Persistent selling mars indices

Fri, 16 Apr Closing

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Indian markets had a weak trading session today as the indices languished in the red throughout the day led by persistent selling across index heavyweights. While the BSE Sensex closed lower by around 48 points (down 0.3%), the NSE Nifty lost around 11 points (down 0.2%). Midcap and small cap stocks were not spared either as they closed lower by 0.3% and 0.2% respectively. Losses were largely seen in auto and oil & gas stocks.

As regards global markets, most Asian indices closed in the red today. European indices have opened on a mixed note. The rupee was trading at Rs 44.36 to the dollar at the time of writing.

Pharma stocks closed mixed today. While Lupin and Sun Pharma found favour, Dr.Reddy's and Ranbaxy closed into the red. Lupin closed higher by 2% today and what is more, the stock has nearly tripled since the rally began in March 2009. Both the domestic and the exports businesses of the company have been performing well and growth prospects look good in the future as well. Besides, in the US market especially, the company has adopted the strategy of focusing on branded generics. Since it is not easy to brand generics in a regulated market like the US, this has ensured that there are not too many players present in this space. As a result, Lupin will have to contend with lesser competition and consequently higher revenues and profits. The company's brand 'Suprax' has already been doing well in the US and products such as 'Antara' and 'AeroChamber' are likely to give more fillip to Lupin's branded portfolio in that market.

Auto stocks closed mixed today. While Tata Motors and Ashok Leyland found favour, Bajaj Auto and Maruti closed into the red. As per a leading business daily, growth of the auto sector is touted to slow down to low double digits in FY11. This is due to the high base effect of FY10. The Society of Indian Automobile Manufacturers (SIAM) is of the view that sustained economic growth and higher disposable incomes will continue to be the growth drivers for the Indian auto industry. However, they expect the auto sector to log in a growth of 10-14% this fiscal as compared to 26% growth that was recorded in FY10. In FY10, commercial vehicles were the top performers as they grew by 38% YoY followed by passenger vehicles, 3-wheelers and 2-wheelers (growth of 26% YoY each). However, major concerns going forward will be the rise in commodity prices which would have an adverse impact on margins.

The rupee has been in the limelight of late for appreciating against the dollar. It has risen by about 17% from its record low in March 2009 and there are expectations that it could gain at least 3% more by the year end. Interestingly, the RBI has refrained from intervening in the forex market to stem this rise. The reasons are not hard to find. India is already grappling with high inflation led by soaring food prices. Intervention by the central bank to stem the appreciation of the rupee would only add to the liquidity and worsen the inflation scenario. Further, an appreciating rupee does have its advantages. This is because imports become cheaper. The fact that India is a net importing country only strengthens the case for the appreciation. This is especially because most of the imports are of commodities, whose prices are expected to rise. Exports, however, could be impacted and the sectors at the receiving end would be software, pharma, textiles and gems and jewellery.