BSE Sensex, Nifty struggling to maintain uptrend: Wednesday Closing Report

Traders should sell the rally. A close below 19,300 on the Sensex and 5,870 on the Nifty would signal a downtrend

The Indian market closed lower despite the Index of Industrial Production rising to 8.2% in October. Presently the benchmarks are struggling to maintain the uptrend, however, a close below 19,300 on the Sensex and 5,870 on the Nifty would signal a downtrend. The National Stock Exchange saw a volume of 71.6 crore shares and an advance-decline volume of 626:824.


The market opened with small gains tracking supportive global cues. Investors awaited industrial output data for October, due later in the day, for further direction. Meanwhile, markets in Asia were mostly in the green in morning trade on speculations that the US Federal Reserve would unveil a new round of bond purchases at the end of its two-day meeting later today. Overnight the US markets closed higher even as some policymakers flayed president Obama for delaying the budget talks.


The Nifty opened 19 points higher at 5,918 and the Sensex started the day at 19,433, up 46 points over its previous close. Gains in auto and IT stocks pushed the benchmarks to their day’s highs in initial trade. At the highs the Nifty rose to 5,925 and the Sensex climbed to 19,479.


Profit booking saw the indices pare their initial gains and were range-bound on both sides of their previous closing levels in subsequent trade. A pick up in India’s industrial output for October did not help matters as the market continued its status quo.


Industrial production growth rate bounced back to a 16-month high of 8.2% in October on good performance of the manufacturing, power sector and higher output of capital as well as consumer goods. Factory output, as measured by the Index of Industrial Production (IIP), contracted by 5% in October last year.


A flat opening of the key European indices pushed the benchmarks to their lows in noon trade. The Nifty fell to 5,874 and the Sensex went back to 19,317.


The benchmarks continued to remain in the negative and closed lower for the second day in a row. The Nifty closed 11 points (0.18%) down at 5,888 and the Sensex finished trade at 19,355, a loss of 32 points (0.16%) over its previous close.


The broader indices continued to surpass the Sensex as the BSE Mid-cap index rose 0.06% and the BSE Small-cap index gained 0.24%.


The top sectoral gainers were BSE Consumer Durables (up 0.95%); BSE Auto (up 0.94%); BSE IT (up 0.38%); BSE TECk (up 0.34%) and BSE Oil & Gas (up 0.31%). The main laggards were BSE Capital Goods (down 0.99%); BSE PSU (down 0.81%); BSE Metal (down 0.71%); BSE Power (down 0.65%) and BSE Bankex (down 0.32%).


Nine of the 30 stocks on the Sensex closed in the positive. The chief gainers were Bajaj Auto (up 2.57%); Mahindra & Mahindra (up 2.20%); Hero MotoCorp (up 1.92%); Reliance Industries (up 1.53%) and Sun Pharmaceutical Industries (up 1.35%). The main losers were Hindustan Unilever (down 2.65%); BHEL (down 1.98%); GAIL India (down 1.67%); Jindal Steel (down 1.55%) and ONGC (down 1.44%).         


The top two A Group gainers on the BSE were—Satyam Computer Services (up 6.41%) and Bharat Forge (up 5.08%).

The top two A Group losers on the BSE were—Piramal Enterprises (down 5.68%) and Gitanjali Gems (down4.61%).


The top two B Group gainers on the BSE were—Next Mediaworks (up 20%) and Gokul Refoils (up 20%).

The top two B Group losers on the BSE were—Bio Green Papers (down 11.60%) and RFL International (down 10.22%).


Out of the 50 stocks listed on the Nifty, 17 stocks settled in the positive. The major gainers were M&M (up 2.18%); Bajaj Auto (up 1.96%); Hero MotoCorp (up 1.93%); RIL (up 1.58%) and IDFC (up 1.55%). The key losers were HUL (down 2.96%); BHEL (down 2.34%); Grasim Industries (down 2.22%) and HDFC (down 1.89%).


Markets in Asia settled higher on hopes of a fresh round of monetary stimulus by the US Federal Reserve at the end of its two-day meeting later today. Sentiments were also supported by a rise in Japanese machinery orders for the first time in three months.


The Shanghai Composite rose 0.39%; the Hang Seng climbed 0.80%; the Jakarta Composite gained 0.455; the KLSE Composite advanced 0.50%; the Nikkei 225 gained 0.59%; the Straits Times surged 0.75%; the Seoul Composite climbed 0.55% and the Taiwan Weighted surged 1%.


At the time of writing, two of the three key European indices were trading marginally up and the US stock futures were seen with minor gains.


Back home, foreign institutional investors were net buyers of shares totalling Rs1,309.88 crore on Tuesday whereas domestic institutional investors were net sellers of stocks amounting to Rs1,028.35 crore.


Private sector ship-builder ABG Shipyard today said it has bagged a Rs485 crore order to build a cadet training vessel for the Indian Navy. The vessel will be used to provide basic training to Naval cadets and trainees in activities such as disaster relief, search and rescue operations, the company said in a statement. The stock closed 1.20% higher at Rs375 on the NSE.


State-owned ONGC is set to undertake exploratory drilling work in three offshore oil and gas Blocks in Krishna-Godavari basin soon. Once all formalities are completed, the ONGC consortium will spend about Rs1,700 crore on developing these three blocks. The stock declined 1.44% to close at Rs259.90 on the NSE.


