What seemed like a bad day, then a good day, and then a bad day for the markets, ended with a whimper today. The broader markets were directionless since start of trade. And the story continued till the close. Buying in power and realty stocks brought some respite to the markets, which were otherwise hurt by selling in IT and auto stocks.
The BSE Sensex closed with a marginal gain of around 5 points, while the NSE Nifty ended down by around 5 points. On the broader BSE, one stock gained for every one that closed in the red. The rupee was trading at 44.45 to a US dollar at the time of writing.
Engineering stocks closed mixed today. While gains were seen in BHEL and Suzlon, selling pressure marked trading in Havells and Siemens. Gains in BHEL were seemingly on the back of decent provisional results announced by the company for FY10. During the year, while its sales grew by 21% YoY, net profits were up 37% YoY. Order inflows during the year remained almost flat at about Rs 590 bn. However, the company's order backlog at the end of the year stood at 1,438 bn (a growth of 23% YoY). This is 4.2 times its FY10 sales.
Software stocks continued their weak run on the bourses on the back of an appreciating rupee. Stocks that lost the most from the sector today were HCL Tech, TCS, and Infosys. With the rupee’s appreciation against the US dollar and other key currencies like Euro and Pound showing no signs of abating, Indian IT companies are staring at some weakness in their margins going forward. An appreciating rupee is painful for these companies. This is because they can now convert every dollar of earnings into fewer rupees. And this is when their rupee-based costs (like employee costs) are on a rise. So there’s a double whammy!
India's largest auto company Maruti Suzuki expects the car market to more than double in a matter of just five years. Maruti expects the market, which is just 2 m cars a year currently, to reach sales of about 4.6 m cars by 2015. It may be noted that the domestic car industry has grown by 13% annually over the last five years, and will have to clock in an average annual growth of 18% till 2015 to attain the 4.6 m cars per year level. It expects this growth to come in due to India's advantageous demographics and rising household income levels.
However, with car majors including Toyota, Volkswagen, Nissan and Renault along with their domestic counterparts upping investments in the country, competition levels in the industry are set to heat up like never before. Therefore, the fortunes of companies in the industry will be reliant
not only on industry growth but also on how they are able to maintain their market share over time.