Yesterday we had said that unless the Nifty closes decisively above 6,055, the trend will be down. Indeed, we may see a sharper decline ahead. We got that decline today. The downtrend may persist for a few more days
Domestic indices which were trading in a narrow range in the morning session moved into the negative zone in the noon session. Yesterday we had said that unless the Nifty closes decisively above 6,055, the trend will be down. Indeed, we may see a sharper decline ahead. We got that decline today. The downtrend may persist for a few more days. The National Stock Exchange (NSE) saw volume of 95.64 crore shares while the advance decline ratio was 567:895.
The Sensex opened 28 points higher at 19,770 while the Nifty opened five points higher at 6,006. The indices soon hit their respective days high at 19,824 and 6,020.
But with beginning of the noon session, the Nifty went into the red amid tension between India and Pakistan following the brutal killing of two Indian soldiers by Pakistani troops along the Line of Control in Poonch district of Jammu and Kashmir on Tuesday. The Sensex and the Nifty hit a six-day low (including today). The Sensex hit a low of 19,627 while the Nifty hit a low of 5,958. The Sensex closed at 19,667 (76 points lower, down by 0.38%) while the Nifty closed at 5,972 (30 points lower, down by 0.50%)
India cut its forecast for fuel demand in the current fiscal year by nearly 1% to 155.6 million tonnes, government data showed, due to a slowdown in economic activity.
Ratings agency Crisil today said a revival in consumption will push up the country's gross domestic product (GDP) growth rate to 6.7% in FY14, from 5.5% estimated for the current fiscal (FY13). According to the agency the improvement in the farm sector, lower interest rates and higher government spending will drive the consumption demand. Crisil also said it expects fiscal deficit to fall to 5.5% in 2013-14 from the 5.8% it estimates for FY13.
After reaffirming its ‘negative’ outlook on the country’s sovereign credit rating, the global ratings agency Fitch has warned that China's "investment-driven growth model" faces increasingly serious constraints due to heavy debt financing by local governments. The agency announced yesterday a currency sovereign rating of AA- for China, on a negative outlook, while it kept its stable outlook of A+ for the country's foreign debt holdings.
The market now awaits the December 2012 results by the Indian companies.
Among the broader indices, the BSE Mid-cap index fell 0.48% and the BSE Small-cap index fell 0.25%.
The sectoral gainers were led by BSE Auto (up 0.74%); BSE Oil & Gas (up 0.50%); BSE PSU index (up 0.17%) and BSE Healthcare (up 0.04%). BSE Fast Moving Consumer Goods (down 1.26%); BSE Consumer Durables (down 1.21%); BSE Metal (down 1.18%); BSE Capital Goods (down 1.01%) and BSE Power (down 0.83%) were the main losers.
11 of the 30 stocks on the Sensex closed in the positive. The chief gainers were Tata Motors (up 3.98%); GAIL (up 1.62%); SBI (up 1.13%); Coal India (up 1.01%); Sun Pharma (up 0.94%). The key losers were BHEL (down 2.69%); Tata Steel (down 2.54%); Bajaj Auto (down 1.96%); ITC (down 1.93%); TCS (down 1.74%).
The top two A Group gainers on the BSE were—Suzlon Energy (up 7.05%) and Havells India (up 4.94%).
The top two A Group losers on the BSE were—Bhushan Steel (down 7.46%) and Pipavav Defence (down 4.97%).
The top two B Group gainers on the BSE were—Chemfab Alklies (up 19.95%) and Satra Properties (up 18.63%).
The top two B Group losers on the BSE were—Arshiya International (down 19.97%) and C. Mahendra Exports (down 19.97%).
Out of the 50 stocks listed on the Nifty, 14 stocks settled in the positive. The major gainers were Tata Motors (up 4.09%); GAIL (up 1.66%); Coal India (up 1.50%); ONGC (up 1.43%); Bharti Airtel (up 1.24%). The top losers were BHEL (down 2.91%); Tata Steel (down 2.69%); Ambuja Cements (down 2.67%); ITC (down 2.43%) and UltraTech Cement (down 2.19%).