Two and three wheeler major TVS Motor on Wednesday said its market share in motorcycles segment is expected to expand by 2.5% with the launch of new bike in 125 cc segment. The company currently has 7% market share in motorcycles segment. TVS Motors settled 2.33% higher at Rs39.50 on the NSE.


Nomura expects steel industry to pick up

After a lacklustre performance throughout the year, Nomura expects near-term pick up as rupee depreciation makes steel imports dearer which will revive local demand

The steel industry has been in the doldrums for the entire 2012 but Nomura’s Equity Research expects a pick-up in the near-term. Several companies, according to media and broker reports, are sending signals that an uptrend could be imminent as they raise steel prices, indicating demand pick-up. Nomura said, “With rising global prices, and the rupee depreciation, we expect net imports to moderate from current levels. At the same time India would be entering a seasonally strong demand period and hence we expect demand to pick up from current levels.” The company is bullish on Tata Steel and Steel Authority of India (SAIL).

Nevertheless, Nomura expects near-term scenario to be beneficial for companies with expansion plans and value added products. “We believe Tata Steel’s 2.9mpta capacity, which is ramping up production, to be a key beneficiary of India being a net importer—with increased production from Tata Steel in Q4FY13.”

The steel industry is commoditised and value-addition is hard to come by and requires lot of capital expenditure.

Similarly, SAIL, which has been performing below-average, could do well as the company pushes for volumes and price cuts to get rid of its glut. It is surprising to note that India is a net importer of steel despite companies like SAIL having excess inventory. However, Nomura has cited the weak rupee and high global prices as reason for domestic demand to pick-up.

Historically, high fragmentation, economic woes in developed countries meant steel demand had been overall weak with benign sales. But slightly higher demand from China meant steel price didn’t dip and was steady if not sideways. India is a net importer of steel, which means the rupee depreciation would lead to dearer steel imports. This could force companies to buy locally instead, thus inciting demand pick up. Nomura thinks that there is a “mismatch between demand and produced material”

There’s also another factor—iron ore production has plummeted due legal and political problems in Goa. This is the raw material for steel. Limited supply and strong demand would mean an upwards bias in steel prices which would provide fillip to companies like Tata Steel and SAIL. It also added that “high value added products i.e. Tata Steel and JSW Steel have maintained their volumes in the above mentioned scenario (i.e. excess imports and slack in local demand).”

According to the government, India is expected to become the world's second largest producer of crude steel in the next two years on account of capital expansion and investments in new projects.

To read more stock research analysis by Moneylife on basis of Nomura research, click here.


Nomura bullish on Zee TV, Dish TV

Nomura, is bullish on the media space, particularly Zee TV and Dish TV. But it leaves out the implications of the charge of extortion Naveen Jindal has brought and its implications

Nomura Equity Research, in a visit note to its clients, is bullish about the media sector, particularly Zee TV and Dish TV. Nomura said that Zee TV would benefit due to lower investment on capex and digitization, while Dish TV would benefit due to the satellite model, which is similar to Direct TV/Dish US, which has done well in the United States. The media sector has been in the news of late. One of the most reported stories is Zee TV and Subhash Chandra whom the Delhi crime branch is investigating on charges of extortion (for more background on this episode, click here and here). While Nomura has put a buy call on Zee TV, it is strange that they have left this out from the overall picture and its potential short-term consequences, should things go wrong for Zee TV. However, from a fundamental standpoint, Nomura expects Zee TV to do well due to the recent digitization mandate. It expects the company to become more consumer-centric as subscription is expected to rise which would mean higher ad revenues. It expects benefits of digitization to accrue in FY16 when EBITDA “can more than triple versus FY12 levels”. Several other reports have said more or less the same thing. But there is hardly any mention of how the recent Jindal expose will affect the share price of Zee TV.

Likewise, Nomura is bullish on Dish TV due to its satellite model (as opposed to cable) and is a cash flow business. But its high intensity of capex, which is high till FY15, is worrying and has kept valuations low. Like Zee TV, Nomura expects it to be more of a consumer play, betting on increased viewership and higher ad rates.

One of the key trends that brokers and investors were looking at was the mandatory digitization in the metros. This meant that consumers had no choice but to switch and buy set-top boxes. This meant that companies like Zee TV, which had already invested in bulk in laying cables and such, will benefit, as subscriber base is expected to increase.

It is interesting to note that mid-cap company Raymond is has been cited as a buy call given that its management quality hasn’t been exemplary and has declined over the years. Nomura cited consumption story in Tier 3-4-5 towns as one of the drivers for Raymond besides its low valuation.

As far as McLeod Russel is concerned, it said, “(there is) strong interest in understanding this name and how it is going to benefit from a tea price up cycle. Investors were interested in it from the structural story with attractive valuations (on most metrics including free cash flow yield). Pushback included impact of production losses and lack of avenues to grow volume” However, the company has a strong regional brand associated with its consumers which helps. But tea is a cyclical commodity and competing with coffee (as the latter has become a popular drink) could be a challenge for the company.

Nomura wasn’t bullish on Pidilite as it had concerns of Pidilite’s elastomer project.


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