Sensex succumbs to global selloff…RIL shines

Hadrien Mendonca / 16:03 , Mar 15, 2011

Sensex lost 272 points to close at 18,168. While, NSE Nifty lost 82 points to close at 5,449

Sensex closes 272 points down amid Japan nuke leak fears

The BSE Sensex today plunged 272 points on brisk selling, triggered by dips in global bourses amid fears of more leakages from Japan’s nuclear plant damaged in last week’s earthquake and tsunami.

The Bombay Stock Exchange benchmark index Sensex dropped by 271.83 points to close at 18,167.64. It fell below the 18,000 level in view of huge losses recorded in Asia following reports that nuclear radiation leaks in Japan could increase.

Similarly, the broad-based National Stock Exchange index Nifty lost 81.85 points to 5,449.65, after touching the day’s low of 5,373.65.

Asian stocks slumped, dragging the MSCI Asia Pacific Index down by more than 10 per cent from its January peak.

Japan’s Nikkei 225 Stock Average plunged 11 per cent, entering what some investors call a bear market phase. It has fallen over 20 per cent from its high on February 21.

Marketmen said Sensex, which has plunged 11 per cent this year, is Asia’s worst performer after Japan among the region’s largest stock markets on concerns that interest rates may go up in view of high inflation, hurting growth.

Banking and interest sensitive stocks were also hit as investors turned cautious ahead of the Reserve Bank of India’s monetary policy meeting slated for March 17.

Stocks of realty, auto, metal and power sectors suffered the most on heavy unloading by investors as Japanese Prime Minister Naoto Kan said the danger of more leaks was rising at the crippled facility.

Areva T&D, a company specialists in power transmission and distribution system, dropped Rs. 13.90 to Rs. 230.95. Tata Power, the largest non-state electricity generator, sank the most in more than five weeks, losing Rs. 36.30 at Rs. 1,212.55.

Maruti Suzuki India, a unit of Japan’s Suzuki Motor, also lost Rs. 44.75 to Rs. 1,214.50.

Bucking the general weakening trend, the most heaviest on the benchmark, Reliance Industries rose for the second day, adding Rs. 18.65 to Rs. 1,036.30 on reports the company paid higher advance taxes for this quarter.

Sensex sheds 272pts on global concerns

SI Reporter / Mumbai March 15, 2011, 16:07 IST

Jittery from a slump in the Japaneses markets, the domestic markets saw a fall of nearly 1.5% today.

Increasing nuclear hazards in Japan, following another blast at the ill-fated Fukushima nuclear plant, spread a cloud of nervousness around the world, as a result of which the Indian bourses opened to a negative start today.

Amongst the other companies to have paid a higher advance tax for Q4FY11 were Tata Steel, who paid Rs 987 crore versus Rs 513 crore y-o-y, Bajaj Auto at Rs 250 crore versus Rs 175 crore y-o-y, Mahindra & Mahindra at Rs 307 versus Rs 226 crore y-o-y nad Hindlaco at Rs 160 crore versus Rs 110 crore y-o-y.

Engineering and construction major, L&T, has also paid more advance tax in Q4 FY11 at Rs 300 crore versus Rs 270 crore y-o-y, while FMCG major Hindustan Unilever Limited paid less advance tax this fiscal at Rs 150 crore versus Rs 170 crore y-o-y, and Tata Motors paid a meagre Rs 50 crore as against Rs 115 crore y-o-y, sources said.

In the broader markets, the Mid-cap index moved in line with the benchmark to end at 6,468 down 1.4%, while the Small-cap closed down nearly 2% at 7,791.

Losers in the Mid-cap arena were Bajaj Financial Services at Rs 522, Arss Infra Projects at rs 512 and Hindustan Oil at Rs 159, all down 6%.

Twilight Litaka Pharma at Rs 55 down 13%, Sujana towers at Rs 31 down 10% and Symphony at Rs 1,262 down 9% were the major losers on the Small-cap index.

On the whole, the scenario looked grim for investors around the world, as several analysts believe the crisis in Japan has assumed far greater proportion than the oil crisis in Libya, which sent oil prices spiralling to 2.5 year highs last week.

With several refineries shut down in Japan, oil demand is projected to decline temporarily, which may cool oil prices further.

