Final hour slump in Indian mkts

The Indian stock markets started the day on par, but they moved slightly lower and continued to trade below the dotted line for a bulk of today's session. However, in the final hour of trade the indices fell sharply. The market breadth was negative with 2.2 declines to every advance. While the BSE-Sensex closed lower by around 206 points (down 1.2%), the NSE-Nifty closed higher by around 66 points (down 1.3%). The smaller indices also had a negative day on the bourses. The BSE Mid Cap index and the BSE Small Cap both closed 2.1% lower respectively. Stocks from these indices were heavily battered with speculation that operators were dumping these stocks after margin calls got triggered. Tulip Telecom was the major loser, plunging 26% in trade today. All sectoral indices saw losses today with realty and consumer goods stocks leading the losses.

As regards global markets, Asian indices had a mixed outing today. European indices also opened the day on a mixed note. The rupee was trading at Rs 55.9 to the dollar at the time of writing.

Bharat Heavy Electricals (BHEL) announced first quarter results of financial year 2012-2013 (1QFY13). The company has reported 16.9% YoY growth in sales. Operating profits increased by 18.1% YoY. However, operating margins were relatively flat at 14.2% during the quarter. Net profits increased by 12.9% YoY during the quarter mainly due to strong performance at the operating level, a rise in other income and fall in interest expenses. However depreciation expenses increased 33.6% on a YoY basis. The order book at the end of the quarter stood at Rs 1,329 bn. The stock closed 1.8% lower post the result announcement.

Ambuja Cements has announced its second quarter results for the calendar year 2012 (2QCY12). During the quarter ended June 2012, the company reported 17.9% year-on-year (YoY) growth in the topline. Net sales stood at Rs 25,660 m during the period. The growth was driven by 7.3% YoY increase in sales volume of cement. The remaining growth came from increase in cement realisations. Operating margins improved from 26.9% in 2QCY11 to 28.2% in 2QCY12. The improvement at the operating level coupled with higher other income and lower effective tax rate led the bottomline to grow by 34.9% YoY. Net profits for the quarter stood at Rs 4,689 m. Net margins improved from 16% in 2QCY11 to 18.3% in 2QCY12. The stock closed 3% higher post the result announcement.

Markets hover around the dotted line
01:30 pm

The Indian share markets continued to trade in a range bound manner, albeit marginally below the dotted line, during the post noon trading session. While the sectoral indices representing the healthcare and auto sectors are trading firm, those of the realty and capital goods spaces are leading the pack of losers.

The Sensex today is trading lower by about 15 points while the NSE-Nifty is trading down by about 14 points. Both, the BSE Mid Cap and BSE Small Cap indices are trading weak by about 1% each. The rupee is trading at 55.88 to the US dollar.

Stocks of logistics companies are trading weak led by Allcargo Global Logistics and Sical Logistics. Container Corporation of India (CCIL) announced its results for the quarter ending June 30, 2012 (1QFY13) recently. The company reported a 9.3% year on year (YoY) increase in the topline, while its profits decline by 4.7% YoY. CCIL's operating profits increased by 2.9% YoY as expenses grew at a faster pace of 11.7% YoY. Revenues during the quarter were driven by the EXIM business segment which grew by 11.3% YoY while domestic business' revenues remained flat. However, when it came to the segmental profitability, the domestic business' margins expanded while that of the EXIM business contracted. At the profit before tax level, the number was higher by 11% YoY. However, on the back of a higher tax outgo, profit growth was subdued

Stocks of automobile companies are currently trading mixed with Escorts and Ashok Leyland trading weak, while Bajaj Auto and Maruti Suzuki are trading firm. As reported by the Business Standard, commercial vehicle major manufacturer Ashok Leyland is considering reducing its capital expenditure for the current year FY13 by one-fourth. The company's management has earlier given a capex guidance of Rs 6 bn, which it is now planning to bring down to Rs 4.5 bn. The rationale behind the same is cash conservation on the back of a demand slowdown. The company plans to cut investment at the Pantnagar facility, in the area of R&D (research & development) and on sourcing. In addition, the company's working capital debt stood at around Rs 25 bn in June which it intends to reduce this by around 7.5 bn from here onwards.

Indian markets trade near dotted line
11:30 am

Indian equity markets continued to trade flat over the last two hours of trade. Capital goods and realty stocks witnessed maximum selling pressure, while pharma and FMCG stocks witnessed maximum buying interest.

The Sensex today is down by 14 points, while the NSE-Nifty today is down by 5 points. BSE Mid Cap index and the BSE Small Cap index are down by 1.09% and 0.97% respectively. The rupee is trading at 55.98 to the US dollar.

Engineering stocks are trading in the red led by Pipavav Defence and Havells India. According to a leading financial daily, Bharat Heavy Electricals (BHEL) has commissioned a 5 Mega watt (MW) grid-connected solar power plant at Shivasamudram in Karnataka. The power plant has been set up for the state owned power producer Karnataka Power Corporation Limited (KPCL). The cost of setting up the solar power plant is Rs 620 m. For this project, BHEL's scope of work includes design, manufacture, supply, erection and commissioning of the solar power plant. In addition, BHEL will also operate and maintain the solar power plant for a period of three years. With the commissioning of this unit, the company has set a new record in its solar PV business in a single year, by commissioning 15 MW of solar power plants in various parts of the country during FY12, thus marking a significant contribution to the nation's green initiatives.

