Smallcaps end deep in the red

Fri, 25 Jul Closing

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The Indian equity markets continued to trade weak in the latter half of the day, remaining at lower levels touched during the post afternoon session. While the BSE Sensex today closed lower by by 175 points, the NSE-Nifty closed lower by 47 points. Midcaps and Smallcaps fared worse. While the BSE Mid Cap index closed lower by 1.3%, the BSE Small Cap index closed the day lower by almost 2%. Realty and metal stocks were the biggest losers today.

As regards global markets, Asian indices closed on a mixed note today, with the Japanese and Chinese markets topping the list of gainers. The Singapore market was amongst the losers. The rupee was trading at Rs 60.14 to the dollar at the time of writing.

Media stocks closed the day with more on the losing side than gaining, with NDTV and Deccan Chronicle seeing the most losses. Zee Entertainment has announced its results for the first quarter of the financial year 2014-15 (1QFY15). Zee's sales grew by 11.6% YoY in 1QFY15. The growth in sales was driven by a 17.4% YoY growth in revenues from advertising; while subscription revenues grew by an anemic 4.4% YoY. The company failed to curtail its overall operating costs, causing a fall in EBITDA margins from 30% in 1QFY14 to 28.5% in the quarter gone by. This restricted operating profit growth to just 6.1%; which is significantly lower than the sales growth. Other income for 1QFY15 also fell by 46% YoY. Further, depreciation costs also saw a sharp rise of 126% YoY. These factors put together led to profit after tax falling by 6.3% YoY as compared to the last year's corresponding quarter. The stock of Zee Ent. closed the day lower by 3.5%.

Steel stocks ended the day on a weak note today. Except for Tata Sponge, which bucked the broader sectoral trend, almost all steel stocks registered losses in the region of 3-5% today. Tata Steel raised US$1.5 bn (Rs 90 bn) via dollar denominated bonds recently. The money is being raised to refinance high cost Rupee loans. It may be noted that the company has to repay Rs 330 bn worth of Rupee loans in the next 18 months. And in order to fund the same it is raising low cost money from foreign markets. Apart from US$1.5 bn which it raised recently, the company also plans to raise another US$ 5.6 bn (Rs 336 bn) in multiple currencies over the coming months. If the fund raising exercise culminates Tata Steel will be able to replace its high cost Rupee loans with low cost dollar debt. It may be noted that acquisition of Corus in 2007 coupled with the expansion plans which the company undertook since then saw its debt pile up by about 3 times. Since then it has been reeling under high debt and interest cost pressures. Replacing rupee loans will at least help the company on the debt servicing front.