No respite from selling pressure

Continuing from the weak trend witnessed yesterday, Indian indices languished in the red in todays trading session as well on the back of persistent selling pressure across index heavyweights. While the BSE Sensex closed lower by around 432 points (down 2%), the NSE Nifty lost around 123 points (down 2%). The BSE Midcap and the BSE Smallcap were not spared either as they racked losses of 2% each. Selling was witnessed across sectors with stocks from the metals, consumer durables and banking sectors seeing the most losses.

As regards global markets, Asian indices closed in the red today while European indices have also opened weak. The rupee was trading at Rs 44.74 to the dollar at the time of writing.

Power Finance Corp. (PFC) declared its 2QFY11 and 1HFY11 results. Net interest income rose by 27% YoY during 1HFY11 on the back of 28% YoY growth in advances. PFC managed to grow its advances at a healthy pace despite lower average credit growth in the banking sector. The 63% YoY growth in PFCs disbursements were on the back of a 25% YoY growth in sanctions. Bottomline expanded by just 13% YoY in 1HFY11 due to exchange rate losses, lower other income and higher tax outlay (lower tax refunds). Net interest margin decreased marginally to 4.1% in 1HFY11 from 4.2% in 1HFY10. Net NPA to advances remained negligible at 0.01% at the end of 2QFY11. Capital adequacy ratio (CAR) stood at 17.4% at the end of 2QFY11. The stock closed lower today.

Steel stocks closed lower today and the key losers were Tata Steel, SAIL and JSW Steel. As per a leading business daily, steel major SAIL has tied up with Geneva based CBMM for the purpose of developing high strength steel. This is API grade steel and is used in line pipe applications for transportation of oil and natural gas. The international demand for API grades of steel is projected at 8 m tonne (MT) per annum. This has resulted in a large untapped market for Indian steel producers. Not just that, in India itself there is a huge demand for this grade and the annual demand has been estimated at 1 m tonnes (MT) in the coming years. Hence, this development comes as a positive for the company, as it well help it increase its share of special steel products.

Indices plummet on weak IIP numbers
01:30 pm

Indian indices continued their unabated downward plunge during the previous two hours of trade. While all major indices faced intense selling pressure, stocks from the realty and consumer durable space remained the biggest losers.

The BSE-Sensex is down by 308 points (1.5%) while NSE-Nifty is trading 92 points (1.5%) below the dotted line. Both BSE-Midcap & Smallcap indices are down by 1.5% & 1.6% respectively. The rupee is trading at 44.8 to the US dollar.

Capital goods stocks are majorly trading in the red as the IIP (Index of Industrial Production) registered a much slower-than-expected 4.4% YoY rise in September. This was in fact lower than the previous month's revised annual growth of 6.9%. Manufacturing output rose an annual 4.5% in September. However, the industrial output data for October will get a statistical boost from the revamped wholesale price index that will show a lower inflation figure.

Textile stocks are currently trading in the red with significant selling pressure in the counter of Alok Industries and Arvind Ltd. Alok Industries announced its results for the quarter and half year ended September 2010 recently. During 1HFY11, the company's sales grew by 45% YoY on the back of improved volumes and higher realisations. These factors helped the company improve its performance at the operating level as EBIDTA margins moved up by 0.4% YoY to 29.2% during the period. Strong growth was witnessed in most of the company's business segments, with apparel fabrics business leading the growth (revenues of this business up by 52% YoY).

The company's net profits grew by 42% YoY, a slower growth as compared to the increase in operating profits. This was mainly on the back of higher interest costs. During the quarter, the company reported a revenue and profit growth of 49% YoY and 40% YoY respectively. As against the better operating performance during 1HFY11, Alok Industries' margins during the quarter were lower 1.2% YoY.

Realty stocks drag markets
11:30 am

Indian indices continue to languish in the red on profit booking in heavy weights over the last two hours of trade. Stocks from the realty and consumer durable space are trading weak while stocks from the power and pharma space are trading firm.

The BSE-Sensex is down by 127 points while NSE-Nifty is trading 48 points below the dotted line. BSE-Midcap is down by 0.4% while BSE-Smallcap index is trading flat. The rupee is trading at 44.60 to the US dollar.

FMCG stocks are trading weak led by Godrej Consumer and Colgate. As per a leading financial daily, Dabur has identified healthcare as a new focus area for the company. This is as per a vision plan for 2010 to 2014 in which the company wants to double its turnover and profits to achieve a top line of Rs 70 bn and a bottom line of Rs 10 bn by the end of the period. As per the CEO of Dabur, the company aims to be the market leader in the consumer healthcare space. It may be noted that healthcare accounts for more than Rs 10 bn of the company's sales, nearly 30% of the company's top line. This is with a product portfolio of just about 80-odd SKUs, about 10% of Dabur's total SKUs. The company has invested about 3% of the turnover into R&D and consumer research each year and over the last couple of years. This has enabled the company to launch approximately 30 products, including variants, every year in the healthcare space. The company has also been taking several new marketing initiatives and investing in brand building to achieve its goal.

