With selling pressure refusing to ease, indices remained deep in the red during the closing hours and thus, closed the day strongly in the negative. While BSE Sensex edged lower by around 440 points (down 2.2%), Nifty lost in the region of 130 points. BSE Mid cap and small cap indices weren’t spared either as both of them lost around 2% and 3% each respectively. Only telecom major Bharti Airtel managed to close in the positive amongst all the Sensex stocks. All the others couldn’t avoid a coat of red.
Most of the Asian markets closed in the red today whereas Europe is also trading mostly negative currently. The rupee was placed at Rs 45.3 to the dollar at the time of writing.
Inflation may not be a major worry yet for the developed world but is certainly causing problems for the emerging markets. China gave another proof of the same recently when its inflation reached levels not seen in two years. India of course is dealing with its own inflation back home. The situation is not very different for some of the other nations as well. Thus, it looks like further tightening measures could take place sooner than expected. Not a very good prospect for stocks as profitability that was already under pressure on account of high inflation would further be affected as a fallout of the tightening measure. Little wonder, investors are getting jittery. The long term India story however, remains as intact as ever.
The mid cap index did correct quite a bit today. Deccan Chronicle, with a decline of 4% did emerge as one of the main losers. Apart from the general negative sentiment, the weakness in the counter could also be on account of its lacklustre September quarter results. The company has reported a 17% YoY decline in profits on the back of a 6% drop in topline. Operating margins have also come in lower by some 5%. Since the company derives most of its revenues from advertisements, the fall in revenues could be on account of its inability to grow its ad revenues during the quarter. The fact that staff costs and other expenditure increased at a very strong rate also did not help matters. For the half year period, the topline growth has come in flattish whereas the bottomline is lower by 2% YoY.
Auto stocks were amongst the key losers today with stocks like Tata Motors (NYSE:TTM), Maruti and M&M all down anywhere between 2%-4%. Weakness could be a result of pressure that these companies are likely to have on their profitability going forward. While the last few quarters were very good for the sector stocks as almost everything was going in their favour, it is time reversion to the mean started showing its impact. Going forward, not only will volumes be difficult to come by on account of hardening interest rate scenario and higher base effect, resurgent raw material price inflation could make matters more difficult for the margins. Thus, share prices are likely to show little enthusiasm, if any, in the near term.