Indices struggle to recover

Mon, 8 Nov 01:30 pm

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Investors continued to remain cautious as Indian indices hovered close to their lifetime highs during the previous two hours. Metal, healthcare and cement heavyweights have held their gains while most other sectors are facing selling pressure.

The BSE-Sensex is trading down by 70 points while NSE-Nifty is trading 15 points below the dotted line. BSE-Midcap index is down by 0.1% while BSE-Smallcap index is up by 0.1%. The rupee is trading at 44.29 to the US dollar.

Banking stocks are trading weak with Syndicate Bank and Andhra Bank leading the pack of losers. However, Canara Bank is trading strong. SBI, country's largest bank, is looking to acquire a bank in Indonesia and set up a subsidiary in Australia. SBI has already shortlisted two to three banks and has set aside US$ 100 m for the purchase. It may be noted that SBI had already acquired a bank in Indonesia in 2006 and now is planning a second acquisition as local laws do not permit setting up new branches in the country. Besides this, the bank is also planning to open branches in Netherlands, Itlay or Botswana.

SBI also plans to set up a subsidiary in Australia.  Local laws in Australia allow co-existence of both branch and subsidiary. Thus, by having a subsidiary the bank can have multiple branches in the country. It already has plans to set up five to six branches in Australia. Operating through a subsidiary is a cheaper expansion route. As a result SBI is not contemplating an acquisition in Australia and is on a look out for setting up new branches for expansion.

Healthcare stocks are trading mixed with Orchid Chemicals, Divi's Lab leading the gains while Wockhardt and Fortis Healthcare witnessed some selling pressure. Novartis has announced its 2QFY11 results. The company has reported 16% YoY and 22% YoY growth in sales and net profits respectively. The growth in revenues was largely led by the OTC and pharmaceutical businesses. Revenues from the pharma division, which accounts for 71% of total sales, grew by a decent 14% YoY. The strong performance of the OTC segment in the first quarter spilled over to the second quarter as well, as this segment grew by a robust 28% YoY. While the generics business grew by 14% YoY, sales growth of the animal healthcare business was lukewarm at 4% YoY. Novartis' operating margins shrank by 1.1% to 22.8% during the quarter due to higher raw material and staff costs and advertisement expenses (as percentage of sales). Bottomline growth at 22% YoY was higher than the 10% YoY growth in operating profits due to higher other income and lower depreciation charges.