Selling pressure intensifies in the last hour

After trading in the negative territory during post noon trading session, the Indian equity markets lost further ground and closed in the red. While the BSE-Sensex today closed lower by 322 points, the NSE-Nifty closed lower by 98 points. Midcaps and Smallcaps too closed in the red today. While the BSE Mid Cap index was down by 1.57%, the BSE Small Cap index closed lower by 1.59%. Power and metal stocks were the biggest losers today.

As regards global markets, the Asian pack too closed weak. The rupee was trading at 61.88 to the dollar at the time of writing.

power stocks ended the day on a weak note. Power major NTPC has signed term loan agreements worth Rs 30 bn with two banks in order to fund its capex plans. The two banks in question are HDFC Bank and Syndicate bank and the agreement is for Rs 20 bn with the former and Rs 10 bn with the latter. The tenure of the loans is 15 years. It may be noted that NTPC has formulated a plan to become a 128,000 MW company by 2032. Currently, it is a 22,000 odd MW company. Such an expansion plan is likely to entail huge incremental capex over the years. As such, the company will have to enter into many such long term loan agreements in future as well to fund its capex needs.

Oil & Gas stocks have ended the day on a weak note. The stock of ONGC hit a 7 month low today after Brent crude continued its downward journey. It may be noted that the Brent crude fell by more than US$2 a barrel on Monday after oversupply worries worsened. Since the time crude prices started falling, the stock has been one of the biggest underperformer. Since June 06, 2014 it has already lost 24%. With the stock price falling it would be interesting to see if the government will go ahead with its planned stake sale of 5% by the end of January.

Metal & power stocks take a beating
01:30 pm

Indian share markets fell sharply in the post-noon trading session. Majority of the sectoral indices are trading in the red with metal and power stocks being the biggest losers.

BSE-Sensex is down 211 points and NSE-Nifty is trading 64 points down. BSE Mid Cap is trading 1.1% down and BSE Small Cap index is trading down by 1.2%. The rupee is trading at 61.89 to the US dollar.

As per a leading daily, India's current account deficit (CAD) widened to a five-quarter high of 2.1% of GDP for the quarter ended September 2014. The CAD in the preceding quarter was at 1.7% of the GDP. Slowdown in merchandise exports and higher gold imports led to a sharp rise in CAD for the quarter. Merchandise exports slowed down to 4.9% in September 2014 quarter from 11.9% in the corresponding quarter last year. However, higher gold imports pushed up merchandise imports that grew by 8.1% in September 2014 quarter vis-a-vis 4.8% fall in year-ago quarter. Last month, the government removed the 20:80 restrictions on gold imports that required traders to mandatorily export 20% of the imported yellow metal. The Reserve Bank of India has said that it is comfortable with the current account deficit scenario on account of lower crude prices. Brent crude prices dropped below $ 68 a barrel which is a five-year low after Organization of Petroleum Exporting Countries decided against cutting output.

Most of the automobile stocks are trading in the red with Eicher Motor and Ashok Leyland being the biggest losers whereas Maharashtra Scooters and Tube Investments are among the few stocks trading in the green. As per data released by Society of Indian Automobile Manufacturers (SIAM), domestic passenger car sales grew by 9.5% to 1.56 lakh units for the month of November. Two wheeler sales increased by 4.9% to 13 lakh units, but motorcycle sales were down by 3.1% to 8.53 lakh units for the month. The overall vehicle sales were up by 5% to 16 lakh units in November.

Indian markets trade lower
11:30 am

After opening flat, the Indian indices have slipped into the red during the morning session. Apart from pharma and IT stocks; stocks from all sectors are witnessing selling pressure.

The BSE-Sensex is trading down 81 points. The NSE-Nifty is trading down 29 points. The BSE Mid Cap index is trading flat and the BSE Small Cap index is trading up 0.1%. The rupee is trading at 61.85 to the US dollar.

