Profit booking takes toll

Tue, 15 Dec Closing

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The Indian markets continued to fall further into the negative territory as selling activity continued across the index heavyweights during the final hour of trade. This was despite good advance tax collection data released by the government. While the BSE Sensex ended the day lower by around 220 points (down 1.3%), NSE Nifty closed lower by about 70 points (down 1.4%). Stocks from the midcap and smallcap spaces also followed suit as the BSE Midcap and Smallcap indices ended weaker by around 1.6% and 1.4% respectively. On the Sensex, losers outnumbered gainers by a ratio of 4:1. Selling activity was witnessed in stocks across sectors. However, selected stocks from the IT and FMCG space ended in the green today.

Asian indices closed on a weak note today. A similar trend is also being witnessed amongst European indices currently. The rupee was trading at Rs 46.69 to the dollar at the time of writing.

Engineering stocks ended the day on weak note led by Praj Industries, Suzlon and Punj Lloyd. As per a leading business daily, power equipment manufacturer BHEL is looking at acquiring TGR, a Hungary based boiler manufacturer. This acquisition is believed to be a part of the company’s strategy to acquire companies in regions outside India such as Europe and USA in order to ramp up its manufacturing facilities. This strategy would also help it improve its technical knowledge and also cater to a wider market. It is believed that BHEL has a MoU with TGR, wherein they both would together jointly scout for opportunities for business in Europe.

Apart from this foreign acquisition, the company is also looking at acquiring other firms abroad. It is believed that the company is in the process of appointing a panel of advisors for a minimum period of two years to act timely whenever an opportunity comes its way.

Cement stocks ended the day on a weak note led by India Cements, Ambuja Cement and Ultratech Cement. Shree Cement has announced plans of investing nearly RS 20 bn as part of its expansion plans. This capex will mainly be met by internal accruals. The company is looking at raising its capacity by 2 m tonnes within this fiscal. In addition, it is also looking to raise its power generation capacity by nearly four times over the next two to three years. Currently the company has a capacity of 120 MW. After this cement expansion, the company will have the capacity to produce nearly 12 m tonnes per annum. For the same, the company is planning to set up two green field facilities. The company currently has three plants in the state of Rajasthan. The new capacity will be set up in Rajasthan and Uttarakhand, each having an installed capacity of 1 m tonne per annum.

There has been a marginal price hike in the northern region in the recent past. While the management expects these prices to remain stable on the back of good demand, we believe the same is not likely to sustain for long. With a good amount of capacity being commissioned during the first half of 2010, there will be a possibility of oversupply. This holds true for all markets, including the northern, a region where Shree Cement is mainly focused on.

Finance Minister Pranab Mukherjee today said that fiscal deficit would not exceed the target of 6.8% of the gross domestic product (GDP), the rate which the government had pegged a few months ago. This statement comes on the back of a better than expected performance of the economy during 2QFY10. Stating that the overall financial performance 1HFY10 is in line with the Budget Estimate presented in July 2009, the FM also stated that the impact of these stimuli have been shown in the recent results, wherein the economy recorded a 7%.