Markets down 1.6% for the week

Investors in the equity market in India were in no mood to relent as they continued to pile on the selling pressure right till the end. As a consequence, while the BSE-Sensex edged lower by around 250 points (down 1.6%), NSE-Nifty suffered a decline of around 80 points. BSE Mid cap and BSE Small cap indices too suffered reversals of a similar magnitude as their larger counterparts. Only about three stocks from the Sensex managed to keep their head above water.

Most Asian indices closed lower today with Europe too opening on a negative note. The rupee was trading at Rs 55.9 to the dollar at the time of writing.

It was a combination of bad news that led to today's steep fall in the indices. Right from global cues to domestic factors such as poor GDP numbers to news of delays in the onset of monsoon impacted investor sentiment and forced them to dump their shares. With quite a few dominant brokerages threatening to lower India's GDP growth further in their projections, looks like sentiment is likely to remain subdued. However, it is poor sentiments and excessive overreaction to short term news that create opportunity for patient long term investors. Thus, it is time they start grabbing the same.

TVS Motors, one of India's largest two-wheeler manufacturers, closed lower by 2% on the bourses today. The weakness was due to its poor sales numbers for the month of May. Its total sales volumes are believed to have dipped by more than 5% on a YoY basis. Exports, the saving grace in recent years, also put up a poor performance, falling by 13% over same period last year. Rounding off the weak data was the three-wheeler performance where sales slipped 28% YoY, albeit on a lower base. Clearly, with competition hotting up in the sector, the company seems to be feeling the heat.

Lakshmi Machine Works, India's largest supplier of textile machinery recently announced its fourth quarter and full year FY12 results. For the full year, it reported a 17% drop in net profits over a 17% growth in topline. Profits fell on account of lower operating margins as well as higher onetime tax outgo. Its fourth quarter performance was even worse as profits tumbled more than 84% on the back of a 6% fall in topline. Here too, certain onetime charges hurt the company badly. The company expects to log in a virtually flat growth rate for the current fiscal. This could change however if economic conditions were to improve. The stock closed flat on the bourses today.

Indian share markets extend losses
01:30 pm

After opening weak and languishing in the red, the Indian share markets further extended losses in the last two trading hours. Barring FMCG, all the sectoral indices are trading negative with IT and oil and gas stocks clocking the biggest losses.

The BSE-Sensex is trading down 136 points and NSE-Nifty is trading down 47 points. Both BSE Mid cap index and BSE Small cap index are trading down by 0.9% and 0.4%, respectively. The rupee is trading at 55.8 to the US dollar.

Majority of the power stocks are trading in the negative with Power Grid and Reliance Infra being the biggest losers. As per a leading financial daily, the consortium of Reliance Power, Shell and Kakinada Sea Ports will build a floating terminal in Andhra Pradesh coast to import liquefied natural gas (LNG). Reportedly, the terminal will be located near D6 block in the Krishna Godavari (KG) basin and will have a capacity to handle 5 m tonnes per annum of LNG imports. The terminal is expected to service the power plants in the region that have been hit by the sharp fall in gas output from KG-D6. Even Reliance Power is setting up its 2,400 MW gas-based power plant at Samalkot in Andhra Pradesh which is in close proximity to Kakinada. As per oil ministry estimates, the country's gas demand is projected to surge to 356 million metric standard cubic meters per day (mmscmd) by 2014-15. With domestic demand stagnating at around 113 mmscmd, the huge shortfall will be met through LNG imports. Reliance Power stock is down 1.6%.

All of the automobile stocks are trading in red with Eicher Motors and Maharashtra Scooters being the biggest losers. Maruti Suzuki announced its sales volumes for the month of May 2012 today. Total sales volumes stood at 98,884 units, which is lower by 5% YoY as compared to May 2011. Domestic sales formed about 90% of the unit sales, lower by 4.3% YoY. Exports fell at a faster clip of 11% YoY. The company was impacted mainly due to lower volumes in the mini-segment cars, which includes models such as M800, Alto and WagonR. Volumes in this segment declined by 29% YoY and formed about 30% of total volumes. However, the company's compact car segment, which includes popular models such as Estilo, Swift and Ritz, witnessed a 14.7% rise over the corresponding period last year. Sales in this segment formed near one-fourth of the total sales volumes. The company's model DZiRE seemed to have had a good month with sales volumes rising by 64% YoY. This model alone sold about 17,700 plus units during May 2012, up from over 10,800 units last year.

IT stocks weigh on Indian equity markets
11:30 am

Indian equity markets continued to trade in the red over last two hours of trade on the back of selling witnessed in index heavyweights. Most of the sectoral indices are trading weak led by IT and power stocks.

The BSE-Sensex is trading lower by 38 points and NSE-Nifty is trading down by 15 points. BSE Mid cap and BSE Small cap indices are trading lower by 0.1% and 0.3% respectively. The rupee is trading at 55.95 to the US dollar.

Energy stocks are trading weak led by Cairn India and Castrol. However, Indraprastha Gas Limited (IGL) is trading firm. The gas utility firm had approached the Delhi high court over the legality of the powers conferred upon Petroleum and Natural Gas Regulatory Board regarding fixing of network tariffs. Earlier in April, PNGRB had ordered IGL to cut tariff by 60% and that too with retrospective effect from April 2008. This implies a refund of Rs 9-12 bn from IGL. As per IGL, this amount if returned, would wipe out the entire networth of the gas company which is roughly Rs 15 bn. The verdict in this dispute is awaited today.

