Volatility plagues Indian markets

Wed, 30 Dec Closing

   Previous Close   

   10:30 am   

   12:30 pm   

   02:30 pm   

The Indian markets witnessed a volatile session today. After barely managing to stay afloat during the early hours of trade, selling activity subsequently intensified pushing the indices into the red. While the indices did manage to make good their losses in the afternoon session, this foray into the positive was brief as a fresh bout of selling ensured that the markets closed well below the dotted line. While the BSE Sensex closed lower by around 58 points (down 0.3%), the NSE Nifty lost around 19 points (down 0.4%). BSE Midcap and Smallcap indices, however, managed to buck the trend as they registered gains of around 0.3% and 1% respectively. While banking and auto stocks found favour, profit booking was witnessed in FMCG and metals stocks.

The Asian indices closed mixed today, while the European indices have opened on a negative note. The rupee was trading at Rs 46.72 to the dollar at the time of writing.

As per a leading business daily, steel players are expected to increase prices by 3-4% or Rs 1,000-1,500 per tonne in January 2010 in line with rising global prices. In the international markets, prices have risen by 5% in the past month due to an increase in demand. This price hike will be applicable to both long and flat steel products. SAIL plans to hike long product prices by Rs 1,000-1,200 per tonne and flat steel products by Rs 700-1,000 a tonne. Already the company along with Tata Steel had hiked prices of long and flat steel products by up to Rs 2,000 per tonne recently on the back of rising demand. While this will be a positive for steel companies, we believe that industries which consume steel as a raw material such as automobiles, consumer durables and construction will be the ones to bear the brunt of higher prices and consequent impact on margins. Both SAIL and Tata Steel closed lower today.

MNC pharma stocks ended the day on a mixed note. While Aventis and GSK Pharma closed higher, Pfizer and Novartis closed in the red. Aventis closed higher by 4% today and the stock price has doubled since the rally began in March. The company put up a decent performance in 9mCY09 wherein the sales of its domestic business grew by a healthy 14% YoY. Further, as in CY08, the exports business also did well during the nine month period particularly after a string of poor performances in CY06 and CY07. The company has a very strong presence in the chronic therapy segment and many of its key brands have managed to retain market share despite intense competition. Further, the company is increasingly looking to bolster its presence in the rural markets and has launched a rural marketing division for the same.

While rising inflation has increased the prospect of a hike in interest rates, banking behemoth SBI has stated that there will be no hike in lending rates in the next six months as there is surplus liquidity in the market. As reported in a leading business daily, besides strong liquidity, an increase in deposits is also another reason why there will be no hardening of rates. What is more, the bank has stated that credit offtake has been slow, making the case for a rise in lending rates in the short term weak. In our opinion if food inflation does not subside, the RBI might go in for higher interest rates which will compel banks in India to follow suit. SBI closed higher today.