Indices free fall towards closing

Tue, 15 Nov Closing

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Indian stock market opened the day on a cautious note. They continued trading weak for most of the session, oscillating on either side of the dotted line. However towards the closing hour of trade they moved into free fall and moved well into negative territory. Selling pressure mounted and most of the components of the benchmark index were trading in the red. While the BSE-Sensex closed lower by around 236 points (down 1.4%), the NSE-Nifty closed lower by around 80 points (down 1.6%). The BSE Mid Cap and the BSE Small Cap had a worse outing as they closed lower by 2.6% and 2.8% respectively. Realty stocks took a severe beating falling over 5% in trade today. Capital goods and power stocks also closed the day weak. Every index closed in the red today.

As regards global markets, Asian indices closed in the negative today, with India being the biggest Asian loser. European indices also opened on a negative note on fresh worries from the zone. The rupee was trading at Rs 50.77 to the dollar at the time of writing.

Tata Motors recently announced its results for the second quarter of financial year 2011-2012 (2QFY12). Consolidated revenues rose by 27% YoY during 2QFY12 largely led by growth from its Jaguar Land Rover (JPR) business. Revenues of Tata (and other brands; including spares and financing) increased by 19% YoY during the quarter, while JLR's revenues grew by 34% YoY (not adjusted for intersegment revenues). The company's standalone business was driven by the commercial vehicle (CV) segment, whose volumes increased by 18% YoY. Within the CV space, volumes were driven by the LCV (light vehicles) segment (27% YoY) led by strong consumption demand, while volumes in the MHCV (medium and heavy) segment grew by a mere 5% YoY. Operating profit growth at 13% YoY came in slower than the growth in sales due to decline in operating margins to 12.4% during the quarter. Consolidated profits fell by 16% YoY during the quarter due to extraordinary losses this quarter as compared to gains in 2QFY11. Excluding this impact, growth in net profits stands at 11% YoY.

The Indian railways are planning an overhaul of their existing policy under which companies will pay freight charges based on their profitability. This will help increase revenues for the cash strapped entity. According to senior officials in the Ministry, the railways are currently studying the accounts of major public and private firms to ascertain their profitability over the past few years. This could become the basis for different slabs within a particular freight category. As of now freight rates are decided on a straightforward basis. They take into account the type of goods and distances travelled. Under the new policy, companies who can pay higher freight without transferring the burden onto their customers may have to pay a higher freight rate. Now since coal and iron ore are large payers of railway freight, companies such as Coal India, and various iron ore miners and cement companies may be impacted once this differential freight pricing policy is implemented. Margins may take a hit on this account.