Telecom stocks are trading in the green led by AGC Networks and Tata Teleservices. As per a leading daily, the National Telecom Policy-2012 is finally out and has been cleared by the government. This would make free roaming throughout India a reality. Also, country-wide mobile number portability (MNP) is now possible. The new policy will bring about a number of other positive changes too including liberalised spectrum, pan-India operator licences, technology-agnostic spectrum. This spells a shift in Indian telecom industry from voice to data with emphasis on broadband penetration and making spectrum technology-agnostic. In simple words, the operators have been allowed to provide any service on technology and on any device.

Indian market indices open weak
09:30 am

Asian stock markets have opened the day on a mixed note with stock markets in Taiwan (down 1.4%), Japan (down 0.7%) and Singapore (down 0.6%) leading the losses in the region. However, markets in China (up 0.4%) and Hong Kong (up 0.2%) are trading firm. The Indian equity market indices have also opened the day on a negative note. Stocks in the IT space are leading the pack of losers. However, consumer durables and banking stocks are trading in the green.

The Sensex today is down by around 19 points (0.1%), while the NSE-Nifty is down by around 5 points (0.1%). However, mid and small cap stocks are trading in the green with the BSE Mid cap and BSE Small cap indices up by around 0.1% and 0.2% respectively. The rupee is trading at Rs 56.01 to the US dollar.

Auto stocks have opened the day on a mixed note with Tata Motors and Eicher Motor trading firm. However, Maharashtra Scooters, Bajaj Auto and Hero MotoCorp are facing selling pressure. Despite fears of slowdown in the auto industry, India's largest utility vehicle maker Mahindra & Mahindra (M&M) seems to be bullish on the growth front. It expects sales to grow by 10-12% in the financial year 2012-13 (FY13). However, the company rang the caution bell as far as the tractor segment is concerned. From earlier forecasts of 10-12% growth, it has lowered its growth expectations in this segment to 5-6%. The company is planning to launch 6 new models in the current fiscal, though it has not disclosed details pertaining to the new models and their launch dates yet. Over the next three fiscals, M&M has chalked out capital allocation of Rs 50 bn. In addition, the company would invest another Rs 25 bn in group companies over the same period.

Mining stocks have opened the day on a mixed note as well with National Mineral Development Corporation (NMDC), and MOIL Ltd trading firm. However, Sesa Goa Ltd and Coal India Ltd (CIL) are facing selling pressure. As per a leading financial daily, CIL has written a letter to Coal Ministry informing it of its decision to exit International Coal Ventures Limited (ICVL) consortium, a special purpose vehicle (SPV) that was incorporated in 2009 to acquire coal mines overseas. ICVL is a joint venture (JV) between Steel Authority of India Ltd. (SAIL), CIL, NMDC and National Thermal Power Corporation (NTPC). CIL has a 28% stake in the JV. As per industry sources the Board has decided to exit ICVL as it involved too much financial burden without commensurate advantage. ICVL has not made any success since its incorporation. NTPC is also willing to walk out of the consortium.

In a separate development, CIL has decided to increase prices of coal produced by its subsidiaries- Western Coalfields (WCL) and Eastern Coalfields (ECL). The move aims to compensate ECL and WCL for an adverse impact of new system of grading coal based on gross calorific value (GCV). The move will increase prices and add to the revenues.

India Inc feels the heat

We have been talking about the slowdown in different economies across the globe for quite some time now. And the Indian economy is no exception. But if you look at the new data out in the streets, the situation looks to be going from bad to worse. Recently released Gross Domestic Product (GDP) growth number for the fourth quarter of the last financial year 2011-12 (4QFY12), just at 5.3%, is the worst performance of India's economy in nine years. This is a clear sign of the deepening slowdown.

And if you glance at the March quarter results, declared by companies across various sectors recently, the flavour is more or less the same. The aggregate sales of over 2,000 companies (excluding oil marketing companies, refineries and banks) grew by just 10.3% during 4QFY12. This is the worst performance of the last ten quarters. This validates the fact that the demand environment is getting worse by the day.

And it is not just the poor performance at the topline level. The inflationary pressure has eaten away the profits of the companies as well. So much so that the above mentioned sample of the companies witnessed a de-growth of 2% at the net level during the same period.

Reasons for this poor show are well known. Besides economic uncertainties in the developed countries, stubborn inflation , high interest rates and policy paralysis are to name a few. Now the bigger question is how long this grim picture would prevail. And the answer is equally disappointing.

Many industry experts do not see any respite in the near future. And there are valid reasons for the same. Considering the prevailing inflationary pressure, the chances of rate cuts are not very promising. In the worst case, the Reserve Bank Of India (RBI) may take a U-turn and can again start tightening the policies. The free fall of the Indian currency is adding to the woes. This has made the external borrowings more costly. In additon, the rupee depreciation is putting extra pressure on the economy which is already facing huge trade deficit.

All this calls for some concrete steps from the government side. No doubt, the government does not have control over each and every thing. However, it can always manage issues such as widening fiscal deficit, supply side problems and policy paralysis in a better way. Mere focusing on social welfare schemes would be of no help in this deteriorating situation.

Till something good happens, expecting Indian firms to do well in next few quarters would be like setting wrong expectations!