Sensex, Nifty under threat: Monday Closing Report

Nifty to head for 5190 if it closes below 5,250

The market settled lower on global growth concerns on the back of a clutch of dismal economic reports from across the world. We had mentioned in our closing report on Friday that the Nifty has to keep itself above 5,250 else the uptrend may break. The index today went below the level of 5,265 but settled a little above it. We may now see the Nifty head for 5190 if it closes below 5,250.The National Stock Exchange (NSE) saw a volume of 61.02 crore shares which was below its 10-day moving average.
The market opened in the negative tracking its weak Asian peers which were weighed down by the dismal jobs data from the US and higher-than-expected fall in Chinese inflation, which ignited fresh concerns about the pace of global economic growth. The Nifty dropped 83 points to open at 5,283 and the Sensex resumed trade at 17,450, down 71 points from its previous close.

Meanwhile, the rupee declined by 48 paise to 55.90 against the dollar in early trade today, extending losses for the fourth day in a row. Global uncertainties and a lower opening of the domestic stock market were seen as reasons for the fall. The rupee closed at 55.42 against the dollar in the previous session on Friday.

Buying in select stocks enabled the market hit its intraday high at around 10.30am. At the highs, the Nifty rose to 5,301 and the Sensex crawled up to 17,486, albeit still in the negative.

Profit booking at the highs saw the key indices moving further southward in subsequent trade. Selling pressure in rate sensitive sectors like metal, telecom, capital goods and power led the indices to their intraday low in noon trade. At this point, the Nifty fell to 5,258 and the Sensex went back to 17,344. A lower opening of the European markets added to the woes of domestic investors.

The market was range-bound in the post-noon session and closed in the red for the second day in succession. The Nifty declined 42 points (0.79%) to settle at 5,275 and the Sensex dropped 129 points (0.74%) to finish trade at 17,392.

The advance-decline ratio on the NSE was in favour of the decliners at 555:1222.

The broader indices underperformed the Sensex today, as the BSE Mid-cap index tanked 1.20% and the BSE Small-cap index dropped 1.06%.

Today's decline resulted in all sectoral indices settling lower. They were led by BSE Metal (down 1.55%); BSE Power (down 1.54%); BSE Capital Goods (down 1.25%); BSE Auto (down 1.12%) and BSE Realty (down 1.05%).

TCS (up 0.95%); Dr Reddy's Laboratories (up 0.82%) and Hindalco Industries (up 0.12%) were the only gainers on the Sensex today. The main losers were Hero MotoCorp (down 2.62%); Jindal Steel (down 2.56%); Tata Steel (down 2.32%); Bajaj Auto (down 2.30%) and Maruti Suzuki (down 2.28%).

The top two A Group gainers on the BSE were-Manappuram Finance (up 5.83%) and Engineers India (up 4.51%).
The top two A Group losers on the BSE were-JSW Energy (down 5.02%) and GMR Infrastructure (down 4.96%).

The top two B Group gainers on the BSE were-Goldstone Technologies (up 20%) and Quintegra Solutions (up 20%).
The top two B Group losers on the BSE were-Goenka Diamond & Jewels (down 19.95%) and SEL Manufacturing Company (down 19.94%).

The Nifty gainers were TCS, DLF (up 1.09% each); Dr Reddy's (up 0.29%) and Hindalco Ind (up 0.04%). The key losers were Reliance Infrastructure (down 3.56%); Jindal Steel (down 3.12%); Jaiprakash Associates (down 2.98%); Ranbaxy Laboratories (down 2.96%) and Tata Power (down 2.80%).

Markets in Asia closed lower on dismal economic outlook across the globe. Within the region, China's consumer price index rose 2.2% in June from a year earlier while producer prices fell 2.1% compared to analysts forecast for a 2% fall. Besides, core machinery orders in Japan fell 14.8% in May as manufacturers and service sector companies reduced orders.

The Shanghai Composite tumbled 2.37%; the Hang Seng dropped 1.88%; the Jakarta Composite declined 1.73%; the KLSE Composite shed 0.01%; the Nikkei 225 fell 1.37%; the Straits Times declined 1.66%; the KOSPI Composite lost 1.19% and the Taiwan Weighted settled 0.80% lower.

At the time of writing, the key European indices were down between 0.19% and 0.24% and the US stock futures were in the negative.

Back home, foreign institutional investors were net buyers of shares amounting to Rs571.77 crore on Friday while domestic institutional investors were net sellers of equities amounting to Rs223.47 crore.

Ruchi Soya Industries (RSIL) has signed a memorandum of understanding (MoU) with Thermax to set up a one megawatt fluidised bed biomass gasification plant. The gasification plant, to set up by Ruchi Soya at its Washim unit in Maharashtra, will be executed by Thermax on the technology acquired from the Energy Research Centre and Dahlman, Netherlands. The stock declined 1.23% to close at Rs88.55 on the NSE.

As part of its service footprint expansion in the country, auto component maker Bosch today introduced workshop concept in the two-wheeler segment here. Towards this end, the company has opened 10 (Express Bike Service (EBS) outlets in New Delhi on the lines of sole outlet at Delhi. The stock settled 1.50% lower at Rs8,795.05 on the NSE.

