Volatility plagues Indian markets

Fri, 15 Jan Closing

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The Indian markets had a rather volatile session today. After oscillating to either side of yesterday's close for most part of the session, selling activity in the final hour finally took toll causing the indices to close into the red. While the BSE Sensex closed lower by around 31 points (down 0.2%), the NSE Nifty lost around 7 points (down 0.2%). Midcap and smallcap stocks, however, bucked the trend as they registered gains of 0.3% and 0.4% respectively. While oil & gas and capital goods stocks were at the receiving end, banking and FMCG stocks found favour.

As regards global markets, Asian indices closed mixed today while European indices have also opened on a mixed note. The rupee was trading at Rs 45.67 to the dollar at the time of writing.

Private banking stocks closed mixed today. While HDFC Bank and ICICI Bank closed firm, Yes Bank closed in the red. HDFC Bank announced its 3QFY10 results a short while ago. For the quarter, the net revenues witnessed a growth of 5%, while the net interest income grew by 12% YoY driven by growth in assets. The net interest margin (NIM) increased to 4.3% during the quarter from 4.2% in the corresponding quarter last year. Other income accounted for around 28% of revenues with fees and commission being the main contributor. NPAs during the quarter stood at 0.45%, while the capital adequacy ratio was at a comfortable 18.3%. The proportion of CASA deposits also increased and these accounted for 49% of total deposits as at the end of December 2009 as compared to 40% in the corresponding period a year ago.

Troubles for pharma company Wockhardt do not seem to end. As reported in a leading business daily, Wockhardt's deal to sell its nutrition business to US multinational Abbott Laboratories is likely to be blocked by a group of investors led by the New York-based QVT Financial Lp. Readers would do well to recall that Wockhardt had issued FCCBs worth US 110 m in 2004 which were due for redemption in October 2009. However, given the huge debt and cash crunch that Wockhardt is saddled with, the company struck deals with 3 companies including Abbott to sell 3 businesses that would result in funds being infused into the company. It had also gone in for corporate debt restructuring (CDR) and as per this plan Wockhardt had proposed buying back the bonds at a discount of 65% or converting them into equity shares by 2015.

This proposal not being acceptable, certain investors in these FCCBs including QVT are likely to block the nutrition business deal with Abbott. This could prove to be a problem for Wockhardt which is already grappling with a severe debt crisis and is having considerable problems raising the necessary funds to retire this debt. The stock closed lower on the bourses today.

Inflation has refused to cool down in India. As reported in a leading business daily, India's wholesale inflation rose by 7.3% in December (4.78% in November). While food inflation eased to 17.28% after reaching nearly 20% last month, prices of non-food items such as textiles, paper products, metals and machinery witnessed a rise. This will certainly put added pressure on the RBI to undertake measures to curb inflation. Already the central bank is in a dilemma because raising interest rates could curb growth at a time when India's economy is limping back to normalcy.