Selling pressure takes toll

Indian equity markets began the day's proceedings on a cautious note. Although they barely managed to stay afloat in the early hours, selling pressure subsequently intensified pushing the indices into the red. There was no respite in the final trading hour either and the indices closed well below the dotted line. While the Sensex today closed lower by 163 points (down 1%), the NSE-Nifty today closed lower by 53 points (1%). The BSE Mid Cap and the BSE Small Cap were not spared either as they lost 1% each. Losses were largely seen in banking, oil and gas and metal stocks.

As regards global markets, most Asian indices closed mixed today while European indices have opened in the red. The rupee was trading at Rs 54.73 to the dollar at the time of writing.

Pharma stocks closed mixed today. While Cipla and Cadila Healthcare found favour, Ranbaxy closed in the red. Ranbaxy also announced results for the second quarter ended September 2012. The company's topline grew by 31% YoY during the quarter led by growth in both its domestic and international business, and currency depreciation. In dollar terms growth was at 8% to US$ 480 m from US$ 442 m. Domestic business (includes consumer health and Sri-Lanka) grew 13% on back of improvement in the chronic segment. US segment grew by 62%, on the back of Lipitor and Caduet generics getting added in the US base business and launch of Actos generics. This launch was an authorized generics product and the company has captured 25% of the market share in 1.5 months of launch. Operating margins improved dramatically by 9.2% due to forex gain, improvement in the base business and Actos exclusivity. As per the management, base margins were stronger on back of Lipitor and Caduet getting added to the base business. Bottomline increased by 262% YoY during 3QCY12 due to forex gain in its derivative position in the current quarter against a loss in the 3QCY11.

Steel Authority of India (SAIL) announced results for the second quarter ended September 2012. The topline of the company declined by 1.5% YoY due to lower volumes. Operating profits declined by 15.8% YoY, while margins declined by 1.7% YoY. Increased fuel costs and other expenses plus higher wage expenses, from a new salary agreement applicable since January 1, 2012 also contributed to lower operating margins. At the bottomline level, profits for the quarter increased by 11.9% YoY due to forex gains and lower interest costs. The company reported a forex gain of Rs 418 m as compared to a loss of Rs 5,087 m in the corresponding quarter last year. Net profit margin improved by 0.6% YoY and stood at 5%. For the half year ended September 2012, the company reported a 1.5% YoY and 7.1% YoY decline in net sales and net profits respectively. The stock closed lower today.

Banking, engg stocks pull markets lower
01:30 pm

Persistent selling activity led the Indian markets to decline further into the negative territory during the post noon trading session. Stocks from across the board are trading weak with those from the banking, capital goods and energy sectors leading the pack of underperformers.

The Sensex today is trading lower by about 130 points (down 0.7%), while the NSE-Nifty is trading lower by about 43 points (down 0.7%). Stocks from the midcap and smallcap spaces are also trading weak with the BSE Mid Cap and BSE Small Cap indices down by about 0.6% and 0.2% respectively. The rupee is trading at 54.47 to the US dollar.

Auto stocks are trading weak led by Hero Motocorp, Tata Motors and Escorts. The Society of Indian Automobile Manufacturers (SIAM) released consolidated numbers of vehicle sales for the month of October 2012 recently. As per the body, domestic car sales increased by over 23% YoY to 172,459 units in the month of October 2012 (140,105 units in October 2011). As reported by a leading business daily, car sales grew at their fastest pace in 22 months. This is on the back of a low base coupled with the festive demand of the current year. Sales of motorcycles stood at 936,122 units, a figure higher by 6.7% YoY as compared to the same month last year. Total two-wheeler sales in the month of October 2012 stood at 1,285,015 units, up by 12.3% YoY. Commercial vehicle sales were up by about 7.6% YoY to about 66,722 units.

Stocks forming part of the BSE-Healthcare Index are trading weak led by Apollo Hospitals, Sterling Biotech and Aurobindo Pharma. As per a leading financial daily, Sun Pharmaceutical is set to acquire US-based DUSA Pharmaceuticals for a total cash value of $230 m. DUSA Pharmaceuticals is a dermatology company and is engaged in developing and marketing the Levulan photodynamic therapy platform. This therapy platform is approved by the US Food & Drug Administration (USFDA) for the treatment of non-hyperkeratotic actinic keratoses of the face or scalp. Apart from this, the company's BLU-U treatment for moderate inflammatory acne vulgaris and general dermatological conditions is also USFDA approved. This buy has given Sun Pharma an entry in to the dermatological treatment devices space where the company sees good growth opportunities. The company has raised its sales growth guidance for FY13 from 18-20% to 20-22%.

Mid and small caps outperform
11:30 am

Indian equity markets continued to trade flat during the last two hours of trade. Sectoral indices traded in the green except IT and energy stocks.

The BSE-Sensex is trading higher by 16 points and NSE-Nifty is trading flat. BSE Mid Cap and BSE Small Cap indices are trading up by 0.3% and 0.6% respectively. The rupee is trading at 54.33 to the US dollar.

Power stocks are trading in the green led by KSK Energy and Indiabulls Power. As per a leading daily, Tata Power has acquired 26% stake in Indonesian coal mine, Baramulti Sukses Sarana Tbk (BSSR). The move is to ensure fuel supply for its upcoming power plants. Tata Power will be able to source coal from BSSR and its subsidiary PT Antang Gunung Meratus (AGM). Both these firms have a combined reserve of 1 bn tonne of coal in mines which are located in south and east of Kalimantan in Indonesia. The power company has not yet disclosed the deal size. However, it may be close to Rs 7.5 bn as per the current market capitalization of BSSR.

