- Todays Market
- Indian Stock Market News March 25, 2010
Late buying props up markets
Closing
After remaining rather lackluster for most part of the day, the benchmark indices really took off during the closing hours and this resulted in the indices ending the day on a rather positive note. A welcome change from the ending that was being envisaged earlier in the day.
Thus, while the BSE Sensex closed the day with gains in the region of 110 points (up 0.6%), NSE Nifty edged higher by around 35 points. Midcap and smallcap indices bucked the trend today and closed virtually flat today. As far as the breadth of the gains is concerned, it turned out to be quite good with 2 stocks gaining for every 1 that declined on the Sensex.
Gains were also seen amongst most Asian markets today whereas Europe has also opened on a positive note. The rupee was seen trading at Rs 45.5 to the dollar at the time of writing.
Hero Honda and Bajaj Auto, the two big daddies of the two-wheeler space ended rather strong today. In fact, Hero Honda was amongst the top gainers across index stocks and touched another lifetime high. Two major factors seem to be driving the company’s stock price of late. One is its plans of building a fourth plant in order to augment capacity. The other is a news item doing the rounds that the company could consider motorcycles exports to Africa in a big way. We believe both these factors are positive for the company in the long run. Greater capacity would help the company grow its revenues as well as profitability in the domestic market whereas exports, if at all they materialize, would give further impetus to the company’s growth. It should be noted that the two-wheeler market is a lot more concentrated than the passenger car market and there is no threat of an imminent price war or a war for market share looming large. Thus, Hero Honda can safely be assumed to increase investor wealth for quite some time to come. What also seems to have worked to the advantage of the stock price is the announcement by the management that it would consider a special interim dividend on the stock this fiscal.
Another stock that has been doing well of late is Bharti Airtel, India’s largest provider of telecom services. The stock has moved up sharply over the past few weeks, nearly undoing the decline that it had seen over the preceding the current upmove in the stock. What has happened for the investor to have a change of heart? We believe it is the growing clarity with respect to the company’s future endeavors.
While investors were largely negative on the Zain deal, the mood seems to have shifted to the positive side a bit. The company has really put in place some loan package for the funding of the deal and positive vibes from Zain management also augur well for the success of the deal. While we believe that Bharti has not put its balance sheet at too much of a risk, it remains to be seen whether it can replicate its low cost model with a fair degree of success in Africa. And this would be the key determinant whether Zain Africa is a value accretive or a value destructive deal.
Auto, energy amongst key losers
01:30 pm
The post noon session saw the Indian markets trading in a range bound manner during the previous two hours of trade. While stocks from the healthcare, realty and FMCG spaces are amongst the few gainers, those from the auto, oil & gas and IT spaces are amongst the key losers. Stocks from the capital goods and power sectors are trading marginally in the red.
The BSE-Sensex and the NSE-Nifty are currently trading lower by around 40 points and 10 points respectively. Stocks from the midcap and small cap spaces are however, trading in the green, with the BSE-Midcap and the BSE-Smallcap trading marginally higher. The rupee is trading at 45.58 to the US dollar.
FMCG stocks are currently trading firm led by Nirma, Marico Industries and HUL. The stock of FMCG major HUL is leading currently amongst the top gainers of stocks forming part of the BSE-100 Index. This is however, after featuring amongst the most underperforming stocks in the recent past, especially when compared to the broader market. The stock has been under pressure over the past few months due to rising competition. This has led the company to lose its market share across most of its segments. For example, the soaps and detergents segments, which contribute to nearly half of the company’s topline, have seen their market share fall quite sharply.
To put things in perspective, its laundry business (in value terms) has seen its share fall from 38.7% in December 2008 to about 34.6% in December 2009. As for its soaps segment, the market share (in value terms) has dropped to about 44.6% in December 2009 as compared to 49.6% in December 2008. To add to this, the market is also anticipating a price war with its close rival, P&G Home Care. As such, things could get quite tough for the company going forward.
