Volatility plagues Indian markets

Thu, 10 Dec Closing

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The Indian markets witnessed a volatile session today. After languishing in the red for most part of the morning session, strong buying activity during the latter half of the day enabled the indices to close firmly in the positive. While the BSE Sensex closed higher by around 64 points (up 0.4%), the NSE Nifty gained around 23 points (up 0.4%). Strength was also seen amongst BSE Midcap and Smallcap indices as they were stronger by around 0.3% and 1% respectively. While banking and capital goods stocks found favour, profit booking was witnessed in FMCG and IT stocks.

The Asian indices closed mixed today, while the European indices have also opened on a mixed note. The rupee was trading at Rs 46.67 to the dollar at the time of writing.

As per a leading business daily, BHEL has chalked out plans of recruiting about 4,000 people annually for the next 3 years as part of its expansion plans and embarking on new joint ventures. The company's aim is to increase its headcount to around 52,000-55,000 by the end of 2012 as compared to over 45,000 at present. It must be noted that of the 78,000 MW capacity addition in the current five year plan period, BHEL has bagged orders for 44,000 MW. Further, at the end of September 2009, the company's order backlog stood at Rs 1,258 bn, which is about 4.8 times last fiscal's annual sales. Not just that, the company has received an order worth Rs 9.9 bn from Railways to supply about 150 electric locomotives. Therefore, in our opinion increasing its headcount makes sense given the scale of projects that BHEL has to execute. BHEL closed higher by 3% today.

Pharma stocks closed mixed today. While Dr.Reddy's and Piramal Healthcare closed firm, Cipla and Ranbaxy closed in the red. Dr.Reddy's closed higher by 2% today and the stock price has nearly tripled since the rally began in March. The company did well during the September quarter wherein its sales grew by 14% YoY and net profits nearly tripled. The key contributors to growth have been the US, India and Russia and these will continue to enhance the company's performance in the future as well. Having said that, Betapharm in the German market has been under a lot of pressure due to changes in the regulatory landscape in that country and performance of this market in the near term looks uncertain. Dr.Reddy's custom manufacturing business which grew at a subdued pace during the first half is poised to do much better in the second half of this fiscal. Not just that, in the US generics market, Dr.Reddy's also stands to benefit from some product launches that have limited competition.

Food prices have continued to rise unabated. In the twelve months to 28 November, India's food price index rose 19.05% with the main culprits being potatoes, onions and pulses. Weak monsoons this year have wreaked havoc on agricultural output and the same has had a huge bearing on food prices. For the government this poses a dilemma in the form of higher inflation going forward. So far, it has refrained from tightening interest rates given the fragile nature of the economic recovery. However, if food prices continue to remain persistently high then the government will certainly have to rethink its strategy if not this year then next year.