Markets search for direction

Wed, 2 Dec Closing

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   02:30 pm   

After the strong show put up yesterday, the Indian markets had a tough time replicating that performance in today's trading session. The benchmark indices closed below the dotted line and were hampered by alternate bouts of buying and selling throughout the trading session causing them to oscillate to either side of yesterday's close. While the BSE Sensex closed lower by around 28 points (down 0.2%), NSE Nifty closed flat. The BSE Midcap and BSE Smallcap indices, however, bucked the trend as they closed with gains of 1% each. Auto stocks emerged amongst the top favorites today, while FMCG and capital goods stocks weighed heavy on the indices.

While most Asian indices closed strong today, Europe is witnessing a mixed trend currently. Rupee was poised at Rs 46.28 to the dollar at the time of writing.

Pharma stocks closed mixed today. While Piramal Healthcare, Ranbaxy and Cipla led the pack of gainers, Dr.Reddy's and Sun Pharma closed in the red. Piramal Healthcare closed higher by 5% today and the stock price has doubled since the rally began in March. The company's domestic business has been doing well which was apparent in 2QFY10, wherein sales from this business grew by an impressive 16% YoY. This has been largely due to new product launches and heavy promotion of brands which has translated into sales.

The custom manufacturing business has been the spoke in the wheel due to the global economic slowdown. However, while sales from this business for the year will be flat, they are expected to pick up next fiscal onwards as the outsourcing trend gathers momentum. The global critical business will also be a key growth driver with the acquisition of Minrad. Led by this acquisition, Piramal is present in all 5 areas of Inhalation Anaesthetics (IA), a field which has only two other players present thereby providing significant opportunity to ramp up revenues and profits.

Barring M&M and Hero Honda, auto stocks closed higher today. The buoyancy was fuelled by the robust sales numbers that most companies posted for November. There were two factors that drove growth. One was the low base effect during this month as the sales in the same period last year were considerably lower due to the economic slowdown. Second is the surge in demand, more particularly in the rural areas, which also played a significant role in bolstering performance. While the car segment saw Maruti and Tata Motors report healthy numbers, the two-wheeler segment also put up an equally impressive show led by Hero Honda and Bajaj Auto.

The strong 7.9% growth in GDP that India has logged for the September quarter has led several economists to scramble for upgrading their forecasts. As reported in a leading business daily, another one to join the bandwagon is Dr. Rangarajan who is the Chairman of the Prime Minister's Economic Advisory Council (PMEAC). The council had in October pegged its GDP growth forecast for the current fiscal at 6.5%. With the strong showing in the September quarter, the council is most likely to revise its GDP growth estimate for FY10 upwards possibly to 7%. Further, Dr. Rangarajan believes that the key growth drivers will be the manufacturing and services sectors.

However, given the poor monsoons that the country has faced this year and the negative impact that it has had on agricultural production, the overall GDP picture is likely to be clearer in the third quarter of this fiscal. While the decline in agricultural production is certainly a cause for concern, the robust sales numbers posted by the auto sector gives an indication that the manufacturing industry is picking up.