As an after-effect, stock prices of several oil manufacturing companies rose because of the anticipations regarding reduction in subsidy margins for public OMCs.

The Oil & Gas index was the only index in the green on the sectoral chart at 9,969, up only 0.3%, with Reliance Industries, which gained 3% at close yesterday, at Rs 1,036 up 2% was the only gainer in this space.

"If the Libyan crisis spreads to other countries, there may be a spike in crude oil prices. However, at the same time, we would expect Japan to consume less amount of oil going forward because huge part of their economy will be impacted. Hence, we expect short-term correction in oil," said Vaibhav Sanghavi, Director (Equities), Ambit Capital, when asked about his views on the oil and gas sector.

A positive outlook on the government's advance tax collections did not seem to have any impact on the market sentiment, as all the sectoral indices traded in negative territory.

The Realty index bore the brunt of heavy selling, and the index slipped 3% to at 2,054. Top losers in this space were HDIL at Rs 157 down 6%, Orbit Corp at Rs 49 and Mahindra Lifespaces at Rs 336, both down 5%.

Auto stocks were dumped, because a majority of auto components, which are imported from Japan, will see a supply crunch due to the deteriorating condition in the country. Most auto manufacturing companies are located in Japan. Also, rising input costs have dented margins for auto companies, as have anticipations of a probable rate hike by the RBI, when the apex bank announces it's mid-quarter policy review due on March 17.

The Auto index declined 2% at 8,649, and the top losers on the index were Maruti Suzuki at Rs 1,215 down 4%, Exide Industries at Rs 132 and Mahindra & Mahindra at Rs 644 both down 3%.

Metals lost their sheen today as the demand for commodities, driven greatly by the East Asian markets, fell in the face of the Japanese crisis. The index was off 2% at 15,360 at close. Major losers were National Aluminium at Rs 108 down by a whopping 10%, while Sesa Goa at Rs 261 shed 4% and Sterlite Industries at Rs 158 lost 3%.

Rajesh Jain, EVP & Head of Retail Research, Religare Securities, averred, "The initial financial loss on account of the earthquake and tsunami in Japan is estimated at around $2 - 3 billion. However, the Indian markets are not directly impacted with this crisis but the disaster may impact overall investor sentiment."

Asian markets saw a severe impact of the burgeoning devestation in Japan, as threats of a nuclear cloud reaching the country's financial hub Tokyo abounded. A potential radiation catastrophe looms large over the capital, prompting fears of a break in the global economic recovery, as one of the world's most advanced economies braces itself for its worst disaster since the WW2.

The Nikkei slipped 11% to close at 8,605, its worst fall since 1987, while the Hang Seng declined 3% at 22,678, and the Taiwan Weighted also down 3% at 8,235. The Seoul Composite slipped a little over 2% at 1,924, the Straits Times shed more than 2.5% at 2,951, and the Shanghai Composite closed down 1.4% at 2,897.

World stocks fell to 2.5-month lows; the European markets were hit hard by the developments in Japan, and major indices were trading at substantial losses.

France's CAC 40 was down 3%at 3,761, Germany's DAX was at 6,561 down 4.5% and the UK's FTSE 100 was quoting at 5,641 down 2%.

Sheetal Agarwal / Mumbai March 16, 2011, 0:52 IST

Consequent to change in global and local factors, brokerages have enhanced their allocation to domestic consumption plays and export-oriented companies.

Barely three months into the year, global factors like unexpected spike in crude oil prices, demand uptick from the major export markets like the US and domestic issues like higher-than-expected inflation have driven some of the country’s top brokerages to revisit their model portfolios.

On the other hand, slowdown in consumption in China and surging input costs have made the metals space the least preferred by brokerages. However, most of them believe the recent events in Japan are unlikely to have a significant impact on earnings of India Inc, barring a few, and that too, in the near term.
 

Riding on domestic consumption

Even as India’s economic growth is seen slowing in 2011-12 compared to the current financial year, its consumption is expected to remain healthy. Manishi Raychaudhuri and Gautam Mehta of BNP Paribas Securities recently wrote in their report, “While the real GDP growth may slow to 8.5 per cent year-on-year in 2011-12, as the economy grapples with the triple whammy of a high interest rate, high commodity prices and political uncertainty, in our view, market concerns are overblown as (a) consumption remains buoyant; (b) global recovery should provide a tailwind to exports, reducing the drag of net exports on growth and (c) leading indicators indicate the resilience of the investment cycle despite headwinds.”

