Volatility rules the Sensex

Thu, 20 Oct Closing

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The Indian stock markets continued to remain volatile on account of the concerns surrounding the euro debt crisis. The indices opened below the dotted line, and could not recover much ground in today's trading session. However, towards the final hour of closing they came off their day's lows. While BSE-Sensex ended lower by around 148 points (down 0.9%), losses on the NSE-Nifty came in at around 47 points. BSE Mid Cap and BSE Small Cap indices also faced losses closing lower by 0.7% and 0.5% respectively.

While most Asian indices closed the day in the negative, most of Europe is also trading in the red currently. The rupee was trading at Rs 49.69 to the dollar at the time of writing.

Indices may have also seen weakness today on account of stubborn inflationary pressure. Food inflation rose sharply to cross double-digit levels at 10.6% for the week ended Oct 8, 2011. A rise in demand for essential items during the festive season contributed to the upward pressure. However, this may force the hand of the RBI, which meets next week for the monetary policy review.

Housing finance companies (HFCs) faced the brunt of a recent move by the National Housing Board (NHB). The regulator asked the 54 HFCs under its review to ensure that all borrowers pay the same interest rate, irrespective of when the loan was taken. Thus floating rates will now be uniform to both old as well as new customers with a similar risk profile. This is regardless of when they entered into a contract. Plus, it also banned the levy of a pre-payment penalty. There will no longer be any fee levied on floating rate loans. With respect to fixed rate loans, only borrowers who repay from their own pocket will be exempted from the penalty. In case borrowers shift to another bank or HFC, the penalty will be applicable. Currently banks and HFCs levy pre-payment penalty of up to 4%. Both these moves will benefit borrowers greatly. However, the housing financiers reacted sharply to the news. Housing Development Finance Corporation (HDFC Ltd.) was the biggest loser in the Sensex, falling 4.3%. LIC Housing Finance plunged 6.4%. GIC Housing 1.9% and Dewan Housing were down 2%.

Exide Industries reported a poor set of numbers for the second quarter ended September 2011 (2QFY12). Sales for the quarter grew by a mere 4% YoY. With the auto industry slowing down, the company was not spared either. But what made matters worse was the drastic drop in operating profits (down 63% YoY). This was led by operating margins plunging by around 14% YoY to 7.7%. This was mainly caused by the substantial increase in raw material costs. As a percentage of sales, these increased from 59.2% in 2QFY11 to 72.3% in 2QFY12. Not just that, reduction in other income and rise in depreciation charges dealt a further blow as the PBT (Profit before tax) fell by 70% YoY. Although there was a significant fall in tax expenses, it was not enough to arrest the fall in net profits, which were down 76% YoY. Having said that, the company had received extraordinary income to the tune of Rs 469 m in 2QFY11, which was not there this quarter. Thus, on excluding the same, the fall in net profits was at 69% YoY. For the half year period, while sales grew by 6% YoY, net profits (excluding extraordinary items) fell by 35% YoY.