Sensex well below the dotted line

Tue, 8 May 01:30 pm

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The Indian stock markets continued to trade well below the dotted line during the previous two hours of trade. Barring select stocks from the FMCG and realty spaces, selling activity is being witnessed across the board. Stocks from the IT, capital goods and auto sectors are amongst the top losers at the moment.

The BSE-Sensex is trading down by about 160 points (0.9%), while the NSE-Nifty has down by 50 points or 1%. Stocks from the mid and small cap spaces are relatively performing better as the respective indices - BSE Mid cap and BSE Small cap - are trading flat. The Rupee is trading at Rs 53.02 to the US dollar.

FMCG stocks are trading in the mixed with Hindustan Unilever Ltd (HUL) and Emami Ltd trading in the green while Pidilite Industries and Dabur India Ltd are trading in the red. For the quarter ended March 2012 (1QCY12), Glaxo Smithkline Consumer Healthcare(GSCH) recorded a 15% YoY rise in topline led by 7% YoY volume growth. The poor offtake was on account of stoppage of order placement by the 'Canteen Sales Department' (CSD) for the months of February and March 2012 which affected sale volumes by 250 basis points (2.5%). The company's core category, Malted Food Drinks, registered 8% YoY growth on an 8.5% YoY rise in sales of the flagship Horlicks brand. The company has been able to barely maintain its operating margin at 22% during the quarter. The controlled rise in advertisement and staff costs have been offset by a steep rise in the cost of goods sold. On account of the inventory drawdown, the cost of goods sold to sales ratio shot up to 39.5% from 37% in the year-ago quarter. GSCH clocked a 19.3% YoY jump in earnings on a 13.7% YoY rise in operating profit. Profits would have been higher if not for the 79% YoY surge in interest charges surged during the quarter.

Stocks of the big four IT players - Tata Consultancy Services (TCS), HCL Technologies, Infosys and Wipro - are trading weak currently. There are two key reasons for the same. Global IT services major Cognizant revised its growth guidance downwards for the coming year by 3% to 20%. The key reason behind this downgrade is weak demand from North American financial services clients. Apart from concerns over business from North America, Indian investors would be worried given that Cognizant is one of the most aggressive global IT players. And for such a company to be giving lower guidance has not gone well with the market participants considering that IT majors such as Infosys and TCS earn a substantial portion of their revenues from North America. Secondly, investment bank JP Morgan has downgraded TCS' outlook to neutral from an overweight. As per the investment bank, the stock is fully valued at current levels. This development coupled with Cognizant's outlook is the key reason behind TCS' stock being down by over 5%.