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Indian markets powered ahead on the back of strong manufacturing and export data
A jump in manufacturing activity in December 2009, and the latest data showing a surge in exports in November 2009, helped Indian markets to remain positive throughout the day. The Sensex was up 94 points from Thursday’s (31 December 2009) close, ending the day at 17,559, while the Nifty closed at 5,232, up 31 points. Indian markets may open higher tomorrow on the back of today’s strong data.
During the day, auto stocks gained on the back of strong sales in the month of December 2009.
Mahindra & Mahindra (M&M) shot up 5%. The company reported 122% rise in its domestic sales to 22,754 units in December 2009 over December 2008. The company sold a total of 24,001 vehicles (domestic plus exports) in December 2009, as against 11,172 vehicles sold in December 2008.
Tata Motors rose 4% on reports that it registered 105% growth in sales to 51,627 units in December 2009 over December 2008.
TVS Motor zoomed 10% after the company said that its sales rose 34% to 1,19,701 units in December 2009 over December 2008.
JSW Energy closed at Rs101. The stock debuted at Rs102, a premium of 2% over the initial public offer (IPO) price.
Sical Logistics gained 6%, extending gains for the second consecutive day, after a unit of the company secured a contract worth Rs163 crore.
Reliance Industries Ltd (RIL) declined 1%. As per reports, the company has sold 2.5 crore shares at a weighted average price of Rs1,035 each or at a 5 % discount to Thursday’s (31 December 2009) market close, to State-run Life Insurance Corporation of India.
Ranbaxy Laboratories remained flat after the company said that it has launched a skin-care drug in India.
Marico declined 1% after the firm’s Malaysian unit acquired hair styling brand ‘Code 10’ from Colgate Palmolive for an undisclosed sum.
As per the HSBC Markit survey, the rate of growth in manufacturing rose for the first time in three months in December 2009, with activity reaching its highest since May 2009 on sharp rises in new work and output. The HSBC Markit Purchasing Managers’ Index (PMI), based on a survey of 500 companies, rose to 55.6 in December from 53.0 in November. The reading was the strongest since May's 55.7, which was the strongest in 2009. A reading above 50 means activity expanded during the month.
According to the commerce ministry, India’s export sector has bounced back with outward trade growing by 18% in November 2009. The export figures turned positive after staying in the red for 13 months. The value of exports in November 2009 jumped to $13.19 billion compared to $11.16 billion in the year-ago period.
On Thursday, 31 December 2009, KC Chakrabarty, RBI’s deputy governor, said the apex bank would review interest rates at its next policy review scheduled for 29 January 2010 and not before. He further said that the credit growth will rise to 17%-18% when GDP growth reaches 8-9%.
Meanwhile, on Saturday, 2 January 2009, C Rangarajan, chairman of the Economic Advisory Council to the prime minister, said that the economy will expand 8% in 2010/11 after growing between 7 and 7.5% in the current fiscal year to end-March. He also said the economy would return to an annual growth rate of 9% in the fiscal year to end-March 2012 on the back of an improvement in the world economy and global trade.
Kaushik Basu, the finance ministry’s chief economic advisor, said that the economy is expected to grow at more than 7.5% in the fiscal year ending March 2010, boosted by better growth in the December 2009 quarter. He also added that the government is not expected to announce any monetary tightening measures for now.
During the day, Asia’s key benchmark indices in Indonesia, Japan, Taiwan and South Korea rose by between 0.24%-1.03%, while indices in Hong Kong and Singapore fell by between 0.14%-0.23%.
China’s Shanghai Composite was down 1%, despite Chinese manufacturing activity climbing for the ninth straight month in December 2009. The HSBC Purchasing Managers' index climbed to 56.1 for the month, compared to 55.7 in November.
Meanwhile, the ministry of knowledge economy said on 1 January 2010 that South Korean exports increased 33.7% in December from a year earlier, the fastest pace in 17 months.
Singapore’s trade ministry said that the economy contracted an annualised 6.8% in the fourth quarter to December from the previous three months after climbing a revised 14.9% from July to September.
On Thursday, 31 December 2009, the Dow Jones Industrial Average fell 120 points while the S&P 500 and the Nasdaq Composite index were down 11 points and 22 points respectively. US markets remained closed on Friday, 1 January 2010, on account of the New Year holiday.
In premarket trading, the Dow was trading 67 points higher.
Indian bourses extended trading hours by about an hour. However, the volumes in Nifty futures on the first day were one of the lowest ever in the past few years. Indeed, adjusted for one hour’s extra trade, volumes were 40% of what they should have been
Indian bourses have started business at 9.00am IST instead of 9.55am IST. It was also the first trading day of the year and the first day of the January series of derivatives. However, shockingly, market volumes crashed on the opening day.
During the day, total Nifty futures contracts traded were 2,37,231. This was one of the lowest-ever volumes of Nifty futures contracts traded, despite one hour of extra trading. The 40-day daily average of contracts traded over the five-and-a-half hour day is more than double that of today (5,18,184 contracts).
