Indian Markets Trade in the Red

Mon, 25 Apr 11:30 am

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After opening the day flat, the Indian indices registered losses and went on to trade in the red. Sectoral indices are trading on a discouraging note with stocks from the energy and metal sector witnessing maximum selling pressure.

The BSE Sensex is trading down 147 points (down 0.6%) and the NSE Nifty is trading down 39 points (down 0.5%). The BSE Mid Cap index is trading marginally lower and the BSE Small Cap index is trading down by 0.2%. The rupee is trading at 66.67 to the US$.

FMCG stocks are trading on a negative note with Lakshmi Overseas Industries and Colgate leading the losses. As per an article in Economic Times, FMCG companies are battling against rising sugar prices that have been made worse by projections of the lowest sugar output in five years. The result of this can be curb in discounts offered by FMCG companies on sugary foods including chocolates, soft-drinks, ice-cream and biscuits.

As the article states, FMCG companies have been passing on the benefit of lower commodity prices through discounts. However, sugar prices have shot up since then. The commodity which was available at Rs 30/kg last October have crossed Rs 40/kg last week.

The reason behind this rising sugar prices is the fall in sugarcane output levels. And the production is likely to fall further this year. According to a report from credit rating firm ICRA, with Maharashtra, a key sugarcane growing state hit hard by drought, all-India sugarcane output is predicted to fall 10% in 2016.

One shall note that many parts of Maharashtra are going through a water crisis on the back of below normal monsoons for two consecutive years. And the real issue for this water crisis in the state is the agricultural production of sugarcane. Vivek Kaul, editor, Vivek Kaul's Diary, has talked about this issue in one of his articles. You can read the same here.

Coming back to the topic of high sugar prices, FMCG companies have stated the lag effect of sustained increase of sugar prices is likely to kick in by later this quarter. And in order to handle this, companies are expected to trim their discounts on products offered. We will like to see the practicalities of this action and its effect on FMCG companies in the coming days.

Stocks in the energy space are trading on a mixed note with Cairn India and Reliance Industries leading the losses. Cairn India has reported its results for the fourth quarter and year ended March 31, 2016.

The company posted its biggest quarterly loss at Rs 109 billion for the quarter ended March 2016. This was seen mainly on the back of impairment loss on goodwill and non-producing oil and gas assets due to drop in oil prices.

Further, turnover of the company fell 36% YoY during the quarter to Rs 17 billion on the back of lower oil prices. It was noted that the company realised an average of US$ 27.8 per barrel for oil it produced in January-March, down 43% from US$ 48.6 per barrel a year ago.

For the full 2015-16 fiscal, the company posted a net loss of Rs 94 billion as compared to Rs 44 billion profit in the previous year.

Presently the stock of the company is trading down by 3.3%.

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