Strong global cues buoy India

Wed, 3 Feb Closing

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Strong buying activity across index heavyweights led the indices to hold on to their gains and close well above the dotted line in today's trade. While the BSE Sensex closed higher by around 327 points (up 2%), the NSE Nifty gained around 102 points (up 2%). Midcap and smallcap stocks also did well notching gains of 2% and 1% respectively. Gains were largely seen in metals, banking and consumer durables stocks.

As regards global markets, most Asian indices closed firm today while European indices also opened in the green. The rupee was trading at Rs 45.99 to the dollar at the time of writing.

Pharma stocks closed mixed today. While Glenmark and Cipla led the pack of gainers, selling was seen in Dr.Reddy's and Ranbaxy. Glenmark closed today with 4% gains. This is despite mixed results that the company had announced for the third quarter ended December 2009. Sales grew by 11% YoY largely driven by the specialty business which registered a decent growth of 19% YoY. India and Europe were the key contributors to the growth of this business. The generics business, however, performed poorly with sales growing by a mere 1% YoY. Operating margins shrank 6.4% during the quarter leading to the 11% YoY decline in operating profits. Higher raw material costs and other expenditure were the main culprits. Bottomline, however, managed to grow by 16% YoY due to a considerable fall in tax expenses.

Going forward, the company is confident of a strong performance as market conditions improve and various businesses ramp up. The fact that the company was able to out-license one of its specialty products in the dermatology space to Medicis Pharmaceuticals USA for milestone payments is also an encouraging sign. This is especially so given the setbacks that Glenmark's R&D business suffered in FY09.

As per a leading business daily, engineering major L&T has secured orders worth Rs 11 bn from various vendors for construction related works. These include construction of a residential tower, warehouses, a mall and a factory building. While this is sure to add on to its order book and provide revenue visibility in the future, execution will be the key. Infact, the company reported poor set of numbers for the third quarter ended December 2009 as its performance was largely impacted by a number of issues, mainly execution related. Execution of various projects went through rough patches leading to consequent delays. Delays in handing over of project sites, delays in financial closures, funds not being put up by customers during execution were some of the factors that led to the dismal sales performance during the quarter. The stock, however, closed 4% higher on the bourses today.

With debates raging as to when the Indian government will exit the stimulus measures given the rising inflation, it appears that the same may not happen anytime soon. As reported in a leading business daily, chief statistician Pronab Sen has said that India may defer taking a call on exiting stimulus measures and the finance minister could take appropriate steps later in the next fiscal year. Readers would do well to recall that the stimulus measures included a mixture of tax cuts, increased expenditure, easy credit and interest rate cuts. All of this amounted to more than 12% of GDP and were announced in three phases between September 2008 and April 2009. This also led to a huge jump in the government's fiscal deficit.

The RBI in its recent monetary policy chose to raise the CRR in a move to suck out excess liquidity in the system. Interestingly, the central bank opines that its monetary measures will be of little consequence unless the government mends its ways. The reversal of accommodative monetary stance cannot be effective unless there is also a roll back of government borrowing. Indeed, even after exiting the stimulus measures, the rising deficit will certainly a big problem that the government will have to deal with.