The Asian indices had mixed outcomes of almost flat closing for the day with most of them ending with a positive bias. The highest gainer among the Asian indices was Nikkei 225 (rose 0.67%) while Jakarta Composite fell the most (0.79%). At the time of writing, the European indices were trading higher and the US stock futures exhibited a similar trend.
Back home, foreign institutional investors were net buyers of shares totaling Rs848.95 crore on Tuesday while domestic institutional investors were net sellers of shares amounting Rs518.30 crore.
UK-based GlaxoSmithKline has received SEBI’s approval for its over Rs 5,200 crore open offer for Indian subsidiary GlaxoSmithKline Consumer Healthcare. The UK parent had made an offer to acquire up to 13,389,410 shares, representing 31.8% of the total outstanding shares of the GlaxoSmithKline Consumer Healthcare. The company would buy the shares at Rs 3,900 apiece taking the potential total value of the transaction to around Rs 5,220 crore. GlaxoSmithKline Consumer rose 0.19% to close at Rs 3,865 on the NSE.
Yes Bank has launched an online remittance platform for non-resident Indians, called “Yes Remit”. The service will cater to NRIs in the Gulf countries, United Kingdom and Euro zone. The facility allows NRIs to send money into an account with Yes Bank or any other bank account in India. The service is being offered jointly with Times of Money. Yes Bank closed 0.96% higher at Rs 504.45 on the NSE.
Auto component companies with a technological edge, global scale advantage or an identified and exploitable niche have better prospects in the current market, says Espirito Santo Securities. It has recommended Balkrishna Industries, Bosch and Motherson Sumi
Auto sales in developed markets are slowly recovering and the worst appears to be over in Europe, with emerging markets still holding up. So, the outlook for auto component exports is improving in India. Further, it is expected that demand from the replacement market will only increase over time. These are the observations of analysts at Espirito Santo Securities on the auto component industry.
Espirito Santo expects that auto component companies with a technological edge, global scale advantage or an identified and exploitable niche have better prospects in the current market. The analysts highlight the following stocks as its picks to play these three themes: Balkrishna Industries, Bosch, and Motherson Sumi.
The global landscape for OEMs (original equipment manufacturers) is becoming increasingly competitive leading them to set up manufacturing facilities in emerging markets like India to take advantage of lower costs. Along with the domestic market, these facilities will also cater to the export market. For instance global OEMs like General Motors, Volkswagen and Ford have manufacturing facilities in India to cater to Indian as well as overseas markets. Hence this is another source of incremental demand for the auto component sector.
The current sluggishness is a cyclical blip in a structural boom, says the brokerage. India has recently crossed the $3,500 per capita income (PPP) consumption threshold, and the exports and replacement market will only support the growth.
On the improving prospects of exports, Espirito Santo observes that as the Indian component players achieve scale and experience they are improving on quality and reducing defect rates which will give growing confidence to US, German and other top auto players to increase imports of parts from India.
According to Espirito Santo, technological edge and a consistent track record of innovation are important in establishing and maintaining a competitive advantage in auto components. However, in the Indian context most firms are just moving up the curve to become globally competitive, and hence innovation and technology will not be the key driver, with the exception of the global firms such as Bosch and Wabco, whose Indian listed entities benefit from the technological edge at the parent level. Bosch is seen as benefiting from a strong technology based competitive advantage, exploiting a dominant share in changing fuel injection technology in India.
The other category to look out for is companies with adequate critical mass that would be difficult to replace in the categories they are present in, and where size is yielding a cost advantage and operating leverage. Also, as demand of global autos recovers these companies should see operating leverage play out in margins. Motherson Sumi is the pick to play the margin improvement trend as global auto sales recover, says Espirito Santo.
A dominant position in a niche category is another area to focus on in the auto component industry, and according to the Espirito Santo, Balkrishna Industries is a small but relevant player in a niche category of Off Highway Tyres (OHT) with limited competition as: it is too small to be a focus area for large global tyre companies; and it has the cost advantage given low cost of Indian plants. The company can sustain superior profitability given the mix of cost arbitrage, distribution and brand strength. It should also benefit from falling prices of the key raw material natural rubber.
