Banks lead the downfall

Wed, 15 Dec Closing

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Selling pressure intensified during the closing stages with the indices going on to test fresh intraday lows. Although attempts were made to overcome the same, it turned out too little too late and thus, markets shut down significantly in the red today. BSE Sensex edged lower by around 150 points whereas Nifty closed with decline of about 50 points (down 0.8%). BSE Midcap and small cap indices fared even worse, finishing the day lower by around 1.5% each. Around 3 stocks declined for every 1 that gained on the Sensex today.

While most Asian indices also closed in the red today, Europe too is witnessing selling pressure currently. The rupee was trading at Rs 45.4 to the dollar at the time of writing.

While today’s decline was led mainly by banks, metals too didn't do all that well. Thus, when two of these sectors perform badly on the same day, it is safe to assume that investors are expecting some kind of a slowdown in the economy. That the RBI is all set to announce its monetary policy whereby it is expected to take additional tightening measures goes to reinforce this fact further. However, for the long term investor, there is little to worry about as such measures are likely to be more cyclical in nature than structural. The long term India growth story does remain pretty much intact.

Two wheeler major Hero Honda performed the worst amongst Sensex stocks today. The company suffered a decline of 6%. The slide was on account of reports that the company is close to finalising termination deal with its JV partner Honda. As per the news, Honda would sell its stake in the company at a huge discount from the current market price. However, it isn't that the Honda Group may not be compensated for such a move. The Hero Group will pay a much higher royalty to Honda over the next 3-4 years thus dealing a huge blow to Hero Honda's profit margins. Such a move would be detrimental to the minority shareholders of the company and hence, on account of this, the stock suffered a huge reversal today.

IT stocks like TCS and HCL Tech generated investor interest and edged higher by around 2% each. Even Infosys closed with a similar gain. As per a leading daily, Infosys has announced that the company is fast moving towards its goal of generating a third of its revenues from non-linear efforts. It should be noted that non-linear revenues are those revenues that are not linked to the number of employees deployed on a project and hence, gives that extra momentum to the overall revenues of an IT company. For Infosys, the non-linear revenues currently stand at about 10% as opposed to 4% of total revenues a year ago. Infosys and other IT companies are facing rising attrition and hence, in order to protect them from this adverse development and also to ensure better margin, they have become serious about product and services part of their business.