Indraprastha Gas raised the prices of compressed natural gas (CNG) by Rs2.90 per kg in the national capital and adjoining towns on the back of the fall in value of the rupee and rising cost of imported gas. The hike had been necessitated because the company is buying more of imported liquefied natural gas (LNG) after supplies from Reliance Industries' KG-D6 gas fields dried up. The stock which jumped 4.21% to Rs252.10 in intraday trade, settled 1.59% higher at Rs245.75 on the NSE.


Metal and textile sectors have highest value of NPAs in FY12

Both metals and textiles industries have large number of players and consequently their NPAs too tend to be amongst the highest

Metals, textile and the electronics sectors accounted for the highest value of non-performing asset (NPAs) properties in FY12 according to a study by The textiles sector which had a 2.7% share of total banking credit, accounted for 4.5% share of the total banking NPAs, while the iron and steel sector with a 3.8% share of credit accounted for 4.7% of total NPAs.  

Out of a total NPA properties valued at Rs6,376 crore in FY12, the metals sector had the highest amount at Rs1,188 crore or 18.6% share. It was followed by the textiles sector with Rs1,131 crore and the electronics industry with Rs734 crore, the study said.

Devendra Jain, chairman and managing director of Atishya group, the owner of said, "The iron and steel segment accounts for the largest share of NPA properties in the metals sector. Both, the metals and textiles industries have large number of players and consequently their NPAs too tend to be amongst the highest."

The state-wise break-up of NPA properties in 2011-12 indicates Tamil Nadu, Gujarat, Maharashtra, Chhattisgarh and Uttar Pradesh as the top five states with the highest share of NPA properties.

The Financial Stability Report of Reserve Bank of India (RBI) released in June-end states that NPAs grew at 43.9% as at end March 2012, far outpacing credit growth of 16.3%. The micro and small enterprises segment which has a 9.8% share of the banking system credit has a disproportionately higher share in the banking system's NPAs at 17.9% as of 31 March 2012 as per the RBI report.

"Intense competition in domestic and global markets, high cost of borrowings and slowdown in economies across the world is going to lead to further rise in NPAs in the coming year too," said Mr Jain in a release.


Low expectations from Q1 results may act as cushion, says Kotak Securities

If the markets have to sustain the current levels and move up, it will need to have more confidence in the medium-to-long term growth rates of corporate India, says the brokerage

Expectations from the quarterly results for corporate houses are not very high which may act as a cushion for the markets, according to Kotak Securities' preview of quarterly results and the possible impact on the stock market. If the markets have to sustain the current levels and move up, it will need to have more confidence in the medium-to-long term growth rates of corporate India, says the report. Also, the above-mentioned concerns have to be effectively and immediately addressed. The room for disappointment is very limited. Disappointment in earnings or on future outlook may result in corresponding specific corrections.

Among the prominent sectors, Kotak noted, automobile players reported weak set of volumes in 1QFY13 (first quarter of the financial year 2012-13). Volumes during 1QFY13 remained under pressure on account of weak macro factors. Slowing economy and interest rates have turned the sentiments negative for automobile demand. Further, events like steep hike in fuel prices and weak beginning to the monsoons added pressure on demand.

During Q1FY13, core earnings for banks and NBFCs (non-banking finance companies) are expected to grow 19.2% year-on-year (YoY), while net income is expected to register a strong growth (35.7% YoY), mainly on back of base effect (SBI reported subdued earnings during Q1FY12). The PSU banks are likely to grow faster at 47.7% (ex-SBI: 17.4%), while private sector banks are likely to grow at 28.4%. During the same period, NBFCs are likely to witness moderate growth in net income (13.2%) due to subdued YoY growth for LIC Housing (-1.1% YoY) and STFC (-6.3%). Credit growth came at 17.8% YoY (as on 15 June 2012), largely stable during Q1FY13, although it remained lower than 20.9% growth witnessed a year ago. During the same period, deposit mobilization marginally improved to 14.4% YoY (as on 15 June 2012) despite subdued performance on demand deposits (decline of 10.2% YTD). The above data are figures are from the Kotak Securities report on the quarterly results preview.

In the June-ending quarter, the BSE Capital Goods index remained flat versus a similar performance of the Sensex. While the market sentiment has improved in recent weeks (index up 9% MTD), it is yet to reflect in broad economic data points. We note that the IIP-based Capital Goods Index was down 16.3% for the month of April 2012.

Even as the government remains committed to address the issue of shortage of coal, there is no short-term solution to the problem. NTPC has awarded the supercritical boiler orders to BGR Energy for Meja and Solapur. Mahagenco has recently scrapped a gas-based power generation project for failure to secure fuel supply.

In the cement sector, demand during the beginning of Q1FY13 was impacted by the sand mining ban in states like Andhra Pradesh, Punjab and Haryana and this along with labour shortage had impacted the construction activities. However, average cement prices during Q1FY13 have witnessed an improvement on a sequential basis mainly led by strong prices seen during April and June. Though prices witnessed a decline during May 2012 led by sand and labour shortage, they subsequently improved in June 2012 due to improved availability of sand and delayed onset of the monsoons. Cost pressures continue to remain high and the full impact of hike in railway freight rates and excise duty would get reflected during Q1FY13. Along with this, rupee depreciation during the quarter would also impact companies relying on imported coal.

Thus, the corporate sector, according to the Kotak Securities report, shows weakness on several environmental and fundamental factors leading to low expectations in quarterly results. This is likely to be a dampener for investors in the stock market for much of the year 2012-13.


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