The analysts of Espirito Santo have a ‘buy’ recommendation for the stocks of Bosch, Motherson Sumi and Balkrishna Industries in the Indian stock markets.
Equity Mutual Funds witnessed a heavy outflow of Rs1,665 crore along with a decline of 6 lakh folios in December 2012. All this in the last month of the year when the Sensex closed at 19427, up 25% for CY2012
The year 2012 had been a good year for the markets where the Sensex rose by more than 25%. However, equity mutual funds suffered heavy redemptions over the year. December has been the seventh month in a row where there has been a net outflow from mutual funds. In the last month of 2012, equity mutual funds witnessed an outflow of as much as Rs1,665 crore, as per data from Association of Mutual Funds in India (AMFI). Sales touched their maximum in the last nine months at Rs4,125 crore, however, a massive redemption of Rs6,008 crore led to a net outflow. Despite good sales, there was a massive reduction in folios of equity schemes and equity linked savings schemes (ELSS). The number of folios declined by a huge 6 lakh from 3.46 crore in November 2012 to 3.40 crore in December 2012 according to data from the Securities and Exchange Board of India (SEBI).
March 2012 and May 2012 were the only two months of CY2012 which witnessed a net inflow of funds. The remaining 10 months witnessed a net outflow as much as Rs15,678 crore, taking the net outflow for CY2012 to Rs15,567 crore. But not only are fund houses faced with heavy redemptions, there has been a massive decline in folios as well. In the nine month period from April 2012 to December 2012, the number of folios has declined by over 36 lakh. Data from Computer Age Management Services (CAMS) also shows that a large portion of Systematic Investment Plans (SIPs) were withdrawn before the completion of their tenure. From April 2012 to September 2012 as many as 9.78 lakh SIPs were withdrawn before their tenure. (Read: Mutual fund SIPs decline further. Who is to blame?)
In fact this has not been a recent phenomenon. Moneylife has constantly been writing about the declining investor population. Over the past three years from March 2009 to December 2012 there has been a massive decline of 77 lakh folios. As on 31 March 2009 the number of folios stood at 4.17 crore, but since then there has been a constant reduction in folios and as on 31 December 2012 the number stands at 3.40 crore folios. It would be very unlikely that existing investors would keep investing more and more. The net outflow from 1 April 2009 to 31 December 2012 totalled a massive Rs23,317 crore. In this 45 month period, there were as many as 28 months that witnessed a net outflow.
(Read our earlier articles on the issues faced by the fund industry:
It is not that the regulator is not aware of these facts. Just recently it woke up to the declining investor population. However, instead of coming up with policies that are pro-investor, it came up with policies that benefit the asset management companies and punish existing investors. Last year, SEBI came up with the idea of a transaction charge for new and existing investors. However, a majority of the distributors opted out from charging their clients a transaction charge.
Now, after the latest slew of reforms, existing investors would have to bear an increase in costs as mutual fund schemes are allowed to charge an additional expense ratio of upto 30 basis points depending on inflows from the beyond 15 cities. Fund houses are to use this additional revenue to increase their penetration beyond the top 15 cities. However, as the data shows, since the inception of this regulation from 1st October 2012 and up to 31 December 2012, as many as 14 lakh folios have moved out of the industry. In a recent article (Read: Mutual fund regulations: Who contributes the most to equity inflows is overlooked) we showed that independent financial advisors (IFAs) contribute the most to new equity fund inflows especially from beyond 15 cities. Yet the regulator chooses to ignore this ‘small’ distributor community. In fact the new direct route could do more harm to their business as they would lose existing clients who may opt for the plan with lower expenses.
As per the new reforms, direct plans have been launched to benefit direct investors as it would have a lower expense ratio. However, with no proper advice and handholding it is doubtful whether the new route would be able to attract nascent investors.
It took SEBI three years to realise the ill-effect of banning entry load in August 2009. After which it has come out with a new set of reforms which has yet to have a positive effect on the industry. How much longer would SEBI wait to come out with tougher reforms, we would have to wait and see.