A strong bout of profit booking led the indices to head lower during the closing hours of trade and thus end the day in the negative. While Sensex closed with a loss in the region of 50 points (down 0.3%), NSE Nifty too edged lower by around 15 points (down 0.3%). BSE Midcap and Small cap indices also inched below the break even mark today, registering a marginal decline. Nearly three stocks declined for every one that gained on the Sensex today.
While most Asian indices closed in the positive today, Europe has opened on a mixed note. The rupee was seen trading at Rs 46.6 to the dollar at the time of writing.
Had it not been for the correction during the fag end of the day, the markets would have closed higher for the third consecutive time in the week. The correction though was a pretty minor one and does not tell much about the future direction of the markets. Let us try and hazard a guess instead. We think the markets are in a state of both push and pull currently. While favorable domestic factors like good monsoons, strong economic growth and expected lower inflation are likely to push markets higher; things like stretched valuations and possibility of a double dip in the global markets may tend to pull markets lower. Thus, in the near term what we could get is the pattern that has been observed so far in this week. A couple of sessions of gains followed by a decline. However, a long term investor can completely choose to ignore these complex situations and instead should swoop in on an opportunity where a fundamentally good stock presents itself with an attractive valuation from a 3-5 year perspective.
Looks like Piramal Healthcare's thirst for acquisitions and sell offs is far from being quenched. Close on the heels of the sale of the company's domestic formulations business comes a new announcement. The company will now sell its diagnostic services unit to Super Religare Laboratories for Rs 6 bn so that it can focus on fewer and larger businesses left in its basket. Just as in the case of the formulations deal, we believe that the current deal is also quite lucrative from a valuations point of view as it is being done at a price to sales ratio of 3 times. Piramal Healthcare has now come to a point where the cash that it has on its balance sheet far exceeds the amount that it can generate from its revenues. Thus, it will have to soon come up with a plan to deploy the excess cash profitably. Otherwise, investors will continue to see its business in poor light. The company's stock closed lower in the markets today.
The country's largest housing loan financer HDFC declared its 1QFY11 results today. The institution has reported a flat 0.2% growth in interest income while net profits have grown by 23% YoY. Profit grew by 23% YoY mainly due to lower interest expense. The lower income growth is despite 23% YoY growth in loan book and marginally higher spread of 2.3%. The gross and net NPAs for the institution stood at 0.9% and 0.5% respectively. With a healthy capital adequacy ratio of 14.8%, HDFC remains well poised to grow. Pressure on quality and margins, however, remain a concern. The stock closed marginally in the positive today.