While the research house has upgraded the banking sector to overweight from neutral (led by the increase in weight on ICICI Bank, BoB and HDFC Bank), it continues to be overweight on the auto (M&M and Bajaj Auto; added Maruti) and IT (larger allocation to TCS) sectors. On the flip side, it has increased its underweight position on metals, eliminating its exposure to steel stocks.

Domestic brokerage, Emkay Global, is also bullish on the domestic consumption, even as it remains sceptical of the investment-based themes. Ajay Parmar, head, research (Institutional Equities) at Emkay Global says, “The Indian economy will continue to be driven by consumption, though higher raw material costs and crude oil price surge are key concerns. We are bullish on the IT, pharma and agricultural inputs sectors, while we dislike telecom and infrastructure sectors. Within auto, two-wheeler stocks are a safer bet as against four-wheelers, because they are self-funded and hence not exposed to the risk of higher interest rates.” Among the top stocks, the brokerage is recommending Bajaj Auto and is bearish on L&T.

Although, the FMCG space fits in well within the domestic consumption story, its outperformance in recent months has led most brokerages to remain neutral or avoid. While ENAM Securities is concerned about the weakening pricing power, due to the competition and higher raw material costs, and is recommending investors to avoid the FMCG sector (barring ITC), Religare Capital has reduced its weight to neutral on fair valuations (limiting upside).

For now, most of them are indicating a neutral stance on the investment-based themes like infra and capital goods for at least one-two quarters consequent to rising interest rates, firm raw material prices and execution issues. They are, however, open to exploring selective buying in these segments.

Global influences
The party spoiler, however, could be oil, wherein, the future direction of price is not predictable and the expert opinion is divided. Thanks to the geo-political tensions in West Asia and North Africa, crude oil prices have risen sharply. While the inability of most Indian oil companies to gain from rising prices and the regulated nature of the industry have led BNP Paribas to be underweight on oil marketing companies. Religare Securities has a contrarian view, it has upgraded the sector to neutral from underweight. The latter believes crude oil prices to soften in the second half of 2011, which along with cheap valuations has seen it recommend HPCL and BPCL.

The handsome rally witnessed in metals, however, is expected to slow down in the next six months, led by concerns of slowing consumption from China, the world’s largest buyer of commodities.

Thus, metals have been downgraded to underweight by most brokerage houses. Softening metal prices, though, rings in good news for the Indian auto companies, which use metals like steel and aluminium as their key inputs.

On the contrary, demand revival in key markets like the US entails good news for the top Indian IT services players and exporters. Brokerages, thus, continue to be overweight on the sector with higher preference to bigger players like Infosys and TCS .

From a macro perspective, most experts continue to believe that while there is some risk to earnings of India Inc, valuations are relatively in fair value zone. For instance, analysts at BNP Paribas are not ruling out a two-three per cent downgrade in their Sensex earnings estimate of Rs 1,260 in 2011-12 and Rs 1,478 in 2012-13. At the current levels, thus, the Sensex is trading at a one-year forward PE of nearly 15, which is slightly lower than its long-term average of 15.2.

Nifty ends at 5450; Japan nuclear crisis weighs

Taking stock of the corporate identity

Namrata Acharya / Kolkata March 16, 2011, 0:19 IST

Dogged by brokers’ interference, exits at the top and clash of opinions, regional stock exchanges still struggle to launch their trading platform.

For Molly Thambi, a product of the Indian Institute of Management, Calcutta, with stints at HSBC Securities and the National Stock Exchange, donning the hat of the managing director and chief executive officer of the 100-year-old Calcutta Stock Exchange(CSE) was a misplaced move.

V Ravi Kumar, who had joined the Bangalore Stock Exchange in 2009 after high-profile jobs at ICICI Bank, IDFC and SBI Singapore, also quit the exchange recently.

The two exits may not have been concerted moves, but these represent a binding trend among most regional stock exchanges (RSE): Conflict of views in running them.

Around 2006, stock exchanges in India, including regional stock exchanges, got demutualised. Ownership, management and trading rights of the exchanges were segregated from one another.

Over the last two-three years, several RSEs have been trying to launch their own trading platforms, and have been roping in professionals for corporate identity.

