Markets stare at another tough day

Fri, 5 Feb 09:30 am

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The Indian markets have started today’s session on an extremely weak note. The benchmark indices opened way below the breakeven mark and have not managed to make any meaningful upward movement since then. Other key Asian markets are trading in the red with Taiwan (down 3.5%) leading the pack of losers. The US markets closed lower by 2.6% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading in the red with construction and auto stocks bearing the brunt of selling activity. The BSE-Sensex is trading lower by around 290 points, while the NSE-Nifty is down by about 100 points. Selling pressure is also being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading lower by 2.7% and 2.9% respectively. The rupee is trading at 46.52 to the US dollar.

Food stocks have opened the day on a weak note. Losers here include Tata Coffee and GSK Consumer. As per a leading business daily, the Rs 10 bn instant noodles market in India is set to witness further competition. After GSK Consumer, which announced the launch of its brand ‘Foodles’, it is the turn of HUL. The FMCG major is set to enter the instant noodles market under its ‘Knorr’ brand. It will initially test market the offering in Western India. Food contributes around 20% of HUL’s business and has grown at 9% during 3QFY10. In contrast, the instant noodles market in India has grown at a much faster rate. That would explain HUL’s interest in the segment. However, in our view, it will take a lot of effort to dent the market share of Nestle’s ‘Maggi’. The company has consistently put in advertising and promotion efforts over the decades due to which it enjoys a 70% market share in the space.

Banking stocks have opened the day on a negative note. Losers here include Bank of Maharashtra and Andhra Bank. As per a leading business daily, banking giant SBI has decided to increase its branch network three fold this decade. It currently has 17,075 branches, which it plans to ramp up to 50,000 by the end of the decade. It may be noted that, in the past, the bank had decided to go easy on branch expansion and concentrate on increasing business from existing branches. But with the government’s permission to hire more employees and liberalisation of branch licensing norms by the RBI for smaller towns, SBI wants to open more branches. In fact, it has opened 975 branches so far this fiscal. In FY11, it plans to open 1,000 new branches. This development must be seen in the light of the rising income levels and the need for financial inclusion in the smaller centres in India.