Tepid start to the New Year

Mon, 3 Jan Closing

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In a weak start to the New Year, the BSE-Sensex was amongst the lowest gainers in Asia today. Metal and consumer durables stocks saw good buying interest. But, IT and auto stocks did not see much enthusiasm. The BSE Sensex closed the session higher by around 52 points (up 0.25%), whereas NSE-Nifty saw a 23 points gain (up 0.5%). The BSE Midcap and BSE Small cap indices performed much better gaining 0.9% and 1.8% respectively.

Most of the Asian indices closed positive today, with China and Japan not yet back from the holiday break. Europe is currently seeing some good gains, with UK still on vacation. The rupee was trading at Rs 44.7 to the dollar at the time of writing.

Due to pick up in global recovery, India's exports grew by 26.5% in November 2010 on a YoY basis to US$ 18.8 bn. This makes India well on its way to achieve its target of US$ 200 bn in exports for the fiscal. The total quantum of exports for the past 8 months now stands at US$ 140 bn compared to US$ 111 bn in the previous year. But, the widening trade gap continues to be an issue due to high oil prices, leading to an increase in the import bill. Oil imports have increased over 21% in the past 8 months. Overall imports saw a 24% hike in the period. This led to a trade deficit of US$ 81.6 bn. This is expected to increase further and be in the range of US$ 120 to US$ 125 bn.

Auto stocks were the worst performers of the day. But, it was a mixed day for Hero Honda. On one side, the company's two-wheeler sales for the month of December 2010 increased by a strong 33% YoY over the corresponding month last year. On the other hand, a leading business daily reported that the senior management of one of the holding firms of the two wheeler company was involved in the recent Citibank fraud. We'll discuss these separately. First the volumes - Hero Honda's sales volumes stood at 0.5 m units for the month of December 2010. As per the company, it has recorded sales growth of 16% YoY during CY10 with cumulative sales of over 5 m units. As for the quarter ended December 2010, the company has sold over 1.4 m units, which is higher by 29% YoY.

Coming to the news relating to the arrests, a leading business daily has reported that Sanjay Gupta, the Hero Group CFO was arrested on allegations that he was involved in the recent Rs 3 bn Citibank fraud. While this development may not have any effect on Hero Honda, it does dampen the group's clean image to a certain extent. And this especially at a time when talks of the Hero Group taking over Honda's stake in the joint venture company have recently been concluded.

2010 saw the huge buyout of Piramal Healthcare's domestic formulations business by Abbott for US$ 2.2 bn plus US$ 400 in 4 annual payments. Reckitt Benckiser also announced Rs a 32.6 bn buyout of Paras Pharmaceuticals. But, we may not see many such deals going forward, if the new government proposal goes through.

India is now exploring a proposal to cap FDI in drug-makers at 49%. It also plans to make additional stake buys subject to government approval, to dissuade foreign takeovers. As of now, foreign companies can purchase as much as 100% in a domestic drugmaker without prior approval of the Foreign Investment Promotion Board (FIPB), a government body that scrutinizes investment proposals.