The Delhi, Bangalore and Madras Stock Exchanges have been planning their own trading platforms, but the results are doubtful. The reasons vary — from technology to software pricing, viability and the resultant differences in opinion among board members.

Meanwhile, some RSEs have been forging ties with national exchanges — the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) — through subsidiaries, rendering the idea of having an own trading platform redundant, to a large extent.

According to industry sources, legacy issues like too much interference of brokers in exchange matters have been reasons for some top-level exits at RSEs in the recent past.

Thambi’s exit from CSE and Kumar’s from the Bangalore Stock Exchange were also prompted by “ideological differences”, industry sources point out.

“The corporate guys simply do not know how regional exchanges run,” said a top executive of an RSE, on condition on anonymity.

Consider the example of CSE: It was on the verge of extinction after being hit by one of the biggest scams in the history of stock markets in 2001. Following its demutualisation in 2007, several entities, including BSE, picked up stakes in it. In fact, it is the only regional exchange to have its own trading platform, the C-Star.

In 2008, Thambi was brought in with the mandate to give a facelift to the ailing institution. She did succeed to an extent and was instrumental in initiating CSE’s tie-up with NSE, under which it will offer its cash and futures options platform to members of the regional bourse. CSE expects to roll out the service soon, and it already has a similar tie-up with BSE. Recently, CSE also got approval of the Securities and Exchange Board of India (Sebi) for NSE trading.

Besides these, Thambi was also behind the implementation of a voluntary retirement scheme, which helped the exchange save on costs.

“I joined the board to make a difference and try to revive one of the oldest exchanges in Asia. I thrived despite an abundance of challenges. Even so, in almost two years, I have brought CSE back into public memory and shown that professionalism can make a difference even to the most lost of causes,” Thambi mentions in her LinkedIn profile.

Clearly, her decision to quit a job that was fulfilling and challenging was quite a surprise for many.

“I am on sabbatical, after an extremely challenging tenure at CSE,” said Thambi, without disclosing reasons for her sudden resignation.

CSE chairman Dipankar Chatterji did not elaborate on the reasons for her resignation. “She probably wanted to go on a sabbatical. She did her work when she was here,” said Chatterji, adding that the Sebi approval came after Thambi left the exchange.

“After demutualisation, the management was supposed to be distinct from ownership, but it never happened in spirit. All regional stock exchanges are still dominated by brokers, and, obviously, top-rung professionals change things even if they want,” said a source close to a major regional stock exchange.

The exit of V Ravi Kumar from Bangalore Stock Exchange was also marked with conflicts and differences in opinion, sources said. Kumar could not be contacted for comments.

The exchanges, however, agree that brokers are integral to the working of RSEs.

“They know the core business and they constitute only 25 per cent of the board strength, but, in my opinion, there is not much interference,” said Bangalore Stock Exchange Chief Operating Officer C Subramaniam.

Madras Stock Exchange (MSE) Secretary V Balasubramaniam also agreed that the role of brokers in running regional exchanges had been a debatable issue. Recently, MSE had also tied up with NSE for trade on both cash and derivatives segments on NSE’s platform.

“Brokers’ say in exchange matters has its advantages and disadvantages. They are the people who know the exchange business, and also bring new clients,” said Balasubramaniam.

Starting an own trading platform for most regional exchanges is a risky venture, given that most are in the process of tying up with national-level exchanges for platform sharing. Also, with BSE planning to launch an exchange platform for small and medium enterprises, the viability of RSEs having an independent trading platform is under cloud.

“Launching an independent trading platform is a risky venture. We don’t know how profitable it will be or what kind of revenues it will generate. Active cooperation from stock brokers is important,” Balasubramaniam said. The exchange is hoping to tap small companies with low capital base to start operations.

At the Delhi Stock Exchange (DSE), too, things have not been rosy. Technology-related issues have stalled its plans to launch its own trading platform, though it hopes to start trading over the next few months, said a source close to the development.

Even as souces maintained that brokers’ interference had been dominant at the exchange, DSE Executive Director H S Sidhu said: “It might have been the case earlier, but DSE is run by a professional management these days.”

The demutualisation of RSEs may have paved the way for corporatisation of RSEs, but they still appear to be far from the trading ring, at least as long as they are cramped by ideological differences.