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Market goliaths in the news

Jun 9, 2001

The bourses continued the declining trend as unwinding of positions loomed large. The BSE Sensex and NSE Nifty declined by 62 points (1.7%) and 22 points (1.9%) respectively during the week. Although the NASDAQ closed lower on the last trading day of the week on fresh rounds of corporate warnings, the index closed the week higher by 3%. Juniper Networks, the leading networking equipment company, was the latest victim of the U.S economic downturn. The company warned that earnings for the current quarter could come in as much as 66% below forecasts.

Mid-week sentiments for the semi-conductor industry were pepped-up with industry proxy, Intel, issuing a statement that second quarter results will be within the estimated range, however, on the lower end of the band. During the first quarter result announcement the company gave revenue guidance of $6.2 bn - $6.8 bn for the second quarter. The clincher, however, really was the company's belief that the microprocessor business seems to be stabilizing.

Back home another industry behemoth, HLL, is facing some unfavourable treatment on the bourses. The scrip has fallen by 6.8% over the last two trading weeks. It also dipped below the psychological barrier of Rs 200 after almost 4 months. The scrip over the past six months had recovered from its 52-week lows touched in October '00, especially after announcing favourable results for FY00. However, 1QFY01 topline grew by meager 1.1%, which once again put doubt in the minds of participants regarding growth prospects of the company.

Fears, currently, do not seem to be unfounded. Latest industry reports do not paint a pretty picture for the company. According to reports, April retail sales of the company have shown a decline of 4.7% YoY during the month. While in March 2001, the retail sales slid by 2.4% YoY. Also, reports reveal that the total FMCG market sales growth was a marginal 0.6% YoY for April and is the lowest since January 2000. Consequently, the picture does not look good for the entire sector. But that could be gauged with HLL itself not doing well as the company represents more than 50% of the organized FMCG market. The company faces a daunting task ahead if topline growth for 2QFY01 is to be re-invigorated.

Pharma stocks were also in the thick of things over the past week. Sector stalwart Glaxo fell heavily to touch a new 52-week low. In fact, both Glaxo and Smithkline Pharma have been declining since the company's analyst meet, which outlined grim market conditions for its products. The company's combined turnover is down by about 20% in April-May 2001 YoY. As a result, institutions seem to be trimming their positions in the stock. However, bargain hunters picked up the stock at the lower levels on Friday.

On the other hand Dr. Reddy's continued to hold strong through the week. The company had a good run in FY01. It has recently announced out-licensing of its diabetes molecule to Novartis. The company would receive US$ 55 m in up front and milestone earnings. The U.S court ruling in favour of Barr Labs for launch of fluoxetine 10 mg / 20 mg (generic Prozac, a blockbuster anti-depressant drug) has come as a blessing in disguise for Dr. Reddy’s. The company has a similar case for the same drug in 40 mg dosage. One can expect a similar decision resulting in 180 days marketing exclusivity for its generic product. The potential for Dr. Reddy’s is huge given that the annual branded sales for fluoxetine are in the range of US $ 275 m.

Net outstanding positions on the BSE have declined to Rs 6.5 bn from Rs 8.3 bn in the previous week. There continues to remain absence of any local drivers. NASDAQ closed lower on last Friday and the domestic tech counters could feel the reverberations.

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