Auto stocks are currently trading weak led by Tata Motors, Maruti Suzuki and TVS Motor. A leading business daily has reported that passenger car major, Maruti Suzuki is looking to invest nearly Rs 17 bn to expand its plant, which is located in Manesar (Haryana). The plant currently has an installed capacity of manufacturing 300,000 cars. Maruti plans to scale this up to 550,000 units within the next two years. The company has such a big expansion plan at a time when the Indian auto industry is at its best. With every month passing, the number of vehicles sold has been on a constant rise (on a year on year basis comparison). The industry has been recording its highest volume growth month after month. These strong sales figures are precisely the reason for the company embarking on an aggressive expansion plan. However, one should not discount the fact that macro factors such as low interest rates, low commodity prices, amongst others, led to strong sales volumes. It is quite possible that the industry may not see similar growth levels going forward.
Talking about strong sales volumes, FY10 will be a milestone year for the company as it produced its one millionth car during this month. This is a very high figure for the company, considering that it has sold about 8.8 m vehicles since its inception (1983).
Small and midcaps buck the trend
11:30 am
The Indian markets continued to remain extremely volatile, with the benchmark BSE Sensex hovering below the dotted line during the previous two hours of trade. The benchmark indices pared their opening gains on account of selling activity across stocks from the auto, metal, capital goods and oil & gas sector. Nevertheless, stocks from FMCG, telecom, healthcare and IT sectors are managing to garner investors' interest.
The BSE-Sensex and the NSE-Nifty are currently trading lower by around 42 points and 12 points respectively. Stocks from the midcap and small cap spaces are currently trading in the green, with the BSE-Midcap and the BSE-Smallcap indices trading higher by 0.04% and 0.15% respectively. The rupee is trading at 45.68 to the US dollar.
The stock of Indian IT major Tech Mahindra is out of favour today. According to a leading business daily, American telecom major AT&T has acquired 8% stake in the company. It may be noted that AT&T has been an important client for Tech Mahindra since long. According to a long term contract signed between the companies in 2005, AT&T had an option to buy 10 m shares of Tech Mahindra at a pre-determined price of US$ 34.5 m. As this option was due to expire in April 2010, AT&T decided to exercise the option as the proposed 8% stake in Tech Mahindra share stood much higher in terms of market value. At the current market value of US$ 200 m the stake is a lucrative bargain for AT&T. To this end, it bought 8% stake in Tech Mahindra from one of the promoter companies, MBT Mauritius.
This appears a positive for the company as it might get more secured long term revenues from AT&T which already contributes around 10% of company's topline. This will help Tech Mahindra is reducing its dependence on recession-hit British telecom giant, BT (British Telecom) which contributed over 40% of company's revenues. However, given the uncertainties around the company's business from its largest customer BT as well as disclosure of actual financial situation at Mahindra Satyam, one must keep a close eye on the stock.
According to a leading business daily, Shree Cement, the largest cement manufacturer in north India has got government approval to get into power trading. According to Central Electricity Regulatory Commission's (CERC) approval, the cement company is allowed to start inter-state power trading business for the power it produces at its merchant plant. It may be noted that the company already has an installed capacity of 260 MW, with additional merchant capacity of 300 MW to be installed by the end of FY10.
Shree Cement has strategically ventured into power business which currently contributes over 15% to the topline. Over the next two years the company plans to increase share of power revenues gradually to one third. Over the long run, the company foresees to generate revenues from power business at par with cement. We believe that power trading business will insulate it from cyclicality of cement business which is witnessing rising costs and softening realisations.
Markets begin on a volatile note
09:30 am
The Indian markets have started today's session on a volatile note. The benchmark indices opened above yesterday's closing levels, quickly slipped into the red, and have slowly clawed back upwards since then. Other key Asian markets are trading in the red with Hong Kong (down 1.3%) leading the pack of losers. The US markets closed lower by 0.5% yesterday.
Currently in India, heavyweights from the BSE-Sensex are trading a mixed bag with telecom stocks attracting investors' interest. However select banking stocks are in the red. The BSE-Sensex is trading lower by around 6 points, while the NSE-Nifty is down by about 3 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 0.1% and 0.3% respectively. The rupee is trading at 45.70 to the US dollar.