Telecom stocks are trading mixed today. While Idea Cellular is leading the gainers; Bharti Airtel is leading the losers. As per a leading financial daily, India's largest telecom firm Bharti Airtel is looking to expand its services in the DTH segment. DTH is a fast growing business for Bharti and the company is looking at gaining the first mover advantage in offering the latest DTH services. The company plans to launch a self-care application for its high-end HD subscribers. This will enable them to access Airtel TV services from their set-top boxes instead of calling the customer support center. This will help the firm increase brand loyalty and reduce costs. The company also plans to launch a plug and play Wi-Fi dongle called Airtel Infinity. This can be connected to the set-top box and will connect users to the internet without any additional wring.

Most Software stocks are trading higher today. Tata Consultancy Services (TCS) and Wipro are leading the list of gainers. According to research firm Gartner, the Indian government, along with state governments, will boost their IT spending in the coming years as the 'Digital India' campaign rolls out. Public sector IT spending is expected to touch US$ 7.2 bn in 2015. This compared to an expected spending of about US$ 6.6 bn in 2014. The services that will be in demand are domain specific application development and maintenance, BPO, database management and consulting. Currently, the public sector does not contribute a significant part of Indian IT firm's revenues but that could change in the future.

Indian stock markets open flat
09:30 am

Asian stock markets have opened on a mixed note with stock markets in China up 1.2% and Japan down 0.3%. The Indian stock markets have opened the day on a flat note. The stocks from power and metal sector were leading the losses while stocks in the software and pharma sector were trading firm.

The Sensex today is down by around 20 points, while the NSE-Nifty is down by about 16 points. The mid cap and small cap stocks have also opened flat with BSE Mid Cap index and BSE Small Cap index up by around 0.1% each. The rupee is currently trading at Rs 61.92 to the US dollar.

Indian pharma stocks have opened the day positive note. As per the financial daily, the competition commission of India (CCI) has finally cleared US $ 4 bn deal between Sun pharmaceuticals and Ranbaxy laboratories. However the regulator has put some conditions to it. The CCI has asked both the companies to sell 7 brands which could have adverse effect on the competition, post merger. Consequently, the regulator has given 6 months time for the divestment process. The 7 brands that are supposed to be divested are of less than Rs 500 m. Among these 7 products, Sun has to divest a product, Tamsulosin Plus Tolterodine which is worth Rs 30 m. While, Ranbaxy has to divest 6 brands worth Rs 300 m, the biggest brand among these is Eligard. In all these brands the companies have market share of above 50-60%, and thus CCI has directed to divest them. Since these brands have good market share, we expect both the companies will be able to sell them at premium valuations.

Automobile stocks have opened the day mixed note. As per a leading financial daily, Tata motors has launched a variant of its leading selling brand, Jaguar land rover (JLR) - Jaguar XF. The car is priced at Rs 45.12 lakhs (ex-showroom). The Executive Edition of Jaguar XF is powered by a 2.2 litre diesel engine and comes with a range of features including eight speed automatic transmission and navigation system. As per the vice president Rohit Suri, the new brand will give access to wider audience. Tata Motors has opened up by 0.5%.

Why business performance is so important

Debt cannot be a panacea for poor business performance. And Corporate India seems to be learning this lesson the hard way. Domestic interest rates in the country have not shown any signs of easing for more than a year now. Moreover banks saddled with high NPAs are getting tougher in advancing loans to companies. Therefore companies wanting to raise funds are increasingly looking towards overseas borrowings that are also cheaper. But it seems that overseas markets can no longer be taken for a ride. Companies with weak business models cannot simply use their name or clout to raise funds in the international markets.

In a recent development two big names in Corporate India were jolted out of their stupor. Due to lack of interest by investors, the over $200 m debut US dollar bond issues of Reliance Communications (RCom)and Lodha Group were called off recently. However the reason is not difficult to see. Anil Ambani controlled RCom has huge debt on its books. Even the prospects of its faltering CDMA business have been clouded by the entry of Mukesh Ambani controlled Reliance Jio Infocomm that will launch services in 2015. On the other hand real estate developer Lodha Group has been hit by the slowdown in residential demand. As a result not only its current projects are getting delayed but also its expansion plans have been derailed.

This spells more trouble for leveraged companies going through a rough patch. Unless these companies pull up their socks and bring about material improvements in their business operations, it will be difficult for them to bail out by simply raising funds in domestic or international markets.