Indian Markets Monday Wrap-Up: Sluggish Trading

Despite the buying activity during the final hour of trading, the markets still ended lower than Friday’s closing mark. The BSE-Sensex ended the day lower by around 100 points, while the NSE-Nifty closed lower by about 30 points. The BSE-Midcap and BSE-Smallcap indices ended the day lower by about 2.8% and 3.4% respectively. Today, buying activity was witnessed in select IT and banking stocks. On the other hand, stocks from the metal, realty and power sectors led the pack of losers. At the time of writing, the overall decline to advance ratio stood at 3.4 to 1 on the BSE.

Most of the other Asian markets ended the day on a weak note today. The European indices are currently trading in the red as well. Rupee was trading at 49.2 against the US dollar at the time of writing.

Auto stocks ended the day on a weak note today led by Hero Honda, Maruti Suzuki and Tata Motors (TTM). As per a leading business daily, two wheeler major Hero Honda is targeting a 25% YoY growth in sales volumes during the year. During FY09, the company sold about 3.6 m units. As such, the target it has set out for this year is nearly 4.5 m units. During the April-June quarter (1QFY10), the company sold almost 1.1 m units. This indirectly means that the company will need to maintain the trend in volumes in the remaining quarters. It may be noted that Hero Honda has set out this target at a time when the industry is expecting a growth of about 8% YoY during FY10 (as per company’s management). The company’s plan to achieve this target centers on new model launches. It plans to launch nine models, most of which will debut in the next six months.

Banking stocks ended the day on a firm note led by Axis Bank, ICICI Bank (IBN) and HDFC Bank (HDB). As per a leading business daily, Yes Bank plans a foray into the retail lending segment, by introducing education loans during the beginning of next fiscal year. As of FY09, the bank's retail lending segment comprises only 1.1% of its total advances. It may be noted that 90% plus of the bank’s advances are extended towards large and medium sized corporates. In order to introduce retail products, the bank plans to increase its branch network from 117 (at the end of FY09) to around 250 towards the end of FY10. However, it will also need to increase its current and saving account (CASA) deposit ratio, which stood at about 9% in FY09. This would help it sustain its net interest margins by entering in the highly competitive retail segment.

As per a leading business daily, sixty seven companies have passed board resolutions for raising money from QIPs. It may be noted that this is more than the number of QIPs in the last three years put together. In terms of money raised, more than Rs 600 bn is slated to be raised this year, as against Rs 370 bn in the last three. It is highly unlikely that institutional investors will blindly invest in every company that comes their way. Interestingly, the SEBI formula for pricing QIPs - average of high and low prices of the preceding 2 weeks – will also cause problems because of the recent volatility in stock markets.

Comments

[Mad Hedge F...:]

Thanks. Regular followers of this letter know that I have been a huge bull on India since the beginning of the year (see my last update at www.madhedgefundtrader... ). After doubling since November, the Bombay Sensex index has backed off 15%, along with the global risk reversion trade. The immediate road may be a rocky one as the new government brought in by the Congress Party’s smashing May win imposes some Obamaesque changes on the economy. That means a lot more borrowing and higher inflation. For a quick snapshot of the state of play in India, please read Martin Hutchinson’s excellent piece at Money Morning. (at www.moneymorning.com/2.../)

Jul 15 05:07 PM