Greek tragedy strikes again
Closing

Fears over the sovereign debt problems in Greece resurfaced once again today and pushed markets all over the world into the red. Taking cues from the global markets, Indian indices too began on a weak note. Thereafter, selling activity intensified especially in the afternoon session and pushed the indices deep into the red. While the BSE Sensex closed lower by around 285 points (down 2%), the NSE Nifty lost around 93 points (down 2%). Midcap and small cap stocks were not spared either as the BSE Midcap and the BSE Smallcap indices fell by 2% each. Losses were largely seen in oil & gas, metals and IT stocks.

As regards global markets, Asian indices closed in the red today, while the European indices have also opened on a weak note. The rupee was trading at Rs 44.66 to the dollar at the time of writing.

Logistics major, Concor announced its FY10 results. Sales grew by 13% YoY during 4QFY10, while they grew 8% YoY during FY10. Sales from domestic and Export-Import (EXIM) businesses grew by 17% YoY and 6% YoY respectively during the year. As far as the EXIM business is concerned, volumes (number of containers handled) for this segment grew by 1% YoY while average realisations (per container) improved by 5% YoY. As for the company’s domestic business, sales grew by 17% YoY, chiefly led by a 19% YoY growth in volumes. Realisations for this segment declined by 2% YoY. Operating margins declined to 26.4% in FY10, from 27.2% in FY09. Higher rail freight costs impacted margins. Lower other income and higher depreciation led to the net profits declining by 2% YoY during the full year. Profits declined 8% YoY during the fourth quarter. The stock closed lower by 6% today.

MNC pharma stocks closed mixed today. While Pfizer and Novartis closed in the red, GSK Pharma and Aventis found favour. GSK Pharma announced its 1QCY10 results yesterday (December ending company). Revenues grew by 19% YoY during 1QCY10 which could be attributed to the double-digit growth of priority products including vaccines (accounting for one third of revenues). EBDITA margins improved by 1.1% during the quarter and could be attributed to favourable changes in the product mix. This was evident from the fact that raw material costs (as a percentage of sales) fell from 40% in 1QCY09 to 37.2% in 1QCY10. Bottomline grew by 29% YoY (excluding extraordinary items) due to strong growth in operating profits and higher other income.

Power stocks closed mixed today. While Tata Power and Power Grid closed weak, NTPC closed firm. As per a leading business daily, NTPC has formed a joint venture (JV) with state owned Coal India Ltd in a bid to focus on acquisition of coal blocks in India and abroad. This JV will be known as 'CIL NTPC Urja Pvt Ltd'. Both the companies will contribute equally in the share capital of the company. It must be noted that NTPC is diversifying into captive coal mining, so as to secure future supplies of the black fuel. The company plans to produce around 50 million tonnes (MT) of coal by the year 2017 to meet close to 25% of its total coal requirement from captive mines.

Realty drags markets
01:30 pm

In the last two hours of trade, the markets continued to trade in the red with nearly all heavy weight stocks losing ground. The biggest losers are stocks in the realty, metal and oil & gas space while stocks in the defensive space that is FMCG and health care continuing to see buying interest.

BSE-Sensex is trading lower by 149 points while NSE-Nifty is trading 49 points below the dotted line. BSE-Midcap Index is down by 0.9% while the BSE-Smallcap index is trading 0.8% below yesterday’s closing. The rupee is trading at 44.65 to the US dollar.

TajGVK released its 4QFY10 results. The company’s sales grew by 11% YoY. This performance is a reflection of better times for the hospitality sector with the Chennai property contributing to sales on the back of higher ARR and occupancy rates on a YoY basis. Nonetheless, the growth was capped as the company’s Hyderabad properties suffered as a result of the Telangana issue. However, net profit for TAJGVK grew by 54% YoY, i.e. faster than sales growth. This is a result of saving on staff costs as the company kept a tight control on expenses and better overall ARR and occupancy rates for the company. The company derives a majority of its revenues from Hyderabad. While there have been new rooms additions in the city over the last year, new supply is not going to enter the market for the next 3 years due to the Telangana issue as investors are cautious. We believe that this will be beneficial for the company.

