Indian Markets Friday Wrap-Up: Lower Inflation Fails to Cheer

Continuing from where the market left off on Wednesday, the indices had opened the day’s proceedings on a weak note. Continuing in the red throughout the day, markets pared off some losses in the mid afternoon session on account of lower inflation numbers. The Sensex closed lower by around 180 points, while the Nifty closed lower by 50 points. Stocks from the mid-cap and small-cap indices also ended in the red. While selling activity was witnessed in stocks across sectors, stocks from the FMCG and auto space managed to garner investor interest. Rupee closed at 48.7 against the US dollar. The Asian markets ended on a weak note today. The European indices are currently trading in the red as well.

The stock of Punj Lloyd ended lower by around 17% on the back of news of it entering into a legal tussle with SABIC, a UK based company and a client of Simon Carves (SCL), a subsidiary of Punj Lloyd. SCL has began the legal proceedings against SABIC for restitution of 28.5 m pounds in respect of bonds called by SABIC. There are two kinds of bonds - an advance payment bond and a performance bond, which were called by SABIC. In addition, SCL is also claiming additional costs (overruns) and damages in respect to a contract which it had executed for SABIC. However, SABIC terminated the contract stating that SCL failed to complete the contractual work with due diligence, among others. However, SCL has denied the same stating that the project is significantly complete. It should be noted that if this case does not go in favour of Punj Lloyd, it could wipe out nearly half of its profits earned in FY08.

Pharma companies ended the week on a weak note led by Ranbaxy, Dabur Pharma and Glenmark Pharma. Ranbaxy has announced that its new drug research team has initiated Phase-I studies on an experimental respiratory drug it is developing with GlaxoSmithKline (GSK). This is part of the JV the company is running in collaboration with GSK. The company added that the trials will be conducted in India and Europe. In addition, the company has also stated that it will receive a milestone payment for initiating these studies and will also be responsible for conducting phase II clinical studies. Though it will be a while before the molecule will be converted into a successful launch, this development is nevertheless positive for the company from a long term perspective.

Inflation numbers based on the Wholesale Price Index (WPI) have dropped to 5.91% for the week ended December 27, 2008. As compared to the previous week’s rate of 6.38%, the rate has dropped by 0.47%. This is the lowest rate in the last 10 months. The reason for the same has been due to cheaper food items and manufactured goods. However, inflation in the corresponding period last year stood at 3.74%.

Recession continues to hit the US retail players. Major retail players like Fred’s (FRED), Ross Stores (ROST), and Kohl's (KSS) among others have reported flat/decline in sales. Even, Wal-Mart (WMT) which was the sole gainer in December store sales, has now reduced its earnings outlook for the fourth quarter by 10%. With the situation expected to remain grim, the retail sector would continue to face tough times in the coming quarters.