Inflation numbers spoil the party

Thu, 22 Apr Closing

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A bout of profit booking during the closing hours resulted in Indian markets coming off the day's highs and settling marginally in the positive. Thus, while BSE Sensex closed with gains of around 100 points (up 0.6%), NSE Nifty edged higher by around 25 points (0.5%). BSE's small and mid cap indices however ended almost flat. On the Sensex, the advance to decline ratio was evenly split with one stock gaining for every one that declined.

As far as global markets are concerned, while Asian indices closed mixed, Europe is trading in the red currently. The rupee was trading at Rs 44.5 to the US dollar at the time of writing.

Today was the third day in a row when the markets closed higher for the day. However, just as it appeared that today's gains are going to be the most meaningful, the indices scaled back significantly, thus leading to yet another marginally higher closing. The last minute decline seemed to have been sparked off by news of India's food inflation topping 17.7% for the week ended April 10 as opposed to 17.2% in the prior week. This is certainly not good news as it could force RBI to go in for another round of rate hikes much before expected. And since this could also hurt economic growth, investors scurried for cover and resorted to profit booking at the fag end of the day.

Hindustan Zinc, India's largest zinc producer announced its FY10 results late yesterday. The company has put up a strong show backed by higher metal prices. Net sales grew by 41% YoY during the year whereas operating margins witnessed a 10% jump. Thanks to this strong operating performance, net profits came in higher by 48% YoY during the year. Average prices of zinc stood at US$ 1,936, up 24% YoY. Similarly, average prices of lead stood at US$ 1,990, up 20% YOY. Thus, the increase in both volumes as well as prices during the year came together to help the company post a 41% YoY growth in topline. The company's expansion plans are progressing well and post completion of these, Hindustan Zinc will be the world's largest integrated zinc-lead producer with a total smelting capacity of 1.064 mtpa. The stock ended strong today.

Bharat Forge, India's largest automotive component player closed weak today. This seemed a result of the company's plans to raise funds through a QIP issue. Since this would entail equity dilution, the plan has not gone down well with investors. It should be noted that just few days back, the company redeemed FCCBs worth US$ 131 m, which included a principal component of US$ 102 m and redemption premium of US$ 29 m. The FCCBs under discussion were issued way back in 2005 and were optionally convertible into GDRs/equity shares. However, FCCBs to the tune of just US$ 17.8 m were converted into equity, with the company choosing to redeem the rest. Thus, the recent QIP issue seems targeted towards raising funds for the FCCB redemption.