Banks, engg. stocks taken to cleaners

Mirroring a dismal performance across Asian markets, the indices in Indian stock market languished in the red throughout the session today. Reports on slowing growth prospects and threats to the asset quality of the banking sector did not help sentiments. Although the BSE-Sensex recovered from the day's lows, it closed lower by around 112 points (down 0.7%). The NSE-Nifty closed lower by around 38 points (down 0.8%). The smaller indices saw a worse performance today. The BSE Mid Cap and BSE Small Cap indices also lost around 1.9% and 2.5% respectively. Stocks from the engineering and banking sectors space were the top losers. However FMCG and oil and gas stocks managed to find some buyers.

As regards global markets, other Asian indices closed in the red today while the European indices have opened in the green. The rupee was trading at Rs 52.95 to the dollar at the time of writing.

India's leading IT services company Tata Consultancy Services (TCS) plans to expand its operations in the state of Maharashtra by building a new software development campus in Nagpur. The new facility with be at an investment of Rs 6 bn in the first phase. The campus will house 16,000 associates in the facility. It will also have customer collaboration centers, cafeterias, gymnasiums and outdoor sports facilities to offer a holistic environment to knowledge professionals.

TCS added around 12,580 employees (on a net basis) during the September quarter. The total employee base now stands at around 214,770 on consolidated basis. The attrition came down to 13.7% during 2QFY12. This is lower than the 14.8% seen during the previous quarter (ending June 2011). The company has maintained its guidance for employee addition target of 60,000 in the current financial year. TCS enjoyed a high employee utilization rate of 83.1% (excluding trainees) during 2QFY12. Going forward, the management expects that it will continue to have utilization (excluding trainee) levels in the range of 82%-84%.

FMCG player Dabur India has entered into the professional grooming products market with its 'Fem' brand, looking to grab about 5-10% share of the professional grooming market in two years. In this regard, the company has created a salesforce of 200 people and is in process of placing the products in around 30,000 parlours across the country. The company has introduced a range of facial kits - Fem Gold Professional Facial Kit and Fem Queen's Pearl Professional Facial Kit -- which it will sell only through beauticians in parlours and salons. Apart from the two products, the firm is also eying to expand the portfolio with plans to launch body bleach under Fem brand. In 2008, Dabur had acquired Fem Care Pharma for around Rs 2.5 bn. Since then, the company has been revamping and expanding Fem Care range of products.

The bear grip continues
01:30 pm

Weakness in the Indian stock markets continued over the last two hours of trade. Barring FMCG, all the sectors are trading in the red. Stocks in banking, consumer durables and realty have witnessed the steepest fall.

The BSE-Sensex is down by 209 points, while the NSE-Nifty is down 74 points. BSE Mid Cap index and the BSE Small Cap index are down by 2.25% and 2.59% respectively. The rupee is trading at 52.95 to the US dollar.

Banking stocks are trading in the red led by Allahabad Bank and Andhra Bank. As per a leading financial daily, State Bank of India (SBI) has given a guidance of 16% -18% for the credit growth in the current fiscal. As per the management, the bank has registered some increase in the credit growth in the months of October and November and expects the trend to continue. It does not expect sharp increase in net non performing assets (NPA) that has already seen the levels of 2.1%. Regarding recoveries, the bank may sell some of NPAs to asset restructuring companies (ARCs) or coordinate with other banks to resolve the issues. The management is very aggressively working on this by persuading companies to sell off their non-core assets to reduce gearing and is taking recourse to legal measures. The management has said that while recoveries in agricultural sector have improved, there a lot of sectors under stress currently such as aviation, textile and steel some power distribution companies. The management does not expect interest rate cycle to reverse till inflation falls back to 7% and expects capital infusion by the end of the December or latest by end of March 31, 2012. The stock was trading in the red.

Food and tobacco stocks are mainly trading in the red led by Lakshmi Energy and Foods and Tata Coffee. The market of premium cream biscuits is heating up with the entry of new players ITC (Sunfeast) and Kraft Foods (Oreo). According to AC Nielsen data, the combined value share of Britannia Industries' premium cream biscuits portfolio declined by 3.3% to 14.7% during January-September 2011. During the same time, Oreo and Sunfeast brands garnered shares of 6% and 10.5% respectively. As per news reports, largest biscuit manufacturer, Parle Products is planning to enter the premium cream segment which will further intensify competition. As per a leading financial daily, Britannia has merged the sales team of its dairy business with that of its established biscuit business. The development is seen as a move to gain distribution synergies and expand the reach of dairy products which constitute a mere 5% of overall sales. Reportedly, the company has started selling bread using cycle-rickshaws in Delhi to increase reach. The merger is also being viewed as a strategic one in the backdrop of biscuit manufacturer battling low margins due to input cost pressures.

Banking stocks lead the downfall
11:30 am

Indian stock marketsindices are trading weak over the last two hours of trade. Banking and Realty stocks witnessed maximum selling pressure while FMCG stocks witnessed maximum buying interest.

The BSE-Sensex is down by 241 points, while the NSE-Nifty is down 77 points. BSE Mid Cap index and the BSE Small Cap index are down by 2.03% and 2.25% respectively. The rupee is trading at 53.10 to the US dollar.

Aluminium stocks are trading in the red led by NALCO and Hindustan Aluminium Company (Hindalco). According to a leading financial daily, National Aluminium Company Ltd. (NALCO) is in the process of acquiring 25% stake in MEC Coal by March 2012 for an undisclosed amount. MEC Coal will supply 8 million tonnes of coal per annum (mtpa) of which 4.5 m tonnes will be used in Indonesia while the remaining would be used in India. The company will supply coal to NALCO's Rs 180 bn east Indonesia based-Kalimantan aluminium cum power project. Earlier two companies (MEC Coal and Bumi Muara Prasada) were bidding for the contract to supply coal from which MEC Coal has been shortlisted.

