Markets have a lackluster outing

Mon, 8 Feb Closing

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The markets came off the day's highs during the closing hours of trade and in the end, could manage only marginal gains. While the BSE Sensex closed higher by around 20 points, NSE Nifty ended virtually flat today. The BSE Midcap and Small cap indices also ended pretty flat today. On the Sensex, the advance to decline ratio was evenly matched with one stock gaining for every one that declined.

Most Asian indices ended in the negative today while Europe is trading mostly positive currently. The rupee was seen trading at Rs 46.8 to the dollar at the time of writing.

Although the markets did manage to eke out small gains today, it was anything but a confident rally. The indices remained in the negative for most part of the day and while once threatened to end significantly in the positive, were pulled back towards the dotted line. All this perhaps signifies that we may not be out of the woods just yet. And there are very few reasons to feel otherwise. Investor sentiment still remains pretty fragile what with the developed economies showing no signs of growing on their own, without significant help from the government. The fact that most good stocks in India are trading at a not too cheap valuation from a 1-2 year perspective are also not helping matters either. Hence, until earnings of India Inc surprise on the upside or the developed world shows signs of limping back to trendline growth without any support from the government, we may continue to witness volatile times.

Jubilant Foodworks, the food services company that operates Domino's pizza stores in India, debuted on the bourses today and surged an impressive 58% on the listing day itself. A good part of the buoyancy could be attributed to the company's robust December quarter numbers as well. As per a leading daily, the company's net profits during the quarter surged more than six fold on the back of a 50% jump in net income. The increase in sales has come about on account of new store openings as well as a rise in orders received by the stores. The company further expects net profit of 320 m rupees for the full year on the back of about Rs 4.2 bn worth of revenues. However, even after taking into account such robust profit growth numbers, we continue to view the stock as an expensive proposition.

Other stocks that gained impressively today were FMCG heavyweights like Dabur, P&G Hygiene and Nestle. And even here, most of the buoyancy must have been due to strong December quarter numbers. Infact, most of the companies have managed to outperform street expectations. What was heartening to see was the strong surge in volumes, which as per a daily, surged 15%-18% despite lower consumer offtake. Companies also did their bit by resorting to aggressive price cuts and passing on most of the benefit from lower commodity prices as compared to same quarter last year. However, the coming few months are likely to present some stiff challenges. For one, commodity prices are already on the rise and passing the same on the end consumers, could derail the volume growth story. Also, with stimulus benefits like excise duties likely to be revised upwards, the cost pressures are likely to further pile up for companies. Hence, it would be interesting to see how the sector companies rise up to these challenges.