Sensex, the only gainer in Asia!

Thu, 20 Jan Closing

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After trading in negative territory for most of the day, Indian markets saw a smart move up in the afternoon session. For a large part of the day, the leading indices were deep in the red. However towards closing, the indices recovered and managed to sail into the green.

While the BSE-Sensex closed higher by around 68 points (up 0.4%), the Nse-Nifty closed higher by 21 points (up 0.4%). The BSE Midcap and the BSE Small cap, had a poor showing and closed pretty much flat. Banking and IT stocks found investor favour, while oil & gas and FMCG stocks saw significant selling pressure.

As regards global markets, India was the only gainer in Asia, as most of the Asian counterparts closed in the red today on Chinese economic growth concerns. European indices have opened in the red as well. The rupee was trading at Rs 45.55 to the dollar at the time of writing.

Energy stocks were all in negative territory today. Petronet LNG has announced its December quarter (3QFY11) results. It posted a 62% jump in revenues on the back of higher volumes. Volumes increased by close to 25% to reach 119.7 trillion British thermal units (BTU) during the quarter. Profits more than doubled during the quarter, (rising over 105%) owing to a strong operating performance and lower interest costs. The fall in other income could also barely dent profitability for the quarter. For the nine months till December 2010, the performance was less spectacular with revenues increasing by 12% and profit after tax by 35%. The company seems to be benefiting nicely from the rising demand for gas in India. The stock closed down for the day.

The BSE-Healthcare Index saw some minor gains today. Indian biotech major Biocon announced its 3QFY11 results recently. The company’s revenues grew by 15% YoY, with a strong performance coming from its biopharmaceuticals business, the company’s largest segment. Operating profit margins improved by 3.2% during the quarter to 23.1%. This was on the back of a fall in raw material costs and other expenses (as percentage of sales). Despite the strong operating performance, with operating profits growing at 33%, bottomline growth was slower at 24% YoY owing to higher tax expenses. The company expects to find a global partner for its experimental oral insulin drug (IN-105) in the next six months. This drug has failed phase 3 clinical trials in India. But, it performed well on several other tests. Having a foreign partner would help provide inputs for developing the said drug. The stock however closed down for the day.

The services sector in India contributes a large chunk to India’s GDP. The government however made a move recently which may adversely affect the sector. It has withdrawn incentives to exporters of IT and ITeS, telecommunication and airlines services. Services which were eligible for duty credits under the 'Served From India Scheme’ (SFIS) now exclude important areas including computer consultancy services, software implementation, data processing and database services. This includes the services that our major IT offshore experts provide. Under the scheme exporters of services were given duty credit equivalent to 10% of the foreign exchange earned during the current financial year.

Removal of this export incentive comes as a huge setback for service exporters. These companies have only recently recovered from the aftermath of the global financial crisis. And with sluggish growth, country bailouts and unemployment still rampant in the developed world, growth has not come back as strongly as before. The IT and ITeS industry is around US$ 60 bn in size. Exports contribute over 80% of revenues. According to industry sources, with the removal of the SFIS duty benefit, profits of software exporters are bound to get a hit.