More downside on the cards
Last week, we had headlined our newsletter as “Make or Break”, declaring that a big move was coming. We had said, “Watch 17,200 on the Sensex for a major decline.”Our logic was that the “market’s trading band has narrowed down to an extreme. This usually presages a major move. We can’t say at this moment whether the market will end higher or lower but a big move is certainly coming. If Asian markets open low on Monday and the Sensex ends below 17,200, that would be an early sign of reversal of the uptrend. The rise has gone on for too long without a correction and it’s time for bullishness to cool down a bit.”
Indian markets plunged this week following weak global cues. Fears that China’s central bank may tighten its lending norms and US President Barack Obama’s proposal to limit risk-taking at US banks weighed heavily on market sentiment in the later part of the week. On Monday, 18 January 2010, the Sensex was up 87 points from Friday’s (15 January 2010) close, ending the day at 17,641, while the Nifty closed at 5,275, up 23 points.
Fears of stimulus tightening by the Indian government weighed heavily on market sentiments on Tuesday, 19 January. The Sensex declined 155 points from the previous day’s close, ending the day at 17,486 while the Nifty ended the day at 5,226, down 49 points. On Wednesday (20 January 2010) the market tried to hold on to its level; the Sensex declined 12 points while the Nifty closed at 5,222, down 4 points. During the day, finance minister Pranab Mukherjee said that the government was taking steps to contain inflation and the situation was constantly under review. Sharad Pawar, agriculture minister, said that the prices of milk and related products were set to rise because of the demand-supply mismatch. Kaushik Basu, economic advisor to the finance ministry, said that food prices will cool off in one-two months and inflation will turn around.
Thursday was a day of mayhem. Once 17,200 was broken, the Sensex declined a massive 423 points from the previous day’s close ending the day at 17,051, while the Nifty closed at 5,094, down 127 points. During trading hours, the Indian government said that the food price index rose 16.81% in the 12 months to 9 January 2010, while the fuel index was up 6.34%. The rise in food price index was lower than an annual rise of 17.28% in the previous week. As per reports, excise duty collections between April to December 2009 were down by 13% at close to Rs70,000 crore, whereas revenues via customs duty were also down by a whopping 28% at around Rs59,000 crore. Service tax collection was also down over 6%, with the government collecting slightly over Rs36,000 crore. The total collection of indirect taxes in the first nine months was about Rs1,66,000 crore, down by 18% compared to the last fiscal. On Friday, 22 January 2010, at the end of the day, the Sensex declined 191 points from the previous day’s close to 16,860 while the Nifty closed at 5,036, down 58 points. According to research firm EPFR Global, investors have pulled $348 million from China equity funds in the week ended 20 January 2010, the biggest outflow in 18 weeks. Asia ex-Japan equity funds took in only $29 million because of China-related outflows, though global emerging market equity funds attracted $748 million in fresh money in the week to 20th January. We expect the Indian market to open lower on Monday, 25 January 2010, on the back of weak European and US markets on Friday. The Sensex has a support at 16,600. If this support is breached, we may see another round of sell-off, all the way down to 15,500.
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HCC feels that its FY10 revenues would have gone up by Rs200 crore, if it would have been allowed to work on its projects in AP normally
Hindustan Construction Co Ltd (HCC), which has considerable concentration of its order backlog in Andhra Pradesh (AP), says that its FY10 revenues would have gone up by around Rs200 crore, if the company would have been allowed to operate normally in the state.
“If we had no such constraints and if we would have had to do this (the projects) at a full pace, we would have had at least Rs200 crore more turnover for the entire FY10,” said an official from HCC.
HCC’s order backlog in AP, a state that has been embroiled in political trauma which started with the death of its chief minister YS Rajasekhara Reddy, is about 30% of its total orders. HCC has not stopped work on its projects in the state, but the progress is slow, said the HCC official.
HCC had an order book of Rs15,703 crore as on 31 December 2009 and expects it to reach about Rs21,000 crore by March this year. The power sector accounted for 40% of the revenues for HCC while roads and irrigation segments contributes 28% and 32%, respectively.
Ajit Gulabchand, chairman and managing director, HCC said, “The (AP) state first had elections, then it faced turmoil with YSR Reddy’s death and further by the Telangana issue. I think it should substantially correct itself from our point of view by March. I think with the new financial year open, they will have lot more funds at their disposal to clear that (the receivables).”
Depending on the progress of its projects, HCC said that the AP government owes it around Rs600 crore, out of which Rs260 crore are from the past three months alone. HCC feels that the state government would start clearing its dues from February onwards.
Similarly, HCC has also lost revenues on its power projects, especially on its Lohari-Nagpala hydel power project in Uttarakhand due to local issues like the Ganga Bachao Aandolan.
“About 50% of our order backlog is from power projects and most of our projects are running on schedule. The work on Lohari-Nagpala project has been temporarily suspended sometime in June-July 2009. There is a suspension of this project, but not termination. We would have lost about Rs35 crore-Rs40 crore in the past five–six months due to this suspension,” said Vinayak Deshpande, president and chief operating officer (COO) for EPC & construction, HCC.
The company, however, is positive over its road projects and sees better margins in the future. Mr Gulabchand said that the company expects a more steady flow of infrastructure projects in the next financial year.
“I think the order backlog that is going to come forth would definitely have better margins, because we will now be taking more value-added projects. In addition, the size of the road projects that the government is coming out (with) will also be bigger. This will require bigger companies to participate. I think we are going to go forward with slightly increased margins on an average,” he said.
For the third quarter to end-December, HCC reported a net profit of Rs14.80 crore and total revenues of Rs945 crore.