India Markets Tuesday Wrap-Up: Another Negative Close

Includes: EPI, IFN, IIF, INR
by: Equitymaster

Taking cues from weakness in other Asian markets, especially China, Indian markets closed in the negative today. In fact, a sharp bout of selling came in during the closing hours of trade. Metal and realty stocks led the pack of gainers, while some buying was seen in pharma stocks. On the broader BSE, there were two losers for every stock that closed in the positive.

Chinese markets fell 1.2% today to their lowest close in seven months. Selling there was led by banking and realty stocks after the country’s central bank raised banks’ reserve requirement ratios to fend off the property bubble and inflation. This comes just a day after Dr. Doom Marc Faber warned that China’s economy is looking set to crash within a year. What will fuel it are the declines in stockmarkets and commodity prices which would highlight that the nation’s property bubble is set to burst.

Other key Asian markets like Hong Kong and Singapore also closed weak, down 0.2% and 1.5% respectively. European markets have opened on a weak note as well.

In India, the BSE Sensex and NSE Nifty closed with losses of over 270 points (1.6%) and 75 points (1.6%) respectively. Mid and small cap stocks followed suit. The BSE Midcap and BSE Smallcap indices closed lower by 1.9% each.

Telecom stocks closed mixed today. While gains were seen in Idea Cellular, selling pressure marked trading in Bharti Airtel and MTNL. Gains in Idea followed a decent set of numbers announced by the company for FY10. For the fiscal, while sales have grown by 23% YoY, net profits have risen by 8% YoY. Its operating margins stood at 27.4% during the year, marginally down from 27.9% in FY09. Idea’s sales growth was largely driven by a 64% YoY rise in its mobile subscriber base. However as for the other key metrics of average minutes of usage and average revenue per user, these declined by 1% YoY and 27% YoY respectively. Owing to competition, the company also saw an increase in its pre-paid churn, from 5.3% in FY09 to 7.9% at the end of March 2010.

Energy stocks closed weak. Castrol and Gujarat Gas closed in the red. ONGC, which announced an acquisition of a Russian oil company earlier during the day, also closed with a marginal decline. The company has acquired Russia based Imperial Energy through its overseas subsidiary ONGC Videsh. It has also acquired an 18% stake in a Venezuelan field project through the consortium route. These acquisitions further add to ONGC Videsh’s kitty of offshore oil & gas assets. Our concern though remains with the geopolitical issues that the company can face given that most of these assets are in troubled regions of Russia and Venezuela.

Shriram Transport Finance (STF) was the leading gainer among finance stocks. It was followed by PFC and HDFC. The country’s largest non-banking finance company (NBFC) in terms of asset size, STF announced its 4QFY10 and FY10 results recently. The financier of commercial vehicles continued to maintain its stronghold over financing used vehicles. It fetched marginally higher net interest margin of 7.3% in FY10 as against 7.2% in FY09. This was nevertheless at least 3% higher than that of the best performing banks. During 4QFY10, its net interest income and profits grew by 44% YoY and 72% YoY respectively. STF sustained robust return on equity of 30% and sees its assets growing at annual rate of 25% over the next 3 years without equity dilution. It raised funds through non convertibles debentures in FY10. Its net NPA to advance ratio and capital adequacy ratios were also very comfortable at 0.7% and 21% respectively at the end of FY10.

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