Gloomy US data spooks Asian markets

Fri, 22 Jun 09:30 am

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Most of the Asian equity markets have opened the day on a negative note. Barring Malaysia (up 0.1%), all the markets were trading in red with indices in China (down 1.4%), Hong Kong (down 1.0%) and South Korea (down 2.1%) leading the losses in the region. The Indian equity market indices have also opened the day on a negative note. Barring FMCG, all sectoral indices were trading in the red with Software and Oil and Gas sector witnessing maximum selling pressure.

The Sensex today is down by around 129 points (0.8%) and the NSE-Nifty is down by around 35 points (0.7%). Both Mid cap and Small Cap stocks are trading in the red as well with the BSE Mid Cap index and BSE Small Cap index are down by around 0.4% and 0.2% respectively. The rupee is trading at Rs 56.84 to the US dollar.

The Cement sector stocks are trading in the red with India Cements and Madras Cements leading the pack of losers. As per a leading financial daily, the Competition Commission of India (CCI) has found 11 cement companies guilty of cartelization. The companies that have been found guilty include - ACC , Ambuja Cement, Ultra Tech Cements, Grasim Cement (now merged with Ultra Tech Cement), JK Cements, India Cements, Madras Cements, Century Cements, Binani Cements, Lafarge India and Jaypee Cements. The companies have been asked to pay penalty at 50% of the profits that they booked during 2009-10 and 2010-11 within the next three months. At Rs 63 bn, the penalty is almost double of what the companies were expected to pay earlier (8% of the average turnover in the last three years). Amongst the companies taking major hits, JaiPrakash Group, ACC, Ambuja Cements and Ultra Tech Cements will be paying penalties of Rs 13.2 bn, Rs 11.5 bn, Rs 11.6 bn and Rs 11.8 bn respectively. The penalty could be higher as CCI is allowed to charge higher of 10% of turnover for each year under consideration or three times the net profit of each year. The companies have denied indulging in cartelization and are expected to challenge the order and seek legal remedies. The Cement Manufacturers Association (CMA) has also been slapped with a penalty of Rs 7.3 m by CCI and has been asked not to engage in collecting wholesale and retail prices and circulating information on cement dispatch and production to its members. As per the industry sources, as a result of this development, the cement companies will lose their pricing power and a cement price correction is expected.

Stocks in the Engineering sector are trading mixed with AIA Engineering and KSB Pumps leading the pack of gainers while Shanthi Gears and Alstom T&D are trading weak. As per a leading financial daily, the Ministry of Defense has selected a consortium led by Larsen & Toubro Ltd. (L&T) to bid for an order worth Rs 100 bn to develop 'Tactical Communications System'. 'Tactical Communications System' refers to a telecommunications network that can be rolled across a battlefield. It will work like a regular mobile telecom network and provide signals to the army. L&T is expected to face competition from Bharat Electronics Ltd. (BEL) in the bidding process. The consortium and BEL will be preparing a Detailed Project Report (DPR) in the next six months. The deal is expected to take about two years to materialize into order flows for the chosen company. It may also happen that the deal is split between the two in a way that the entity with better designs will get major share. As per the industry sources, HCL Tech and Tata Group Company are the two other companies in the consortium led by L&T.