Auto stocks have opened the day on a mixed note. Gainers here include Bajaj Auto and Eicher Motor. However, Ashok Leyland and Tata Motors are trading in the red. As per a leading business daily, Tata Motors has offered to convert bonds worth US$ 431 m into shares about a year before they mature. The offer includes Japanese Yen denominated zero-coupon bonds due March 2011 worth US$ 131 m and 1% bonds due April 2011 worth US$ 300 m. It may be noted that the exact conversion ratio will be decided at a subsequent date. Tata Motors has also been selling shares in group firms to reduce its debt which has piled up after the Jaguar-Land Rover acquisition in 2008. The conversion will reduce the company's debt and increase its equity at the same time. This will help the company bring down its financial leverage. However, the stake of existing shareholders will be diluted due to the expanded equity base.
Pharma stocks have opened the day on a positive note. Gainers here include Aurobindo Pharma and Torrent Pharma. As per a leading business daily, Cipla has sold its emergency contraceptive brand, i-pill, to Piramal Healthcare in a transaction worth Rs 950 m. The two-year old brand is sold over the counter (OTC) and does not require a prescription. It is India's largest-selling emergency contraceptive. The i-pill notched up sales of around Rs 310 m through stockists in the last 12 months. It may be noted that India's OTC's market is estimated at around Rs 82 bn. Cipla's decision to sell i-pill reflects its desire to focus on its core competence of prescription drugs where it has a market share of 5.4% with 924 drugs.
The money is in Indian languages
Pre-Open
We often argue that English is our connect language with the rest of the world. It links us to the world science community and global commerce. It opens up the internet to us. A lot has been said about how a workforce proficient in English helped create an entire sector. That of outsourcing. Ironically, there's another sector that also promises to rise into prominence, but this time on the back of India's regional languages. The media sector. While this trend is also visible in electronic media, it is especially strong in the newspaper segment.
National vs. local
Regional media is attracting a lot of attention. In the past, newspapers focused on national news rather than regional or local news. Not so anymore. Also, established players have moved into newer geogrpahies making the space increasingly competitive. Also, local advertising is becoming increasingly important. The new advertising Rupee comes from sectors like education, hospitality, real estate and jewelry. These sectors purse local advertising campaigns.
The key driver is the rise of the smaller cities. Tier 1 cities (population > 4 m) are not the only market anymore. Tier 2 cities (population of 1 m to 4 m) and Tier 3 cities (population of 0.5m to 1 m) are becoming increasing important. Between 2005 and 2007, the number of households in Tier 1 cities grew by 6.6%, but they grew by 7.4% in Tier 2 cities and 6.9% in Tier 3 cities. In fact, it is estimated that by 2025, the combined population of Tier 2 and 3 cities will equal the population of Tier 1 cities. Indian languages dominate
The rise of regional media has reinforced the dominance of Indian languages as the medium of communication. Of the total registered daily newspapers, 45% are Hindi while 7% are in English. As can be seen in the table, regional languages dominate the list of top 10 dailies. In fact, even among the 10 most read Indian magazines only one is in English.
| Rank | Publication | Readers in (000's) |
| 1 | Dainik Jagran | 16,072 |
| 2 | Dainik Bhaskar | 12,878 |
| 3 | Hindustan | 9,303 |
| 4 | Malayala Manorama | 8,883 |
| 5 | Amar Ujala | 8,183 |
| 6 | Daily Thanthi | 7,605 |
| 7 | The Times Of India | 6,866 |
| 8 | Lokmat | 6,789 |
| 9 | Rajasthan Patrika | 6,668 |
| 10 | Ananda Bazar Patrika | 6,549 |
Conclusion
In the past, the high readership numbers for regional newspapers have not translated into higher revenues. That is rapidly changing. The smaller cities are growing fast. The new advertising Rupee is being generated by the regional economy. And it is increasingly staying within the region. FMCG majors and auto companies are turning towards the smaller centers. Media can hardly be expected to buck the trend. So, all the aspirational qualities of English aside, the money in the media industry is moving towards Indian languages.