China concerns spook investors

Mon, 3 May Closing

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Although the markets did recover some lost ground and came off the day's lows during the final hours of closing, they still ended the day significantly in the red. While the BSE Sensex lost in the region of around 170 points (down 1%), Nifty edged lower by around 55 points (down 1%). BSE Midcap and Smallcap indices were also not spared as both of them declined by around 0.5% each. On the Sensex, six stocks declined for every one that ended in the green today.

Weakness was also seen amongst most Asian stocks today whereas Europe is also trading in the red currently. The rupee was seen trading at Rs 44.6 to the dollar at the time of writing.

Investors are eagerly awaiting the next catalyst to drive growth but sadly, it appears nowhere in sight. Just as problems with respect to Greece showed signs of abating, a couple of new issues have emerged. The most important being China asking its banks to set aside more money in the form of reserves as it seeks to cool down property price and rein in inflation. The problem with such measures is that while the authorities have all the good intentions of bringing about a soft landing, more often than not, hard lending is the norm and this has thus spooked investors. A hard landing for China could create a ripple effect with asset prices across the globe coming in for some sharp correction. While Indian stocks could also come under selling pressure, we believe that slowdown in countries like China and the developed markets would be positive for the economy. We say so because not only is India less dependent on exports it is also hugely reliant on import of commodities like oil that will become a lot cheaper with the onset of the crisis.

The overall market sentiments got the better of the stock of Bajaj Auto, which opened the day on a positive note, but closed, marginally in the red. The stock ended lower despite the company recording its highest ever monthly sales during April 2010. Total sales volumes stood at 313,472 units as compared to about 169,119 units during the same month last year.

This is a growth of about 85% YoY. Motorcycle sales, which contributed to nearly 88% of total volumes, grew by 84% YoY. Three-wheeler sales grew at a faster pace of 98% YoY. However, the key factor was the increase in exports. Total exports during the month formed about 35% of total sales volumes as compared to about 30% during April 2009. Export sales volumes increased by 120% YoY. It must be noted that the export numbers include that of two and three-wheelers. During the preceding month i.e. March 2010, the total sales volumes stood at 274,233 units, translating into a growth of 14% on a month on month basis.

Plastics major, Sintex announced its FY10 results late last week. The company reported a 6% YoY growth in its sales while net profits have grown by 1% YoY. Growth in sales has been primarily driven by the plastics division that saw its sales rise 8% YoY during the year. Sales of the textile division fell by 7% YoY. The company also saw some pressure on its operating margins, which dropped marginally to 16.2% in FY10. This was owing to a rise in raw material costs. Further, higher depreciation led to net profit growing at a slower pace than sales growth for the year. The company has recommended a dividend of Rs 1.2 per share and also a stock-split in the ratio of 2:1. One share of Rs 2 face value will split into two shares of Re 1 face value. Sintex's stock closed weak today. Other notable mid-cap losers included GSK Consumer, HCC, and Exide.