India Markets Thursday Wrap-Up: Banking, Consumer Goods Drive Gains

by: Equitymaster

Indian markets traded amidst volatility today but managed to end marginally in the positive. It largely toed the line of corporate India, which outlined some mixed performance today. Stocks from the banking and FMCG sectors were the best performers today. Those from the oil & gas and pharma sectors fared amongst the worst. On the broader BSE, one stock declined for one that closed in the positive.

The BSE Sensex and NSE Nifty closed with gains of around 35 points (0.2%) and 15 points (0.3%) respectively. Midcap cap stocks followed suit, as the BSE Midcap index closed up by around 0.2%. The BSE Smallcap index closed marginally weak.

Shipping stocks closed mixed today. While gains were seen in GE Shipping, selling pressure marked trading in Shipping Corp. Buying in GE Shipping (GES) followed a decent set of numbers reported by the company for the quarter ended June 2010 (1QFY11). The company's consolidated net sales have declined by 11% YoY during the quarter. Like last few quarters, the pressure again was led by the shipping business where sales (including gain on sale of ships and the segment's share of other income) were down 32% YoY. On the back of continued lean demand environment, the company recorded 5% lesser number of revenue days during the quarter. As for the freight rates, the same weakened for both the crude and product carriers. The company however saw some pickup in the rates for its dry bulk carriers. This was driven by strong imports from China of commodities like metals and food grains. Anyways, helped by improved operating margins due to forex gains, the company has posted an 11% YoY growth in net profit during the quarter.

Metal stocks closed weak today, led by selling in SAIL, Sesa Goa, and JSW Steel. Weakness in the PSU steel major SAIL followed weak 1QFY11 results announced by the company earlier today. It has recorded an 11% YoY decline in net profits on the back of a marginal fall in sales. The company's operating margins declined to 20.4% during the quarter as compared to 21% in 1QFY10. It also recorded a 29% YoY decline in its other income during the quarter. We believe a large part of the decline in the company's sales and profits is owing to the pressure on steel prices during the quarter. In fact, the first quarter was challenging for the entire steel industry in India. The liquidity squeeze in China and European debt crisis impacted steel consumption and prices. Industry experts however do not expect prices to correct further. As far as SAIL is concerned, the company continues to expand capacity. In fact, just yesterday, it laid the foundation of a 150,000 tonne per annum (TPA) steel unit at Jagdishpur in Uttar Pradesh.

Telecom stocks also closed weak today. The losers' list was led by the likes of Tata Communications (NYSE:TCL)., MTNL, and Reliance Comm. As per a leading business daily, telecom companies that source their key equipment from abroad are likely to face large penalties if such equipments are found ridden with viruses. As per the government, this will be done with a view on the security concerns. As per the report, the new rules will be incorporated into the license agreements of all telecom companies with immediate effect. These norms were issued after security agencies and the home ministry had raised concerns regarding imported telecom gear, especially the ones that were sourced from China. As a matter of fact, since early February, the government has not cleared around 450 equipment orders worth around US$ 3 bn placed with Chinese suppliers. This has somewhat slowed down the expansion plans of Indian telecom operators.