Profit booking takes toll

Thu, 7 Oct Closing

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Heavy selling pressure took its toll on the index levels during the closing hours of trade. As a consequence, the benchmark indices plunged deep into the red and closed the day significantly lower. While the Sensex lost in the region of 230 points (down 1%), NSE Nifty erased around 70 points from yesterday's closing (down 1%). BSE Midcap and small cap indices weren't spared either as they closed lower by 0.7% and 0.9% respectively. More than 3 stocks declined for every one that gained on the Sensex today.

Among Asian indices, while most of them closed the day in the red, the European indices have opened largely on a positive note. The rupee was seen trading at Rs 44.3 to the dollar at the time of writing.

Today's selling seemed a consequence of some profit booking on the part of FIIs. They have been buying into the Indian growth story for quite some time now and with the markets trading close to its all time highs, the thought of booking profits and taking some money off the table seemed to have entered their minds. With no significant negative news coming out from both the global as well as Indian markets, we believe today's profit booking notwithstanding, FIIs will continue to flock to Indian stocks in the immediate term.

Real estate stocks closed mostly in the red today with companies like Unitech and Sobha Developers amongst the major losers. It has been a very strange year so far for the real estate companies. While real estate prices have gone up in most major cities across India, the sector stocks have not exactly been on fire. Infact, as per a leading daily, the realty index last touched its 52 week high in October 2009. It has remained largely an underperformer since then despite Sensex and other sectoral indices reaching new highs. But not anymore if few analysts are to be believed. They are of the opinion that the good time for sector stocks has indeed arrived as high real estate prices start reflecting in their numbers as well. However, we would advise investors to exercise caution in view of bubble like conditions in few major cities and the heavily leveraged balance sheets of the larger players.

Steel stocks closed weak today with Tata Steel and Ispat Ind. amongst the leading losers. The weakness seemed a result of news in a leading daily that cost pressures in terms of raw materials is expected to negatively impact EBITDA per tonne for steel companies during the September quarter. It should be noted that prices of key raw materials such as iron ore and coking coal had increased sharply during the first quarter of the current fiscal and its full impact would be visible in the current quarter, thus impacting margins. While steel companies did take price hike to counter the trend, its effect would be modest at best. Moreover, volume growth was also not up to the mark as lower demand due to monsoons and company specific events hurt the growth of the metals industry.