Food stocks are trading in weak led by Tata Coffee and GSK Consumer. According to a leading financial daily, Biscuit to dairy products manufacturer Britannia which is run by Wadia family is planning to unlock a mega real estate play in the heart of Bangalore. The company has identified number of consultants to look at the prospects of re-developing this land parcel, which is valued at around Rs 4.5 bn. The consultants have been asked to look in to what would be a viable development model, either to enter in to a joint development with local developers or would the company be better of getting on board Bombay Realty, which is the real estate arm of the Wadia group. The company was earlier looking to sell this parcel of land and relocate its headquarters to Mumbai, but now even with the possible re-development Britannia's headquarters would remain in Bangalore.

Asian markets take a breather
09:30 am

Most major Asian stock markets have opened the day with substantial losses. Losses are led by the stock markets in South Korea (down 4.2%) on the fears of political turmoil following the death of North Korean leader Kim Jong-II. Other stock markets leading the pack of losers are China (down 2.6%) and Hong Kong (down 2.5%). Following the cue,s the Indian stock market have also opened the day on a subdued note. Stocks in the realty, capital goods and banking space are the biggest losers.

The BSE-Sensex is trading lower by 216 points (1.4%), while the NSE-Nifty is down by around 71 points (1.5%). Mid cap and small cap stocks are trading in the red as well, with the BSE Mid Cap and BSE Small Cap indices down by 1.2% and 1% respectively. The rupee is trading at 53.07 to the US dollar.

Mining stocks have opened the day on a weak note with Minerals & Mining Trading Corporation Ltd (MMTC Ltd), Sesa Goa Ltd and Manganese Ore India Limited (MOIL Ltd) trading in the red. MOIL Ltd, formerly known as Manganese Ore India Ltd, is mulling over building a kitty of Rs 5 bn for prospective acquisition of mining assets in Turkey and Indonesia. The mining company has floated expressions of interest for some smaller deposits in Turkey and Indonesia but is yet to finalise further plans. The company is also considering opportunities in South Africa, Gabon and Congo. Apart from oversea acquisitions, MOIL is also looking at expanding its domestic mining operations. From the current level of 1.1 m tonne, it aims to double its production to 2.2 m tonnes by 2020. These steps are in sync with the ongoing expansions of domestic steel companies.

Indian Pharma stocks have opened the day in the weak note with Aurobindo Pharma, Orchid Chemicals and IPCA Labs leading the losses. India's pharma leader, Dr Reddy's Laboratories (DRL) announced an offer for its Mexican employees for a voluntary retirement scheme (VRS) as part of its cost-cutting measures. This move has come after the company completed its VRS for India and Germany. The managementof the company said that the VRS is aimed at trimming the overstaffing problem that DRL is facing. The company did not share the exact number of over-staffing. However, it said that the trimming keeps happening whenever they feel that there is ample overstaffing. The Mexican subsidiary, Industrias Quimicas Falcon de Mexico SA de CV, has announced an early retirement plan for its employees effective till 31 December, 2011. The company has received applications from a lot of employees.

A peep into the December quarter

Time and again we have talked about the worsening global economic scenario. But if we turn back and have a glance over our own domestic business environment, the picture looks equally bleak here as well. At least, that is what is indicated by experts in the corporate world in the industrial outlook surveys done by different institutions such as Reserve Bank Of India (RBI) and Federation of Indian Chambers of Commerce and Industry (FICCI). Even if we look at the advance tax payments by the big corporates, the gloomy picture is more than crystal clear. The advance tax payments are mostly flat for the December quarter on a year-on-year basis. In some cases, there are significant declines as well. And the Indian stock markets which do not govern the business directly, but certainly reflect the hope of the investors for the future, are at their two years lows.

Why is the situation the way it is? Well, most of major governing factors which influence the business growth of any economy are in bad shape. Take a look at the demand environment, domestic as well as exports. Exports are suffering due to the sluggish global demand environment. Now people on the street have already started talks of job cuts. In some cases, downsizing is actually happening. Higher interest rates are adding to the woes. All this is adversely affecting the revenue growth of the companies.

But it is not the topline growth which is the only pressing concern. Even the profitability is expected to be hurt badly in the current quarter ending in December, 2011. Due to continuous slide in the rupee value, import bills for raw materials are skyrocketing. Stubborn inflation is adding pressure on the raw material costs. Hence, margins at the operating levels would be under extreme pressure. Further, rising interest rates for the past 18 months would leave very little at the net level as the companies are reeling under high interest burden. This has also made working capital management a herculean task for the companies.

RBI has just paused hikes in key lending rates. However, it has not lowered the interest rates. Please note that the interest rates were moving up for the past 18 months. Hence, this current move by RBI would be of no help for the third quarter of the current financial year (December quarter) due to the already high interest burden. Government's inability as well as inaction on the reform front is proving detrimental. The whole business environment is now in a state of limbo. The fiscal deficit targets are going wayward.

Well, expectations from the third quarter are definitely not high. However, steps need to taken to boost the business confidence for the future. RBI has started doing its bit. It has taken some steps to control rupee slide. So far, it has tried to control inflation; and now it is thinking on the growth front as well. Government, too, needs to take concrete steps towards policy decisions as well as removing supply side constraints. Else, we would be losing our so-much-talked-about growth story.