Volatility raises its head

Thu, 11 Aug Closing

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After showing signs of closing in the positive, indices in the Indian stock market plunged into the negative during the closing stages and thus put curtains on what could be termed as a rather volatile session. At the end of the day, BSE-Sensex was seen closing lower by around 70 points whereas decline on the NSE-Nifty stood at around 30 points. Marginal declines were also witnessed in BSE-Midcap and BSE-Small cap indices. More than three stocks on the Sensex declined for every one that ended the day in the positive.

While stocks in Asia closed mostly lower today, Europe is trading mostly in the green currently. The rupee was trading at Rs 45.3 to the dollar at the time of writing.

Although Asian stocks closed lower today, they pared their losses mid-session on the back of positive news flow coming out of China. An expert in the dragon nation has argued that China should make good use of the current turmoil in global economy by making a move towards further liberalisation of the Chinese Yuan. This, we believe, is heartening as it will not only help tame the inflation in the country by making imports cheaper but it could also help boost exports of other nations and also help improve trade balance with the US. However, any such step is likely to take a long time to show its results and hence, the bounce in the stock markets on account of the same is likely to be misplaced we believe.

Apollo Tyres, one of India's largest tyre manufacturers edged lower by more than 5% today. The negative sentiment arose perhaps because of the muted profit growth shown by the company during the quarter ended June 2011. As per reports, net profit for the quarter was higher by 9% YoY on the back of a strong 75% growth in other income. At 4%, profit growth was even more muted on a consolidated basis while the consolidated topline registered a growth of 55% YoY. The company mentioned that high raw material prices and slow demand impacted profitability during the quarter. It should be noted that despite increasing prices by 14%, it saw its margins take a hit. To make matters worse, there could be no respite from rubber prices. As per the company, gap between supplies and demand of natural rubber is only going to widen and reach around 1 m tonnes by 2020.

Another stock that tumbled on the bourses on account of below par quarterly results was Hotel Leelaventure. The share price closed more than 6% lower. As per reports, the company posted a net loss of Rs 265 m for the first quarter ended June 2011. This compared poorly to a profit of Rs 92 m during same quarter last year. The loss during the quarter was incurred mainly on account of the impact of interest and depreciation, which was in turn a result of the opening of a new hotel, The Leela Palace in New Delhi. Once the revenues from the same start trickling in, the profitability should start improving we believe.