Sensex, Nifty in a clear short-term downtrend: Friday Closing Report

While the market trend is down, the Nifty’s support is at around 5,950

The market closed lower on a fall in India’s manufacturing output in January and weak corporate results of Bharti Airtel and BHEL, among others. While the market trend is down, the Nifty is expected to find support at around 5,950. The National Stock Exchange (NSE) reported a volume of 75.87 crore shares and advance-decline ratio of 649:865.


The market opened with small gains despite weak global cues. The US markets closed lower overnight on a clutch of subdued corporate earning reports and a rise in weekly jobless claims. Markets in Asia were mixed in morning trade as China’s official purchase managers’ index (PMI) eased to 50.4 in January.


The Nifty opened six points up at 6041 and the Sensex started the day at 19,707, a rise of 12 points over its previous close. As seen in the past few days, the market hit its high in early trade. At the highs, the Nifty touched 6,053 and the Sensex went up to 19,667.


However, profit booking at higher levels saw the indices inching lower as trade progressed. The selling resulted in the market moving into the negative in late morning trade. Dismal third quarter results from telecom services major Bharti Airtel and manufacturing output data for January coming in at a three-month low pushed the market lower in noon trade.


Bharti Airtel posted a lower-than-expected third quarter net profit of Rs284 crore. The profit which fell for the twelfth quarter in a row is down a whopping 72% compared Rs1,011 crore in the same period last year.


The HSBC India Manufacturing Purchasing Managers’ Index (PMI)—a measure of factory production—stood at 53.2 in January, after touching a six-month high level of 54.7 in December. It stood at 53.7 in November.


Adding to the investors’ woes, oil minister Veerappa Moily announced that diesel prices will be hiked by 40-50 paise per litre every month till losses on the nation’s most used fuel are completely wiped out.


Selling in banking, IT, capital goods and technology stocks kept the indices firmly in the red in post-noon trade. A positive opening of the European markets was not of any help as the domestic benchmarks continued their southward journey.


The market touched the low-point of the day in the last half hour of the trading session. At the lows, the Nifty fell to 5,983 and the Sensex dropped to 19,736. A small recovery at the fag-end of the day helped the market settle off the lows, albeit in the red and down for the second day in a row.


The Nifty closed at 5,999, down 36 points (0.59%) and the Sensex declined 114 points (0.57%) to settle at 19,781.


Among the broader indices, the BSE Mid-cap index shed 0.05% and the BSE Small-cap index declined 0.25%.


The top sectoral gainers were BSE Consumer Durables (up 1.77%); BSE Healthcare (up 0.78%); BSE Fast Moving Consumer Goods (up 0.21%); BSE Oil & Gas (up 0.17%) and BSE Power (up 0.06%). The main losers were BSE Realty (down 1.16%); BSE Auto (down 0.98%); BSE Bankex (down 0.79%); BSE Metal (down 0.78%) and BSE TECk (down 0.63%).


Twelve of the 30 stocks on the Sensex closed in the positive. The chief gainers were Maruti Suzuki (up 1.65%); Cipla (up 1.58%); Dr Reddy’s Laboratories (up 1.48%); Tata Power (up 1.43%) and Bajaj Auto (up 1.26%). The key losers were Tata Motors (down 4.36%); Bharti Airtel (down 2.62%); ONGC (down 2.12%); Hindalco Industries (down 1.99%) and Sterlite Industries (down 1.71%).


The top two A Group gainers on the BSE were—Essar Oil (up 7.30%) and GMR Infrastructure (up 6.88%).

The top two A Group losers on the BSE were—Corporation Bank (down 6.21%) and Tata Motors (down 4.36%).           


The top two B Group gainers on the BSE were—Valuemart Info Technologies (up 20%) and BS (up 16.81%).

The top two B Group losers on the BSE were—Commercial Engineers & Body Builders Company (down 19.09%); and ANG Industries (down 16.67%).


Out of the 50 stocks listed on the Nifty, 20stocks settled in the positive. The major gainers were BPCL (up 2.96%); Cipla (up 1.95%); Bajaj Auto (up 1.47%); Maruti Suzuki (up 1.46%) and Tata Power (up 1.43%). The chief losers were Jaiprakash Associates (down 4.14%); DLF (down 3.60%); Bharti Airtel (down 3.24%); Ambuja Cements (down 2.84%) and Hindalco Ind (down 2.54%).


Markets in Asia settled mixed as China’s official PMI came in lower last month. However, a private survey by HSBC Market showed that growth in China's manufacturing sector hit a two-year high in January.


The Shanghai Composite surged 1.41%; the Jakarta Composite climbed 0.635; the Nikkei 225 advanced 0.47%; the Straits Times gained 0.26% and the Taiwan Weighted added 0.08%. On the other hand, the Hang Seng slipped 0.03%; the KLSE Composite shed 0.01% and the Seoul Composite declined 0.21%.


At the time of writing, the key European markets were up between 0.61% and 0.98%. At the same time, the US stock futures were trading higher, indicating a positive start to the US markets later in the day.


Back home, foreign institutional investors were net buyers of shares totalling Rs958.94 crore on Thursday while domestic institutional investors were net sellers of equities aggregating Rs863.60 crore.

The Centre conferred the Maharatna status on GAIL India today. Maharatna status would empower its board to take major decisions. The stock ended flat at 342.25 on the NSE.


