Volatility impacts Indian indices

Tue, 30 Mar Closing

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In a volatile trading session today, strong selling activity in the final hours caused markets to close deep into the red after trading barely above the dotted line for a larger part of the session. While the BSE Sensex closed lower by around 133 points (down 1%), the NSE Nifty lost around 46 points (down 1%). Midcap and small cap stocks, however, closed higher by 0.3% and 1% respectively. Losses were largely seen in IT, healthcare and banking stocks.

As regards global markets, barring India, most Asian indices closed firm today. European indices have opened on a mixed note. The rupee was trading at Rs 45.07 to the dollar at the time of writing.

Banking stocks ended mixed today. While gains were seen in Corporation Bank and ICICI Bank, SBI and HDFC Bank closed in the red. As per a business daily, non-repayment of loans to small borrowers is being cited as the key reason by banks for their increased slippage rate. Small corporate or agricultural borrowers who are typically eligible for loans of smaller ticket sizes are skipping repayment schedules, citing non-viability of projects, business failure or crop failure. This has resulted in an increase in the volume of gross NPAs in the Indian banking sector (currently nearing 3.5%). While the banks do set aside reasonable provisions against such high risk loans, willful default in large volumes may weigh heavy on banks’ profitability. To add to that the government’s proposal to extend the loan repayment scheme for farmers may also swell the agri NPAs for banks.

Hotel stocks closed firm today and the key gainers here were Taj GVK, Hotel Leela and Indian Hotels. As per a leading business daily, Ginger Hotels, which is part of Indian Hotels Ltd, is looking to expand by setting up properties across major metros, tier II and tier III cities. Ginger, which currently manages 21 properties set up in about three and a half years, is looking to add 9 more during the year. Further, it is aiming to have about 50 within a couple of years. This is a positive for Indian Hotels as the growth potential in the budget hotel space is strong. This is because at present the hospitality sector is heavily skewed in favour of upscale and mid-market properties. While the upscale range accounts for 56%, the mid market contributes about 36%. Thus, hardly 11% of the total rooms fall in the budget category, signifying huge opportunity for Ginger Hotels to grow its revenues.

As per a leading business daily, domestic pharma major Lupin has launched an osteoarthritis drug ‘Hyalgan’ in India. This product is an injectable and will be prescribed for relieving acute pain in patients diagnosed with osteoarthritis. The market for osteoarthritis is currently pegged at Rs 1.5 bn. What is more, India has the second largest osteoarthritis patient base at over 15 m and women form a large chunk of this population. By 2011, India is estimated to have 66 m in the high risk segment for osteoarthritis. Thus, this drug is expected to enhance Lupin’s revenues from the domestic market in the long term. Not just that, this product is in line with Lupin’s strategy of focusing on niche products which have the potential to maximize overall revenues and profits as there is limited competition. The stock, however, closed lower today.