Indian Markets Thursday Wrap-Up: Small Caps in the Line of Fire

Persistent selling activity during the second half of today’s trading session led the Indian markets into the negative territory, where they continued to languish for the rest of the trading session. The BSE-Sensex ended the day lower by about 260 points, while the NSE-Nifty closed lower by about 105 points. Stocks from the mid-cap and small-cap spaces too ended the day on a negative note, recording losses of 2.9% and 3.7% respectively. Barring stocks from the IT sector, selling activity was witnessed in stocks across the board led by realty, power and metals.

Most other Asian markets ended the day in the red today. The European indices are currently trading mixed. Rupee was trading at 48.25 against the US dollar at the time of writing.

Fresh deals struck by Indian IT companies in the recent past are a testimony to their eminent position in the global outsourcing arena. As per a leading daily, Infosys (INFY) has bagged a US$ 10 m worth BPO project from Microsoft (MSFT). As per the deal, it will provide back-end support activities like data processing to the software giant for three years. In another deal, the European telecom major Alcatel-Lucent (ALU) too is all set to award an over US$ 15 m worth back-end support project to Infosys BPO. All such deals reinforcing the need for Indian IT/ITES oriented services at a global level suggest that any sort of protectionist measures may not do significant harm to the industry.

Trent Ltd. announced results yesterday. The company reported flat sales on a standalone basis during FY09, while on a consolidated basis revenues were higher by 18% YoY. The slowing economic growth impacted the lifestyle retailing business of the company. The increased cost of operations dented the company’s operating margins. Compared to a 63% YoY decrease in operating profits, the decline in bottomline was lower at 19% YoY. Higher other income and lower taxes helped restrict the fall in net profits. On a consolidated basis, net profits were down by 97% YoY. Apart from the gloomy environment, the profits were also lower on account of its Hypermarket business still being in its incubation period. The company opened 8 Westside stores, two Sisley stores and one Fashion Yatra store during the fourth quarter taking the total number of Westside stores to 36 and the total number of stores under various formats to 42. The company recommended a dividend of Rs 5.5 per share, which translates into dividend yield of 1.1% at the current price.

Inflation dropped into negative territory and stood at -1.6% (deflation) during the first week of June after an annual inflation of 0.13% in the week before that. This may be attributed to the high base effect of last year’s prices wherein commodity prices were at their peak. It may be noted that retail inflation as measured by consumer price index (CPI) is still high at around 8%. Inflation hit a 13 year high of 12.9% in August 2008, but has been decelerating steadily since then. Interestingly, this marks the first annual decline in wholesale prices since the government started releasing weekly data in 1977.