IT, auto drive markets down

Thu, 7 Jan 11:30 am

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After witnessing a weak start, the Indian stock markets remained muted during the previous two hours of trade. They are currently trading in the red, on account of profit booking in IT, telecom, auto and capital goods stocks. However, the stocks from the consumer durables, healthcare and oil & gas sectors are finding favour.

The BSE Sensex and NSE Nifty are trading in the red, down by 67 points and 12 points respectively. However, midcap and small cap stocks have managed to buck the trend. The BSE-Midcap and BSE-Smallcap indices are trading up by 0.4% and 0.9% respectively. The rupee is trading at 46.85 to the dollar.

As per a leading business daily, Indian IT majors like TCS, Infosys and Wipro are seeking export credit covers as an insurance against the credit defaults from their customers in the recession hit western economies. As per talks with Export Credit Guarantee Corporation of India (ECGC), many IT biggies are planning to insulate their export receivables from the bad credit conditions in the US. It may be noted that this is a new move by the IT biggies as till recently credit was never an issue for the cash-rich companies. Their marquee clients in the US had the best credit ratings and repaid on time. However, the recession and the resulting bankruptcies have mandated a revisit on strategy. The US bankruptcy law which puts an automatic stay on the creditors also resulted in IT biggies seeking insurance against their exports. Such export covers have been a common phenomenon for other exporters of engineering goods, clothing, pharmaceuticals and jewellery and gems. Even small IT players used such export covers in the past. Now that Indian IT biggies are resorting to these insurances indicates that they still see a lot of uncertainty and risk in some businesses in the US. Nevertheless, it appears a good move by Indian IT companies which draw over 60% of their revenues from the developed economies of the West. This will ensure better visibility of revenue and lesser credit shocks.

According to a leading business daily, Indian pharma major Piramal Healthcare is planning to raise Rs 10 bn in the next 6 to 8 months in order to repay past debt. The company’s debt equity ratio had risen to 1:1 in FY09 due to the funding of its acquisition of Minrad. The raised sum is also likely to be utilised in funding foreign acquisitions. The company is eyeing multiple acquisitions in the healthcare and pharma areas like over-the-counter (OTC) drugs, patented drugs, contract research and research molecules. The company is open to all geographies for its inorganic plans. It may be noted that the company has around 250 patents in its kitty and registered a 25% topline growth over the last 3 quarters. We believe that brand acquisitions will aid the company in gaining foothold in global markets while also adding more products to its portfolio.