Hotel stocks are trading strong led by Indian Hotel and Hotel leela Venture. According to a leading financial daily, Orient Express has rejected a takeover bid by the Tata-owned Indian Hotels dealing a setback to the Indian company's attempt to substantially increase its global footprint by adding the luxury hotel resort to its portfolio. This is the third such rejection for Indian Hotels and comes weeks after the Mumbai-based hotel company tied up with Ferrari's Montezemolo family to bid USD $12.63 per share, a 40% premium to the existing share price of Orient Express. Orient Express has rejected the offer because they feel that the Tatas have significantly undervalued the company. The offer rejection may not be the end of the road for the Tata group which has already arranged funding and is keen on taking over the company.

Indian share markets open flat
09:30 am

Barring Taiwan (up 0.3%) and China (up 0.2%), all major Asian stock markets have opened the day on a weak note with stock markets in Japan (down 0.8%), Hong Kong (down 0.5%) and South Korea (down 0.6%) leading the losses in the region. However, the Indian share markets have opened the day on a flat note with a positive bias. The sectoral indices are trading mixed with stocks in the power and consumer durables space leading the gains. But stocks in the software and capital goods sector were facing selling pressure.

The Sensex today is up by around 21 points (0.1%), while the NSE-Nifty is up by around 1 point (0.0%). Mid and small cap stocks are also trading in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.3% and 0.6% respectively. The rupee is trading at Rs 54.31 to the US dollar.

Energy stocks have opened the day on a mixed note with Chennai Petroleum Corporation Ltd. and Petronet LNG leading the gains. However, Gas Authority of India Ltd (GAIL) and Gujarat State Petronet Ltd (GSPL) are facing selling pressure. Oil and Natural Gas Corporation Ltd (ONGC) has announced its results for the second quarter of financial year 2013 (2QFY13). The company's revenues for the quarter were down by 12.5% on a year on year (YoY) basis. The crude oil production for the quarter declined by 4.6% YoY, while gas output was down by a marginal 0.5% YoY. ONGC has reported a 32% YoY decline in the bottomline for the quarter. The decline has been the steepest in nearly four years. The profits were down mainly due to the higher subsidy outgo (up by 116% YoY) for the quarter. The company has issued a warning that if the trend of rising fuel subsidy outgo continues, its cash reserves will be eroded by almost two-thirds. ONGC's gross realization in the quarter under review stood at US$109.85 per barrel. However, it had to give a discount of US$63 per barrel, leading to a net realization of only US$46.8 per barrel. The net realizations were much lower than US$56 per barrel that the oil ministry had promised the company to help it sustain its operations. As per the management, any realization less than US$60 per barrel is not sustainable for the company since cost of production is increasing. The management has given guidance that the crude oil production is likely to rise to 29.1 million tonnes (MT) next fiscal from current year target of 27 MT. Similarly, gas output is expected to rise to 26.45 MT in 2013-14 from 25.73 MT in the current year.

Auto stocks have opened the day on a mixed note with Ashok Leyland and Bajaj Auto Ltd leading the pack of gainers. However, Eicher Motors Ltd and Hero MotoCorp Ltd facing maximum selling pressure. The leading commercial vehicle maker Ashok Leyland has announced its results for the second quarter of financial year 2013 (2QFY13). The company has reported a 6 % year on year (YoY) increase in the total revenues for the quarter. The growth in the topline was affected due to an overall slump in the volumes in the medium and commercial vehicle segment. Higher interest rates are one of the reasons for a low demand in the segment. The net profits for the quarter were down by 8% YoY. The decline was mainly on account of higher interest costs and depreciation expenses. As per the management, the company will not hold back on investments in new products. Over the first half of this financial year, the company has gained 3% in the overall market share which now stands at 26%.

More pain for highway developers?

It's my way or the highway. That seems to be the attitude with which the highway developers are pitching for the national highway projects. India's ambitious plans to build thousands of kilometers of roads each year have hit a roadblock, with construction companies short of cash and banks becoming increasingly reluctant to lend because of chronic problems in getting environmental approvals and in acquiring land, which can take several months or even years.

Shortage of funds is affecting financial closure of some 50 major road projects. Indian highway builders have sought the government's immediate intervention to allow them to exit fully from completed projects. Infrastructure firms, which are now required to stay, invested in a road project for years after completion nearly close to the end of the concession period plan to deploy freed-up equity funds in fresh road projects.

As per existing guidelines, the developers of build operate and transfer (BOT) road projects awarded before 2009 do not have a complete exit option. While those awarded after 2009 can exit only two years after completion. The highways ministry has called a meeting of developers, bankers, financial institutions and finance ministry officials to identify the reasons behind funding problems and ways to solve them.

Cash-crunched private highway developers may offset government's target to award 9,500-km during this fiscal. With only 600-odd km road stretches awarded during the first half of the financial year, even senior National Highways Authority of India (NHAI) officials are conceding that they can award not more than 5,000-km till March 2013.

The implications of slow pace of road development go far beyond the infrastructure sector itself and can affect the overall economy. India's notoriously potholed roads slow the movement of industrial and agricultural goods, hurting manufacturing activity and contributing to inflation because of higher fuel expenses and spoiling of food items in transit.

India now has a total of 70,934 km of national highways, with most of them two-laned passageways. But these highways, which are only 2% of India's total road length, carry 40% of its total traffic, leading to severe jams. So if the country wants to achieve rapid industrial growth, the number one priority should be to develop basic infrastructure.