Wind energy equipment manufacturer Suzlon Energy announced today that it has entered into a joint venture agreement with Volkswind Bulgaria GmbH, which is a subsidiary of Volkswind GmbH. The latter is a German based company and is one of the leading independent power producers (IPPs) in Europe. Suzlon Energy has entered into this agreement through its European division, Suzlon Wind Energy A/S. As per the announcement, this joint venture is aimed at helping Suzlon penetrate the Bulgarian wind energy market. It is believed that the joint venture will develop projects exclusively using Suzlon wind turbines. As such, Suzlon’s JV partner will provide local knowledge and development experience. This is a positive development for Suzlon considering that it will help the company tap new markets in Europe. It is believed that installed wind energy capacity in Bulgaria is expected to touch 500 MW during the current calendar year. Moreover, the country has supposedly set out a target to have wind energy capacity of 3,000 MW by 2020.

FMCG, pharma stocks buck the trend
11:30 am

The Indian markets continued to trade well below the dotted line during the previous two hours of trade. Pressure is seen in the index heavy weights as currently there are 4 losers for every gainer on the bourses. On an overall basis, stocks from the realty, metal and energy spaces are amongst the key losers. On the other hand, FMCG and healthcare stocks are seeing some buying activity.

While the BSE-Sensex is trading lower by 145 points, the NSE-Nifty is trading 40 points below the dotted line. Stocks from the midcap and smallcap spaces are also seeing some pressure as the BSE-Midcap and BSE-Smallcap indices are trading lower by about 0.9% each. The rupee is trading at 44.56 to the US dollar.

Healthcare stocks are currently trading mixed with Sun Pharmaceuticals and Biocon trading firm, while Cadila Healthcare and Dr. Reddy's are trading weak. As per a leading financial daily, Cipla has tied up with Stempeutics Research, a Manipal group to market stem cell based therapies. As per the agreement, Cipla will invest Rs 500 m for clinical trials and to further develop two products being researched by Stempeutics Research. This investment by Cipla will take place within the next 2 years. Other than this, Cipla will further invest to develop new products and will get the marketing rights on a transfer pricing basis during commercialization. In the last 4-5 years, Stempeutics Research has invested Rs 650 m for research and expects to invest Rs 500 m for clinical trials as well for registering products. The first product is likely to reach the market by 2013.The stem cell therapy market in India is estimated at about Rs 23 bn and is expected to grow rapidly. This tie-up will boost Cipla's R&D and help it launch new products.

Telecom stocks are currently trading weak led by MTNL, Idea Cellular and Bharti Airtel. Telecom major Bharti announced its full year FY10 and 4QFY10 results this morning. During the year, the company's consolidated sales grew by 12% YoY. Growth for the full year was led by a 38% YoY rise in revenues from the passive infrastructure segment. Revenues from the mobile services segment, the company's largest revenue contributor (nearly 63% of sales) increased by 7% YoY during the year. Bharti's operating profits grew at a marginally slower rate of 11% YoY on the back of a faster growth in expenses. The company's operating margins declined by 0.5% YoY on the back of higher network operating costs (as a percentage of sales). The profit growth during the year stood at 17% YoY. This was mainly due to interest income earned this year (as compared to interest expenses last year). As for the quarter ending March 2010, revenues were higher by 5% YoY while profits came in lower by 1% YoY. At the end of the year, the company's mobile subscriber base stood at about 128 m, an increase of about 36% YoY as compared to the same month last year. In addition, the company's board recommended a dividend of Re 1 per share, translating to a yield of 0.3%.

Markets begin on a weak note
09:30 am

The Indian markets have started today's session on a negative note. The benchmark indices opened below the breakeven mark and slipped further into the red. They have not managed to make any upward movement since then. Other key Asian markets are trading in the red with Japan (down 2.5%) leading the pack of losers. The US markets closed lower by 1.9% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading weak with metal and construction majors facing the brunt of selling activity. The BSE-Sensex is trading lower by around 193 points, while the NSE-Nifty is down by about 59 points. Selling interest is also being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading lower by 1.3% and 1.4% respectively. The rupee is trading at 44.62 to the US dollar.

