Volatility mars Indian indices

Tue, 8 Nov Closing

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Indian stock markets had a rather volatile outing today. While the indices began the day's proceedings on a strong note, profit booking subsequently took toll and pushed the indices into the red. In the later hours a surge in buying activity was witnessed which pushed the indices above the dotted line. However, they struggled to stay afloat in the final trading hour. While the BSE-Sensex closed higher by around 7 points, the NSE-Nifty closed higher by around 5 points. The BSE Mid Cap closed higher by 12 points, while the BSE Small Cap closed lower by 11 points. Gains were largely seen in consumer durables, oil & gas and banking stocks, while healthcare stocks were at the receiving end.

As regards global markets, Asian indices closed mixed today while European indices have opened on a positive note. The rupee was trading at Rs 49.48 to the dollar at the time of writing.

Steel stocks closed mixed today. While Sesa Goa and Maharashtra Seamless found favour, Steel Authority of India (SAIL) and Tata Steel closed in the red. As per a leading business daily, the steel industry could face some headwinds in the medium term as overcapacity concerns loom large. About 25 million tonnes (MT) of new capacity is likely to be commissioned in the next 18-24 months outstripping the growth in demand. The new capacity coming up accounts for around 30% of the country's current production capacity. This scenario would most likely put pressure on the margins of steel companies in India. Further, the Indian economy has slowed down a bit in the current fiscal and tepid demand from sectors such as construction, automobiles and capital goods is likely to impact steel companies as well. It must be noted that India is the world's fourth largest steel producer, having produced about 68 MT of crude steel during 2010. Crude steel production in the country has gone up at a compounded annual growth rate of about 9.8% between 2000 and 2010. While demand was strong before the global financial crisis, it slowed down in 2008 as the crisis took its toll. In the last two years, the growth rate has remained between 6-8%.

Kansai Nerolac announced results for the second quarter and half year ended September 2011. Net sales increased 15.5% YoY in 2QFY12. The demand conditions in both the automotive and decorative segment were subdued during the quarter. Thus, the growth was led by better product mix and price increases. Rising interest rates impacted demand conditions in the auto segment, while extended monsoons slowed down the off take in the decorative segment. Operating margins stood at 14.8% in 2QFY12, a decline of 90 bps over 2QFY11. It may be noted that prices of titanium dioxide, a key raw material ingredient, have increased considerably over the recent past impacting the overall margin profile of the company. In addition, rupee depreciation in the current quarter further worsened the situation. Bottom line registered a growth of 6.5% YoY in 2QFY12 and was lower than the 9% YoY growth in operating profits. This was due to fall in other income (down 36.9% YoY) and rise in depreciation expenses (up 11.9% YoY). The stock closed higher today.