Inflation risks hurt mkt sentiment

Fri, 19 Feb Closing

   Previous Close   

   Pre-Open   

   09:30 am   

   11:30 am   

   01:30 pm   

Clear signs of the government being left with few options other than fiscal consolidation led the Indian markets to shed more gains throughout today's session. The benchmark indices had a rather volatile outing today with every attempt to move closer to the dotted line proving futile. While realty and telecom stocks bore the brunt of investor apathy, those from the banking and energy sectors managed to buck the trend. Reports that the Prime Minister's Economic Advisory Council has indicated inflation to remain a key risk to GDP growth targets further dampened sentiment.

While the BSE Sensex closed lower by around 145 points (down 0.9%), the NSE Nifty lost around 40 points (down 0.9%). The mid and smallcap stocks also lost out and their respective BSE indices ended the session lower by 1.5% and 1.8% respectively. As regards global markets, most Asian indices closed lower today while European indices have opened on a mixed note. The rupee was trading at Rs 46.35 to the dollar at the time of writing.

Dabur India seems to be adopting a cautious approach towards the brands it acquired through the Fem Care Pharma acquisition. Not only has the company decided to put the new product launches under Fem on hold, it is also putting in place a separate distribution strategy for the bleaches, depilatory products and other stock keeping units under Fem. Further, some of Dabur's own SKUs such as Gulabari, Uveda and Vatika Conditioners could also be brought under the new vertical. The company had reported strong sales growth for December quarter on the back of strong volume growth in consumer care, consumer health and international business. Skin care, oral care and foods were amongst the top performers.

Meanwhile, soon after appointing a new CEO for Tata Motors group, the auto major has appointed another gentleman Ralf Speth as the CEO of Jaguar Land Rover with the overall responsibility for the JLR operations. He will report to Carl-Peter Forster, the recently appointed CEO of Tata Motors group. While Forster was earlier heading GM's European operations, Speth has more than 22 years experience in the European auto industry, most of which was at BMW, where his last appointment was as vice-president. This is the fourth time that US$ 71 bn Tata group, equally admired in India and abroad, has appointed an expatriate at the helm of its business unit. We believe this is a real indication of company acquiring a truly global stature.

As per a business daily, auto major Maruti Suzuki is contemplating adding 3,000 employees on its payroll over the next three years. Besides this, plans on the anvil also include investing Rs 2 bn to add showrooms and stockyards. This move could be seen as a strategy to bolster sales of its various models going forward. No doubt Maruti performed very well during the December quarter. Sales and profits grew at a robust pace due to a lower base effect, favourable macroeconomic environment, benefits of economies of scale and lower commodity prices. 

However, the company has been facing increasing competition from other players despite having a strong product portfolio. And for Maruti, as is the case for most auto companies, the threat of higher interest costs and raw material costs also loom large. Hence, the company's ability to stay one step ahead of its peers in terms of a strong product portfolio is what will enhance its performance in the long term. The stock was the lead gainer on the Sensex today.

The dollar leapt to its eight month high today on reports of the Federal Reserve raising the discount rate for banks by 0.25% to 0.75%. The Fed believes that it will encourage financial institutions to rely more on money markets rather than the central bank for short-term liquidity needs. There is now a wide consensus amongst bankers and economists that the urgency of monetary tightening will soon dawn upon the Fed. The Fed's move has stoked expectations of it moving towards normalising the monetary policy and added strength to the dollar. Meanwhile gold dropped prices more than 1% today as the rise in dollar dimmed the appeal of bullion as an alternative investment.