Realty, power stocks lead mkts down

Fri, 21 May Closing

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Taking cues from weakness in other Asian markets, Indian markets closed in the negative today. This was despite some buying that came in during the closing hours of trade. Power and realty stocks led the pack of losers. However, some buying was seen in auto and FMCG stocks. On the broader BSE, there were three losers for every stock that closed in the positive.

Except China (up 1%), all other key Asian markets like Japan (down 2.5%) and Singapore (down 1.9%) also closed weak. European markets have opened on a weak note as well.

Anyways in India, the BSE Sensex and NSE Nifty closed with losses of around 75 points (0.4%) and 15 points (0.3%) respectively. Mid and small cap stocks saw even greater weakness. The BSE Midcap and BSE Smallcap indices closed lower by 1.3% and 1.5% respectively.

Power stocks closed weak today, led by selling in NTPC, NHPC, and Tata Power. Earlier, reports from the power ministry indicated that the latest gas price hike will impact fuel costs for these companies. Subsequently, it expects power tariffs to rise by Re 1 per unit. However, we believe that the actual impact will be much lesser given that gas makes up just around 11% of the overall power generation in the country. And out of this, less than half the fuel requirement is met by APM gas, whose price has been doubled.

Airline stocks also closed weak, led by Spicejet and Jet Airways. Selling in Jet Airways was despite reports that the company halved its losses in FY10 as compared to FY09. As reported late yesterday, the company's net sales dropped by 9% YoY. The company's operating margins stood at 8.9% of sales in FY10, as compared to an operating loss of 6.6% of sales in FY09. As is widely known, the airline industry has been adversely affected in the recent past by the general economic slowdown. This coupled with weak domestic currency and high fuel cost, affected Jet Airways' performance during FY10. Anyways, the company is exploring ways to raise funds for meeting its capex plans.

Frontline software stocks closed in the red today. The losers' list was led by the likes of Wipro, TCS, and Infosys. Some international papers have reported that Infosys, India's second largest IT services company, is eyeing the UK-based IT services major Logica for a potential acquisition. While many details are not available, the acquisition could be in a range of around US$ 4.2 bn. If it goes through, this move will be pretty interesting from Infosys' standpoint. This is given that the company has never shown an affinity for such large deals in the past. This is despite the company sitting on huge cash pile, which currently stands at around US$ 3.5 bn.