And what about the contracts traded in the first hour? The number of Nifty futures contracts today in the first trading hour were just 50,961 which is lower than what they were on 31 December 2009 (67,680). In fact, there is a reason why the first trading day of the new year of 2010 should have been much higher. A new series of derivatives started today. As a result, volumes in the first hour of trading were expected to go up massively. But the volume during the first hour of trading was poor—extremely poor—by that standard.
Markets have been trading on low volumes in late-December. As on 29 December 2009, the number of Nifty futures contracts traded in the first hour of the day were 44,426 while on 30 December 2009, the number of shares traded in the first hour of the day were 42,770. Since the global markets remained closed on Friday, 25 December 2009, for Christmas and on Monday, 28 December 2009, Indian markets were closed on account of Moharram, trading volumes remained low last week. Besides, most fund managers were on a year-end vacation. The market also remained closed on Friday, 1 January 2010 on account of the New Year holiday.
What kind of volumes should we have got on Monday? Here is an indication. The number of contracts traded in the first trading hour of Nifty futures of November 2009 contract (30 October 2009) were 131,134. This clearly shows that in the first hour of the new series of January, volumes should have been massive. However they were less than 50% of what they were in the November series.
And volumes never picked up later in the day.
So, the extended timing has hardly made any difference to the trading volumes in the early hours especially since all global markets were open after a long gap on 4th January. The reason behind the early opening was to attract back the trading volumes of Nifty futures traded in Singapore. However, the new timings have hardly made any impact on the volumes, despite the New Year and a new series of futures contracts.
As usual, Moneylife’s annual study of wealth creators throws up many surprises. It stresses the need to buy cheap & avoid falling into the trap of purchasing ‘popular’ stocks and points out the role of excessive speculation in pushing up obscure stocks
Moneylife’s annual study of wealth creators of 1999-2009, rubbishes myths about value creation, stresses the need to buy cheap & avoid falling into the trap of purchasing ‘popular’ stocks and points out the role of excessive speculation in pushing up obscure stocks.
The study also emphasises the misplaced notion of buying and holding indefinitely. It points out that the much hyped technology stocks that caught everybody’s fancy in 1999, have actually yielded insipid returns over the 10-year period. Software giants like Wipro and Infosys are nowhere to be found among the top 500 wealth creators, a clear indication that management quality and earnings growth have little to do with wealth creation if stocks have already run up and have turned into market favourites. The simple fact is that if you had bought software services companies in 1999, you would have bought them high and regretted. The wealth creation study appears in the current issue of Moneylife which has hit the stands.
Moneylife’s study also points out that real-estate companies have now already captured the potential for growth, and are slowly on the decline in the wealth creation charts. This is despite the fact that four such companies stand out among the top 10 wealth creators. Their performance has more to do with the lunatic, frenzied spike in realty prices in 2007-08, than management efficiency or company fundamentals over the last decade. Prices shot up too high too quickly, without a foundation to support the upsurge.
Despite the lacklustre show from the pharmaceutical industry, certain pharma companies have made their mark on the charts. Sun Pharmaceutical has done very well with an extremely high compounded return of 76%. Among the smaller stocks, Alchemist recorded a huge return of 84% and Vimta Labs returned 52%.
However, the most notable performance was from the steel, steel products and related sub-sectors. From this sector, 13 companies have emerged among the top 100 wealth creators on our list. Sesa Goa has reaped the benefit of China’s insatiable demand for iron ore which accounted for more than 84% of its volumes in the previous fiscal. Among others, Orissa Sponge Iron & Steel (20th) and Nava Bharat Ventures (12th) have also made much of the boom in the entire steel chain and related products like ferro-alloys.
Engineering companies have gained in the past few years from capacity creations in core sectors like power, infrastructure, mining, telecom and oil & gas. Indeed, 17 engineering and allied sector companies have found their way to the top 100 wealth creators. Kirloskar Brothers (72%), Praj Industries (72%) and Bharat Bijlee (69%) emerged among the top 20 wealth creators.
This year’s list is also witness to the emergence of small- and micro-cap companies, which have trumped some of their larger counterparts. Companies like Shanthi Gears, Orient Abrasives and Electrotherm India have given shareholders a lot to cheer about. On the other hand, many blue-chips are languishing at the bottom of the wealth-creators’ list. India Cements, Tata Tea, Zee Entertainment Enterprises and GTL have provided disappointing returns. Several multinationals have also emerged among the notable value destroyers.
Among these smaller, obscure companies are names that have caught us by surprise. These companies don’t boast great earnings growth, superior management quality or productivity efficiency. Their presence among the top wealth creators is only driven by one thing—intense speculation. Many among these are little known penny stocks that have emerged in the frenzied bull market a couple of years ago. Companies like Ashirwad Capital, Poddar Developers and Master Trust have created robust shareholder returns despite the fact that their sales haven’t even touched Rs1 crore.