Pharma stocks have opened the day on a negative note. Losers here include Dr. Reddy's and Indoco remedies. As per a leading business daily, Ranbaxy plans to introduce over 100 new products in India by the year-end. In the past, the company launched only 60 to 70 products each year. Of late it has also increased its sales force in specific categories like cardiovascular, diabetics and dermatology. The company has recruited over 1,500 medical representatives to increase its sales force to 4,300. These steps are part of the company's India focused growth plans termed as 'Viraat'. It involves increasing the company's market presence and new product launches. In our view, India has become a high priority area for Ranbaxy ever since Japanese drug major Daiichi Sankyo acquired a majority stake in the company. As per some estimates, India is set to become one of the world's ten largest pharmaceutical markets within a decade.

FMCG stocks have opened the day on a negative note. Losers here include Pidilite Industries and Colgate. Paper products announced its 1QCY10 results. The company has reported a 11% YoY growth in sales during the period. Operating margins for the company fell by 4.1% during the quarter to end at 12.5% due to higher raw material costs as well as higher staff costs. Net profit grew by 81% YoY during the quarter on the back of forex gain as well as extraordinary income from the sale of the company's Nagpur factory. On a like to like basis, net profit fell by 61% YoY.

Greek ghost haunts stocks
Pre-Open

Greece has cast its spell on global markets yet again. With credit rating agencies downgrading the country (and Portugal) to 'junk', investors are running for cover. The US and European markets closed anywhere between 2-3% down yesterday. Asian markets are feeling the pain today with markets down in a range of 1-3%. Amidst all this, gold prices are up by 0.3%.

Rating agency S&P earlier lowered Greece's and Portugal's debt to 'junk' and 'near-junk' respectively. This is given that the contagion from Greece's debt crisis is expected to spread through the European region. Overall, it is the fear that Greece or Portugal may affect other countries of Europe and derail the economic recovery that is still in its very early stage. And if it really happens - Greece or Portugal failing - the world markets will see further and extended pain.

The reason Greece has been downgraded is that it has not been able to meet its 2009 budget. Not surprisingly, it had appealed to other Euro nations as well as to the IMF to provide it with funds to keep it afloat. However, the support does not seem to be very forthcoming. Other European nations are scared that a bailout will cut into their own sovereign capital, thus making it difficult for them to raise loans. Not a good sign especially in the current troubled times.

Anyways, a Greece default would not just mean an adverse impact on stockmarkets. It would also shake the global financial system that was supposedly limping back to normalcy (so what if under the influence of printing machineries run by central bankers!). A Greek default would mean losses at European banks that hold Greek debt. Clearly, once one takes on too much debt, there are very few places to hide.

We believe whether it is a corporation or a country, being overleveraged is a dangerous situation to be in. This was amply demonstrated in the current crisis with companies going bust and even governments defaulting on payments (Dubai was another recent example). And experts like Marc Faber and Nouriel Roubini foresee something similar to happen in the US as well.

A 'junk' status sinks Greece's hopes even deeper. Losing investment-grade status for its bonds means that Greece will have to pay higher costs to borrow if it taps debt markets again. This will also increase the chances that existing debt will have to be restructured.

Coming to the impact on Indian markets, yes there will be one. And it could be severe given the nature of the crisis. In fact, all emerging markets will be in for a rude shock if Greece actually defaults. Not because these 'economies' are dependent on the Greeks for their growth. But simply because these 'markets' depend on cheap US and European funds for keeping the prices of their stocks and real estate high. Now with funds expected to dry up owing to the Greek crisis, the emerging markets will suddenly see the liquidity tap run dry!

For Indian markets, the impact could well be knee-jerk i.e., short term. But whatever it is, it could provide you with opportunities to buy into your favourite stocks at lower prices. The idea is to not take cues from the 'price action' that will follow a Greece default, but to take a call on stocks' 'valuations' and then act.

Warren Buffett once said, "The dumbest reason in the world to buy a stock is because it's going up." This also applies to selling stocks when they go down.