Realty stocks lead the gains

Mon, 12 Jul Closing

   Previous Close   

   Pre-Open   

   09:30 am   

   11:30 am   

   01:30 pm   

What was being seen as a pretty good day for the Indian markets did not turn out so as the markets neared the closing hours of trade. After crossing the 18,000 mark, the Sensex dropped on the back of reports that India’s industrial production grew at a slower than expected rate in May. Anyways, today’s gains were led by stocks from the IT and realty sectors. On the BSE, one stock lost for every one that gained.

The BSE Sensex and NSE Nifty closed with gains of around 100 points (0.6%) and 25 points (0.5%) respectively. Mid and small cap stocks also followed suit. The BSE Midcap and Smallcap indices closed up by around 0.3% and 0.6% respectively.

Among other key Asian markets, except Japan (down 0.4%), all other key markets closed strong today. The pack was led by China (up 0.8%) and Hong Kong (up 0.4%).

Leading midcap stocks closed mixed today. While gains were seen in Opto Circuits and CESC, selling pressure marked trading in Shree Cement and Trent. The June quarter result season was kick-started today with leading mid-cap plastics company Sintex announcing its numbers. The company has reported a robust 38% YoY growth in sales for the quarter ended June 2010 (1QFY11). This has come about on the back of an equivalent growth in the company’s plastics business (89% of consolidated sales). The second business segment of textiles also grew by a strong 30% YoY during the quarter. What is more, the company was able to improve its operating margins to 15.1% during the quarter, from 13.2% in 1QFY10. This was on the back of lower staff and other costs. Net profit growth for the quarter stood at 30%. This was lower than growth in sales owing to a decline in other income (down 44% YoY) and sharp rise in taxes (up 52% YoY).

Stocks of leading power companies closed weak today, led by Reliance Power, PGCIL, and NHPC. Marginal gains were however seen in Jaiprakash Power and NTPC. As per a leading business daily, NTPC, facing land acquisition and other issues, has scrapped its plans to set up a 4,000 MW power plant in Uttar Pradesh. The company has now moved the coal-fired project to Madhya Pradesh, where the government has assured it land, water and fuel. The issues with the UP government also extended to power sale issues. The government had asked NTPC to supply 100% of its power to the state, as against the rule of just 50%.

Interestingly, NTPC is facing these problems from a state where it has around 23% of its current capacity situated. The company is currently working on a capacity expansion of 20,000 MW (under various stages of implementation). This is part of its broader plans to take its capacity to over 50,000 MW by the end of the current five year plan (by March 2012). This however seems impossible given that the company would have to set around 10,000 MW per year over the next two years to meets its stated target. And given its past track record, this level of expansion in two years seems highly unlikely.

As per the Central Statistical Organisation, India’s industrial growth stood at 11.5% YoY during May 2010. This was however less than what the economists were expecting (around 16%). However we do not see this as any sign of worry given that a double digit growth only goes to strengthen the recovery after the crisis of 2008 and early 2009. We also see this level of growth as giving the RBI greater flexibility in raising interest rates to counter the inflation problem. Anyways, this growth is lower than what we saw in April, when industrial production had grown by 16.5% (revised down from 17.6%). The decline in the pace of growth can be attributed to a sharp decline in the capital goods output. The mining sector, on the other hand, grew at 8.7%, while the manufacturing and the electricity segment grew at 12.3% and 6.4% respectively during May.