Automobile stocks are trading mixed with Bajaj Auto and Maruti Suzuki leading the list of gainers while Escorts and Ashok Leyland were the top losers. As per a leading daily, there is a demand-supply mismatch in Maruti's Swift and Dzire models. As per the management, the recent indefinite lockout of Manesar plant after violence in the factory is likely to hurt the production of these two models as they are mainly produced in Manesar. However, bookings for both the models have not been cancelled. In fact, the automobile company is still receiving booking orders for these models for which the waiting period is at least 3-4 months for the top end variants. We may note here that Maruti sold 55,216 Swift models between April and June this year, which is an increase of 68% over the corresponding period in the last financial year. Sales of DZire grew by 87% to 46,958 units.

Indian equity markets open flat
09:30 am

The key Asian stock markets have opened the day on a positive note on hopes that Europe's planned permanent bailout fund could be given a banking license that would let it borrow money from European Central Bank. The stock markets in Japan (up 0.3%), Singapore (up 0.4%) and South Korea (up 0.3%) are leading the gains in the region. However, markets in Indonesia (down 0.5%) and Malaysia (down 0.4%) are trading in the red. The Indian equity market indices have opened the day on a flat note with a negative bias. The sectoral indices have opened mixed with Consumer Durables and FMCG leading the gainers while Metal and Banking sectors are witnessing losses.

The Sensex today is down marginally by 3 points (0.0%), while the NSE-Nifty is down by around 5 points (0.0%). The Mid cap stocks are trading in the red with the BSE Mid Cap down by around 0.1% while BSE Small Cap index is up around 0.2%. The rupee is trading at Rs 56.10 to the US dollar.

Oil & Gas stocks have opened the day mainly in red led by Oil & Natural Gas Corporation Ltd. (ONGC) and Bharat Petroleum Corporation Ltd. (BPCL) .As per a leading financial daily, the Government regulator Petroleum & Natural Gas Regulatory Board (PNGRB) has filed a Special leave petition (SLP) in the Supreme Court. This is against the recent Delhi High Court Order that limited regulator's jurisdiction and role in downstream gas market. The regulatory board, vide its order, fixed IndraPrastha Gas Ltd's (IGL's) pipeline network transportation tariff at Rs 38.58 per million metric British thermal unit (mmBtu) as against Rs 104.05 per mmBtu proposed by the company. The development raises trouble for IGL that had earlier managed to oppose PNGRB's directive to cut the tariffs by 63%. The Supreme Court decision in PNGRB's favor could wipe out the company's net worth.

Software stocks have opened the day in the red with Wipro, Infosys and Tata Consultancy Services leading the losses. HCL Technologies has announced its fourth quarter results for the financial year 2011-2012. (The company has a June year ending). The company reported a 13.5% quarter-on-quarter (QoQ) growth in sales. This was driven by the growth in its core business. Growth was also supported by the steep depreciation in the rupee dollar rate during the quarter. Operating margins improved by 3.6% QoQ to 22% during the quarter as compared to 18.4% seen during the previous quarter (3QFY12). Margin expansion at the operating level as well as lower effective tax rates during the quarter led the net profits to surge by 41.8% QoQ during the quarter. The company has proposed a final dividend of Rs 4 per share.

Yet another blow for Indian banks?

The slowing economy has taken a toll on a number of companies in India. Demand for their products and services have reduced. Elevated interest costs are also eating into margins. Thus, many companies are approaching bankers in order to restructure their debt and ease their burdens. The restructuring of advances serves a useful social purpose as it protects the productive assets of the economy. It can help inject a lifeline into companies that are on their last breath.

But, for banks, especially state run ones (PSUs), it is a separate story. The cumulative 'standard restructured' advances rose from Rs 604 bn as on March 2009 to over Rs 1 trillion as on March 2011, and currently stands at elevated levels. PSU banks have so far led the party on the restructuring front. But, the new corporate debt recast (CDR) norms issued by the Reserve Bank of India (RBI) last week will have a significant impact on their profitability.

In order to prudently recognise the inherent risks in existing assets classified as standard on restructuring, an RBI working group has called for additional provisioning on these assets. It states that the provision requirement on such existing accounts should be increased from the present 2% to 5% in a phased manner over a two-year period. Thus provision will be increased to 3.5% in the first year and 5% in the second year. However, in cases of new restructuring of standard asset, the working group recommends that a 5% provision should be made with immediate effect. If this move is implemented, state run banks will see a strain in profits, while private sector banks will be relatively sheltered.

The working group also has a few more recommendations with regards to conversion of debt into equity/preference shares, with such a classification only to be made as a last resort. The group recommended that RBI could consider a higher amount of promoters' sacrifice in cases of restructuring of large exposures under corporate debt restructuring. Thus promoters will need to be more committed by compulsorily providing personal guarantee in all cases of restructuring. Until now, such guarantees were exempted when the restructuring was necessitated on account of external factors pertaining to the economy and industry. Also, corporate guarantee cannot be classified as personal guarantee. Even if there is a short term impact on profits, we believe that these classifications are beneficial as only those accounts which really need to be restructured will be reclassified. Plus, with promoters giving a higher commitment, they will be more dedicated to the cause, and the risk of these accounts turning NPA may reduce.