Real estate stocks are trading mixed with Atlanta Ltd and DLF leading the pack of losers. However, Parsvnath Developers is trading strong. Anant Raj Industries has announced its 2QFY11 results. Topline increased 49% YoY during 2QFY11 led by an increase in residential sales bookings coupled with a robust increase in rental income. However, the company's other business of ceramic tiles recorded a fall in sales of 73% YoY during the quarter. Its contribution to the overall business continues to remains minimal. Operating margins fell from 89.5% to 47.2% during the quarter as the company has gradually shifted its product mix. Initially the company's focus was on generating rental income through leasing. However, over time it has also ventured into outright sales of residential properties. In line with operating profits, net profits declined 33% YoY during the quarter owing to increase in interest expenses partially offset by decline in depreciation expenses.

Realty & telecom pull down the markets
09:30 am

Asian markets have started the day on a weak note. The markets are weighed down by weak global cues as well as weak macroeconomic data from China. China and Hong Kong are the main losers followed closely by Indonesia and Japan. Indian markets have followed suit and have opened in the negative as well. Currently, stocks from realty and telecom sectors are the main losers.

The BSE-Sensex is trading lower by around 86 points (-0.4%), while the NSE-Nifty is higher by about 19 points (0.3%). Mid cap stocks are trading in the red as well with the BSE-Midcap index trading lower by around 0.1%. However, small cap stocks have opened the day on a positive note with the BSE Smallcap index trading higher by around 0.3%. The rupee is trading at 44.52 to the US dollar.

Realty stocks have opened the day in the red. Peninsula Land and DLF are the main losers. DLF has announced its 2QFY11 results. The top-line increased 35% YoY while the bottom-line declined 5% YoY during the quarter ended September'10. The company booked nearly 2.0 m sqft of property in its developmental business (residential and commercial complexes), as compared to 1.9 m sqft recorded in the preceding quarter. Under the annuity business, DLF booked 1.56 m sqft as compared to 0.98 m sqft in 1QFY11. On a YoY basis, DLF witnessed a fall in realizations for its developmental business particularly in the residential segment. However, realizations on the commercial space increased 29% YoY during the quarter. Margins in its residential business stood at 59% while margins in the commercial space stood at 68% during the quarter. DLF's operating profits increased 1.7% YoY. Operating margins stood at 39.2% in 2QFY11 as compared to 48.3% in 1QFY11. Net profits declined 5% YoY mainly due to burgeoning interest and depreciation expenses.

DLF, the real estate major, has been working consistently on reducing its debt burden by 'unlocking' its non-core assets. The company's divestment plan is on track. It realized approximately Rs 4.1 bn during the quarter through sale of non-core assets and has plans to divest Rs 20 bn over the next 12-18 months. Cash flow arising from sale of noncore assets will be used to repay debt.

Apollo Tyres declared its second quarter results. Its standalone net sales have declined by 5% YoY during the quarter. This was mainly due to capacity constraints. Furthermore, the fact that one of its international facilities in South Africa had to undergo a lockout for some days of the quarter also made matters worse for the company. However, there is some good news on this front. Operations have resumed at both its Indian as well as South African facilities and this should help its revenues in the forthcoming quarters. The operating margins declined by 6% YoY while net profit declined by 63% YoY during the quarter. The decline is attributable to the rise in raw material expenses, which the company was not able to fully pass on to its end users. Decline in margins was also accelerated by higher staff costs, higher interest costs as well as higher depreciation charges during the quarter. The stock is currently trading in the red while peer Ceat Ltd is trading in the green.

Currency manipulation and its impact

The subject of 'currency wars' is a hot topic on the stage of global economics. US and other western countries have been accusing China of manipulating their currency. This is supposedly hurting global trade and in turn the global recovery.

So let us try and understand exactly what is meant by currency manipulation and how it affects global economy.

In a market, the value of a country's currency is determined by the macroeconomic conditions in the country. This means that factors like its GDP growth, interest rates, government policies, etc. determine the value of the currency in the foreign exchange market.

However, countries like China have interfered in the natural market dynamics. China has been selling its own currency in the foreign exchange market on one hand. This action depresses the value of its currency. On the other hand, it has been constantly buying currencies of other countries, especially the US dollar and building up its own foreign exchange reserves. The combination of these actions ensures that the value of Chinese currency remains at a low constant rate.

This puts China in a position of advantage. Its exports become way cheaper when compared to the exports of other countries. This gives it a competitive edge in the market.

But we ask ourselves what is wrong with this? After all, isn't a country responsible for ensuring continued growth for itself? The answer is not that simple. Try and consider a scenario where all countries decide to adopt the same policy. Everyone's exports would be priced at similar prices and all countries would be pushing hard to sell their own goods. Under such a scenario, who would buy the products that each country is trying to export? There would only be sellers and no buyers. This would send the global economy into the dumps.

This has been the main reason why the developed world, especially US, has been putting pressure on China to allow its currency to be guided by macroeconomic factors. However, we suppose their words would have more impact if they themselves do not try to resort to similar techniques for manipulating their own currencies. US has recently announced a US$ 600 bn programme of quantitative easing. This printing of money will lead to the devaluation of the US dollar. Some experts feel that this is US' way of manipulating its currency. So when will this currency war end? It remains to be seen.