India Markets Friday Wrap Up: Profit Booking Takes Toll

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Includes: NLC
by: Equitymaster

Indian stock market languished in the red throughout the session today. Selling pressure intensified especially in the final trading hour causing the indices to close well below the dotted line. While the BSE-Sensex closed lower by around 220 points (down 1%), the NSE-Nifty closed lower by around 68 points (down 1%). The BSE-Midcap and BSE-Small cap, were not spared either as they closed lower by 1% each. Losses were largely seen in metals, oil and gas and banking stocks.

As regards global markets, Asian indices closed mixed today while most European indices have opened in the red. The rupee was trading at Rs 44.35 to the dollar at the time of writing.

Aluminium stocks closed lower today with the key losers being Hindalco and Nalco (NYSE:NLC). As per a leading business daily, aluminium major Nalco has envisaged infusing Rs 17 bn as equity in the Kakrapar nuclear power plant in Gujarat to pick up 49% stake. The size of this plant would be 2X700 MW in phase II and is expected to be commissioned by 2015. Further, Nuclear Power Corporation of India Limited would also be a partner in the project. Other plans on the anvil include setting up a 50 MW windmill in Andhra Pradesh at a cost of Rs 2.7 bn and diversifying into other metals. The rationale for the latter has been attributed to the global liquidity crisis and the need to insulate itself from the volatility caused because of it. The company is looking to diversify into metals such as copper and uranium and in this regard is scouting for assets in Africa and Latin America. It must be noted that in FY11, Nalco reported a strong growth of 18% YoY and 31% YoY in sales and net profits respectively led by firm aluminium prices. Growth was largely led by the company's aluminium and electricity segment which grew by 17.9% YoY and 21.4% YoY respectively.

As per a leading business daily, telecom major Bharti Airtel will be splitting its businesses into two broad verticals as part of a restructuring exercise for its India and South Asia operations. In light of the intensifying competition and regulatory changes in the Indian telecom sector , the company's margins have come under pressure. Thus, this move appears to be part of its strategy to bolster profit margins. As per the restructuring exercise, mobile, telemedia, digital TV and other new businesses facing the consumer will form the business-2-consumers (B2C) unit. The business-2-business (B2B) vertical will continue to focus on serving large corporates and carriers. It must be noted that Bharti Airtel has also been struggling after acquiring Zain's operations in Africa last year. Low margins in Africa and rising interest costs have been taking its toll on the company's overall profits. The company has also lost a bit of market share as it dropped to 31.3% in FY11 as against 32.7% in FY10. Thus, whether this restructuring exercise will yield the desired results remains to be seen. The stock closed lower today.