gasket. However, with the cost of the gasket being very small vis-à-vis the company's size and also the fact that any monetary liability will be shared equally between the company and the vendor who supplied the gasket; there is hardly any threat to the company's profitability on account of this event.
Auto stocks under pressure again
01:30 pm
Indian markets continued to remain volatile over the past two hours. The markets turned positive and then slipped back into negative territory on profit booking. Stocks from the oil and gas, IT and FMCG spaces are trading in the green while those from other sectors are seeing some pressure. Companies in the consumer durable space are witnessing the most selling pressure. The Railway budget was announced today. Titagarh Wagons and Texmaco which are the biggest suppliers of wagons to the railways are trading in the red with a loss of 5.7% and 4.8% respectively. Container Corporation meanwhile is trading higher by 0.6%.
The BSE-Sensex and NSE-Nifty indices are trading flat currently. The BSE-Midcap Index is trading lower by 40 points, while the BSE-Smallcap index is trading lower by 50 points below yesterday's closing. The rupee is trading at 46.27 to the US dollar.
Down by about 1%, the BSE-Auto Index is currently amongst the top losers amongst the sectoral indices. Tata Motors, M&M, Ashok Leyland and Hero Honda are currently the worst hit as they are down by about 2% to 3%. Pressure on this lot is likely on fears of a possible hike in excise duty in the forthcoming Union Budget. A leading business daily has reported that an excise duty hike of about 2% on automobiles is expected. This would result in higher price for new vehicles. In addition to this, investors also seem to be concerned about the future performance of the auto manufacturers, which have performed tremendously well over the last year. With companies announcing price hikes coupled with the expectations of interest rates and higher raw material prices, the general consensus is that auto manufacturers may not see a similar kind of volume growth that they have been witnessing in the recent past. It may be noted that the BSE-Auto Index is lower by about 11% from its yearly high, which was touched in early January this year.
Retail stocks are currently trading weak led by Shopper's Stop, Kouton Retail and Pantaloon. A leading business daily has reported that retail major Pantaloon is planning to take over the consumer durables and home furnishing & furniture business from its subsidiary Home Solutions Retail (India) Limited. Pantaloon holds about 67% stake in the company. In addition, the company is also looking at acquiring the sports retail business of Winner Sports Limited, its wholly-owned subsidiary. It is reported that Pantaloon will issue about 6 m shares (of Rs 2 each) for the around 10 m shares in the unit (excluding those owned by it). In addition, the company will also allot about 6.4 m preference shares of Rs 100 each to the unit's shareholders that could be converted into equity within 12 months from the date of allotment. While further details have not been provided by the company, this move may be a part of its restructuring exercise to segregate value and lifestyle retail business.
Sensex slips into the red
11:30 am
he Indian markets continued to remain extremely volatile, dragging the benchmark index below the dotted line during the previous two hours of trade. Currently, selling activity is being witnessed by stocks from the auto, consumer durables, metal, banking and healthcare sectors. Nevertheless, stocks from the FMCG, oil and gas, capital goods and power sectors are managing to garner investors’ interest.
The BSE-Sensex and the NSE-Nifty are currently trading lower by around 15 points and 9 points respectively. Stocks from the midcap and small cap spaces are currently trading in the red, with the BSE-Midcap and the BSE-Smallcap indices trading lower by 0.6% each. The rupee is trading at 46.24 to the US dollar.
According to a leading business daily, electrical equipment manufacturer, Havells India is scouting for acquisitions in China in order to expand its footprint in the area. The company is looking for appropriate acquisition targets and hopes to finish the acquisition within one year. Other than China, the company also has plans for inorganic growth in ASEAN countries and also Latin America in the next six months. The company plans to fund these acquisitions through its internal accruals and is looking at targets of the size of Rs 4.5 bn.
It may be noted that Havells India recently introduced Ceramic Metal Halide (CMH) which is new generation lighting based on a technology which produces the closest substitute of natural light. Given the company’s strong focus towards not only increasing its topline but also profitability and its ongoing successful restructuring of its overseas subsidiary, its plans for further expansion are welcome.
According to a leading business daily, REpower Systems, a 90.71% subsidiary of Suzlon Energy has won 51 MW order from a French firm, Akuo Energy S.A.S. This includes three agreements to supply 25 wind turbines. REpower’s French subsidiary which will execute this order and will be responsible for delivery, commissioning and service of the turbines. Suzlon’s management is upbeat about the order as it believes that France is a very important market for the wind industry and such strategic alliances will aid the company in strengthening its presence in the region. It may be noted that REpower Systems saw a 14% YoY rise in sales during 3QFY10, and a 73% YoY rise in operating profits during the same period, mainly on account of an expansion in EBIDTA margins. However, Suzlon as a whole registered a 20% YoY decline in topline as well as operating profits. Suzlon's weak balance sheet along with poor operating performance makes us cautious of the stock.
