No respite from selling yet

Mon, 25 Jan 01:30 pm

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The Indian markets remained extremely choppy witnessing alternate bouts of buying and selling during the previous two hours of trade with Sensex still trading below the dotted line. Stocks from the realty, IT, banking and telecom sectors are leading the pack of losers, while FMCG and capital goods stocks are garnering investors' interest currently.

The BSE-Sensex is trading lower, down by around 82 points while NSE-Nifty is down 28 points. The BSE-Midcap and BSE-Smallcap are also trading lower, down by around 0.8% and 0.4% respectively. The rupee is trading at 46.19 to the dollar.

According to a leading business daily, pharma major, Piramal Healthcare,is rethinking its investment plans worth Rs 1 bn aimed at setting up a new unit for manufacturing Codeine, a basic ingredient for cough syrups like Corex, Phensedyl. The company is currently doing a cost-benefit analysis for the project which entails a lot of government controls and issues in long-term raw material supply. It may be noted that the company previously planned to set-up a codeine manufacturing facility which was expected to be operational by the first quarter of next fiscal. However, this drug which is derived out of opium, a nacrotic is a difficult drug to manufacture given the government policies and vigiliance. India annually imports around 30 tonnes of codeine on account of poor supply in the domestic market. Only 2 government companies process opium which creates a huge derth of supply.This is despite the fact that in 2008 Indian government relaxed its monopoly and allowed private players to manufacture codeine. Dr Reddy'd DRL) and Piramal Healthcare are the only 2 private companies allowed to produce the chemical. However, as of now Dr Reddy's has also decided not to go ahead with its proposed plant to make this drug. We believe that in a sector where government policies are so crucial, not being able to capitalise on such a strategic position will pinch the company. The brands like Corex and Phensedyl annually generate sales worth over Rs 1500 m each for their companies i.e.Pfizer and Piramal respectively.

India's forth largest IT major, HCL Tech which is a June ending company, declared its 2QFY10 results today. The company's topline remained flat during 2QFY10 (financial year begins July) on account of muted performance in the major segments like financial services and manufacturing particularly in the US market. Though performance remained subdued for BPO and engineering and R&D services, the company mananged to maintain its leading position in the IT infrastructure management business. It's operating margins contracted by 1.6% QoQ during the quarter mainly on account of weak topline and increase in expense. Net profits declined by 7.3% QoQ during 2QFY10. Profits for the quarter impacted by decline in margins,extraordinary losses on cash flow hedges and a lower other income. The company added 1,691 employees to IT services business during the quarter taking the headcount to 55,688 by end of 2QFY10. The company also declared an interim dividend of Re 1 per share. We believe that the company's performance though impacted by the forex volatility was very weak as compared to bigger IT rivals like TCS, Infosys and Wipro.