Government-owned lender Bank of Baroda (BoB) cut Base Rate and BPLR by 25 basis points effective 9th February, the bank said in a press release. Following the cut, BoB’s base rate will be 10.25% and BPLR will be 14.5%. The bank also cut its deposit rates in the range of 15 to 20 basis points in the shorter maturities. The stock rose 0.13% to Rs868.90 on the NSE.


Titagarh Wagons has reported a standalone sales turnover of Rs161.50 crore and a net profit of Rs8.97 crore for the quarter ended Dec 2012. The figures for the previous corresponding quarter were Rs 129.01 crore and Rs 15.56 crore, respectively. The stock gained 0.28% to close at Rs321.50 on the NSE.


Tide Water India disappoints; net profit down 9%

Tide Water India has posted benign results amidst an industry downturn although its sales went up

We had recommended investing in Tide Water Oil Co in our Moneylife issue on 1 November 2012 . The company has announced its third quarter result for the fiscal ending March 2013. It recorded benign sales at Rs216.40 for the December 2012 quarter, 4% higher than the corresponding period last year. However, its net profit declined 9% to Rs14 crore for the three month ended December 2012, when compared to the same period last year. The difficulties in the automotive market meant trouble for ancillaries, as well.

According to the Moneylife database, net sales declined 4% which is four percentage points below its three-quarter year-on-year (y-o-y) average of 8%, not too bad considering the dire circumstances of the automotive ancillary industry. However, what is worrying is that operating profit has declined and slipped into negative territory, when it went down 4%, at Rs21.60 crore, compared to its three quarter y-o-y average of -2%. The operating profit in the last few quarters has been erratic and somewhat sluggish, reflecting the realities of the automotive market. However, having said this, its return on equity remains healthy at 19% while valuations seems fair with its market capitalisation quoting at over eight times is operating profit.

The shareholding pattern has remained almost the same since we recommended the stock, and is tightly held: little over 26% are owned by promoters, roughly 14% owned by financial institutions mostly notably insurance companies, less than 3% are owned by trusts while 34% and 22% are owned by bodies corporate and retail investors respectively.

The Andrew Yule company which specializes on automotive and industrial lubricants has the global rights for the master brand ‘Veedol’. It also has technical collaboration with JX Nippon Oil and Energy Corporation (Japan). It has been a pioneer, which went to decline and now reviving in a tough market.

We had recommended the company when its price was Rs7,875.85 on 1 November. The stock was Rs8,115 on the National Stock Exchange, and was up 0.58% at end of day. We also had recommended it back in 2011.


Mahindra Satyam’s third quarter results below expectation, says Nomura

Among verticals, manufacturing, technology, media and entertainment dragged while the emerging vertical (largely government) revenues increased by $7 million and was the primary driver for incremental revenue addition in the third quarter FY13 for Mahindra Satyam

The key disappointment in Mahindra Satyam’s third quarter results for FY13 was flat revenue growth in constant currency terms versus 2%-4% quarter-on-quarter growth at Tier-1 IT (information technology) peers. Nomura Equity Research sees downside risks to the revenue growth estimate of 9% (in dollar terms) in FY13F, as it would entail 5.5% quarter-on-quarter growth in Q4, which it believes might be difficult to achieve. Higher than anticipated net profit was aided by higher other income and lower depreciation, points out Nomura in its Quick Note. Tech Mahindra owns 43% of Mahindra Satyam and its merger with Satyam is pending with a stock swap ratio of one share of Tech Mahindra for every 8.5 shares of Satyam. The merger with Tech Mahindra is awaiting Andhra Pradesh High Court approval.


Among verticals, manufacturing (-2% quarter-on-quarter), technology, media and entertainment (-4% quarter-on-quarter) dragged, while the emerging vertical (largely government) revenues increased by $7 million quarter-on-quarter (29% quarter-on-quarter growth) and was the primary driver for incremental revenue addition in the third quarter of FY13, according to Nomura analysts.


A prominent observation made by the management of Mahindra Satyam to indicate its future business prospects is that the company has given 2,000 campus offers for FY14F. The company’s headcount increased by 169 people sequentially to 36,956 in the third quarter of FY13. Utilization increased to 77.1% (excl trainees) in the same period.


In the third quarter FY13, the company won deal flows in excess of $100 million in total contract value in verticals like manufacturing, healthcare and retail. Since closure for the deals won happened towards the end of the third quarter, Mahindra Satyam management expects revenue contribution to follow from fourth quarter onwards.


Revenues of the company stood at Rs19.4 billion versus Nomura’s estimate of Rs19.6 billion. Adjusted net profit (excluding Rs2.9 billion charge related to settlement with Aberdeen UK) at Rs3.7 billion was up 35% quarter-on-quarter. The company’s performance figures were higher as they were aided by a nearly Rs67 million quarter-on-quarter reduction in depreciation to Rs361 million and other income of Rs1.1 billion, according to Nomura.


Mahindra Satyam’s cash and cash equivalents was Rs33 billion in the third quarter of FY13.


Among services, IT Services was flat quarter-on-quarter, while BPO was up 18% quarter-on-quarter contributing all of the incremental revenue addition. BPO was driven by retail sector demand ahead of the holiday season, according to Nomura.


The adjusted EBITDA margin decline in the third quarter was on account of higher sub-contractor costs and a one-time expense of $4 million related to payment to an alliance partner for technical services. EBITDA margin ex of the Tech Mahindra employee bonus provision reversal adjustment (Rs335.5 million of reversal taken) was 21.6%.


According to Mahindra Satyam’s management, the company sees deal flows in infra, enterprise applications and engineering services for the future.


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