Strong selling bout hurts indices

Tue, 19 Jan Closing

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While the larger part of today’s session saw the indices oscillate to either side of yesterday’s close, selling activity intensified in the later hours causing the indices to close well into the red. While the BSE Sensex closed lower by around 155 points (down 1%), the NSE Nifty lost around 51 points (down 1%). Midcap and smallcap stocks were also at the receiving end losing 0.7% and 0.6% respectively. Losses were largely seen in IT, healthcare and energy stocks.

As regards global markets, Asian indices closed mixed today while European indices opened in the red. The rupee was trading at Rs 45.68 to the dollar at the time of writing.

As per a leading business daily, NTPC is planning to sell a part of its electricity output at market rates to bolster revenues going forward. It must be noted that at present, the state run power company is required to sell 85% of its output to state electricity boards under long-term agreements. The remaining 15% is given to power-deficit states under the discretion of the power ministry. But this scenario could change if the government allows NTPC to sell the unallocated quota as merchant power.

NTPC is looking to set up a merchant power capacity of about 6,000 MW by 2017. Since this capacity will be of a merchant nature, the electricity produced by these plants would be sold on auction to the highest bidder, as opposed to a particular buyer through a power purchase agreement (PPA). As a matter of fact, while the company currently sells power at an average cost of Rs 1.6 per unit to state electricity boards, it hopes to get between Rs 5 and Rs 6 per unit from the sale of power from these merchant plants, especially during peak hours. However, we believe that this business is expected to form not more than 5% to 7% of the company’s total revenues going forward. The stock of NTPC closed lower today.

MNC pharma stocks closed mixed today. While Aventis found favour, Novartis and GSK Pharma closed weak. Novartis closed lower by 3% today and this was the fallout of poor 3QFY10 results announced by the company a short while ago. During the quarter, the company’s revenues grew by a subdued 7% YoY and were largely led by the pharmaceutical and animal health businesses. Revenues from the pharma division, which accounts for 71% of total sales, grew by 9% YoY. The robust 28% YoY growth in the animal health division could be attributed to various marketing initiatives undertaken by the company. However, revenues from the generics division fell sharply by 52% YoY. This was mainly due to the one-time government tender business for the anti-TB range in 3QFY09 which was not present this quarter. Operating margins fell by 1.3% to 15.6% due to higher staff costs and other expenditure (as percentage of sales). Fall in operating profits and reduction in other income meant that the bottomline declined by 4% YoY during 3QFY10.

As per a leading business daily, engineering major L&T is contemplating borrowing as much as US$ 4.4 bn to build a power generation business. Further, plans on the anvil also include buying coal mines in Australia and Indonesia to gain fuel supplies. Obviously, the company is looking to capitalise on the power generation opportunity given the acute power shortages that India has been facing. Infact, peak-hour shortages were as high as 12.6% this year. However, L&T already has a high amount of debt on its books. This was amply evident during 2QFY10 when interest costs surged by 61% YoY. What is more, interest costs for the first half of this fiscal had substantially increased by 83% YoY. The stock closed lower today, while its peers Voltas and BHEL closed firm.