Markets start on a choppy note
09:30 am
The Indian markets have started today's session on a choppy note. The benchmark indices opened below the breakeven mark but have just managed to enter into the positive territory. Other key Asian markets are trading in the red with Japan (down 1.8%) leading the pack of losers. The US markets closed lower by 1% yesterday.
Currently in India, heavyweights from the BSE-Sensex are trading a mixed bag with power and software stocks attracting investors' interest. However, auto stocks are trading in the red. The BSE-Sensex is trading higher by around 15 points, while the NSE-Nifty is up by about 2 points. However, selling interest is being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading lower by 0.2% and 0.3% respectively. The rupee is trading at 46.28 to the US dollar.
Energy stocks have opened the day on a mixed note. Gainers here include Reliance Industries (RIL) and HPCL. However, Petronet LNG is trading in the red. As per a leading business daily, India's petroleum minister Murli Deora has said that RIL does not have to include marketing margins while calculating the royalty to be paid to the government on the production of natural gas from KG basin. This is in sharp contrast to the opinion of the upstream regulator, Directorate General of Hydrocarbons (DGH). DGH wanted to add the marketing margin of US$ 0.135 per m British thermal unit (mBtu) which RIL charges to the sale price of US$ 4.2 mBtu, while calculating government royalty. As per Mr. Deora, the production sharing contract states that royalty should be calculated at the delivery point which does not include marketing efforts. In our view, while there could be difference in interpretation over technical points, the constant dispute over KG basin gas sends the wrong signals at time when India urgently needs global investors in the sector.
Cement stocks have opened the day on a mixed note. Gainers here include Shree Cement and ACC. However, Mangalam Cement is in the red. As per a leading business daily, Shree Cement plans to derisk its income from the cyclical downturn of the cement industry by diversifying into power. The company has a sales target of Rs 4.6 bn next year from power, up from Rs 0.6 bn this year. At present, it consumes the majority of its generation of 120 mw, leaving only 20 to 30 mw available for the grid. However, it is expanding its power generation capacity to 560 mw by the next year. Shree Cement plans to invest Rs 12 bn for the same. It plans to initially sell power to states like Rajasthan and Punjab on a spot basis in the open market. Gradually it will seek to move to long-term contracts.
'Power is the new telecom'
Pre-Open
Both poster boys of the Indian infrastructure story, power and telecom sectors have had more than one thing in common. While their necessity and growth potential has been cemented by growth in India's population and her economic prosperity, regulations have been the biggest hurdle. Both have enjoyed a handsome share of the government's infrastructure investment allocation in the past decade. Both have witnessed a larger number of private sector as well as foreign players eyeing a pie of the market. However, if one looks at the growth trend the two sectors seem to be quite different from each other.
India has experienced a revolution in its telecommunications infrastructure over the last five years. Billions of dollars of investment in cellular networks has brought phone service to millions of Indians who never had phones. Telecom may be the only sector where in certain cases execution has been ahead of plans. The major telecom players in the country for instance have added subscribers at a faster rate than anticipated. Despite shortage of bandwidth, this sector has added more revenues to the government exchequer through license fees than expected. However, in recent years, the Indian telecom sector has shown signs of maturity in terms of growth and profitability.
The person at the helm of private sector infrastructure financing in India has a very interesting opinion. In an interview to Wall Street Journal, Mr. Rajiv Lall, the MD of IDFC which finances nearly a fifth of PPP projects in the country, said "Power is the new telecom". Mr. Lall believes that the power generation industry in India has at last reached a tipping point. He believes that with better government regulations, smart financing and private participation, the sector can bring in plenty of new generation capacity to the subcontinent. Mr. Lall estimates US$ 20 bn a year will be spent on new power plants over the next four years, adding at least 30% to India's power generating capacity.
For investors this is an important takeaway in terms of getting a hint of the new growth areas. While the focus on power sector in the government's 5-year plans has been amply documented, the sector is set to outdo on several fundamental parameters.
If one looks at the recent trend in sales and profit growth, Tata Power (the country's largest private sector power company) has managed to surpass the growth in Bharti Airtel's (the largest private telecom company) profits in recent past. While this may be ignored as a temporary phenomenon, the odds are weighed against the telecom sector.
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While the growth in demand for power is indubitable, deregulation of power tariffs could be the tipping point that could improve the returns for investors in the sector. Having said that investors need to adopt a bottom-up approach to invest in the best plays in each of these sectors.