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Saturday, March 15, 2014

Market slips on weak global cues

The market declined last week on weak global cues. Media reports that unseasonal heavy rain and hail storms have hit crops across the country over the last one week hit investor sentiment adversely. Provisional data showing a decline of 3.67% in India's merchandise exports year-on-year in February 2014 also spoiled sentiment.

The S&P BSE Sensex fell 109.99 points or 0.50% to 21,809.80. The 50-unit CNX Nifty fell 22.45 points or 0.34% to 6,504.20.

The BSE Mid-Cap index fell 37.26 points, or 0.56% to 6,656.18, underperforming the Sensex. The BSE Small-Cap index rose 15.23 points, or 0.23% to 6,627.68, outperforming the Sensex.

FIIs, the key driver of Indian markets, have bought shares worth a net Rs 5067.90 crore in this month so far (till 13 March 2014). FIIs bought shares worth net Rs 1404.30 crore in February 2014. FIIs have bought shares worth a net Rs 7186.50 crore in this calendar year so far (till 13 March 2014). FIIs bought shares worth a net Rs 113135.70 crore in 2013 calendar year.

The market rose in three out of five trading sessions of the week. Small gains helped key benchmark indices attain record closing high on Monday, 10 March 2014. The market was volatile. The barometer index, the BSE Sensex, fell below the psychological 22,000 mark after hitting a record high above that level in intraday trade. The S&P BSE Sensex garnered 15.04 points or 0.07% to settle at 21,934.83. The CNX Nifty garnered 10.60 points or 0.16% to settle at 6,537.25.

Key benchmark indices edged lower in choppy trade on Tuesday, 11 March 2014, after provisional data showed that India's merchandise exports fell 3.67% year-on-year in February 2014. The S&P BSE Sensex lost 108.41 points or 0.49% to settle at 21,826.42. The CNX Nifty shed 25.35 points or 0.39% to settle at 6,511.90.

Key benchmark indices eked out small gains in a choppy trading session on Wednesday, 12 March 2014. The S&P BSE Sensex garnered 29.80 points or 0.14% to settle at 21,856.22. The CNX Nifty rose 5 rose or 0.08% to settle at 6,516.90.

A sudden slide pulled key benchmark indices from positive zone to negative zone on Thursday, 13 March 2014. The S&P BSE Sensex dropped 81.61 points or 0.37% to settle at 21,774.61. The CNX Nifty lost 23.80 points or 0.37% to settle at 6,493.10.

A strong intraday rebound in late trade took the key benchmark indices to positive zone from negative zone on Friday, 14 March 2014. The market sentiment was boosted by the latest data showing that inflation based on the wholesale price index (WPI) eased to a nine-month low last month. The S&P BSE Sensex garnered 35.19 points or 0.16% to settle at 21,809.80. The CNX Nifty garnered 11.10 points or 0.17% to settle at 6,504.20.

Among the 30 Sensex shares, 19 rose and the remaining shares fell. Sesa Sterlite (down 7.81%), Tata Steel (down 7.7%), Hindalco Industries (down 7.54%), GAIL (India) (down 4.14%), Axis Bank (down 3.62%) and Bharti Airtel (down 2.09%), edged lower from the Sensex pack.

HDFC Bank (up 2.86%), ITC (up 2.80%), ONGC (up 2.30%), Bhel (up 2.10%), Reliance Industries (up 1.97%), Dr Reddy's Laboratories (up 1.82%) and Cipla (up 1.29%), edged higher from the Sensex pack.

Two-wheeler major Hero MotoCorp jumped 6.10% to Rs 2.125.35. It was the top Sensex gainer last week.

Two-wheeler maker Bajaj Auto rose 0.63% to Rs 1,968.20.

Mahindra & Mahindra (M&M) rose 4.61% to Rs 1025.75. The company after market hours on 7 March 2014, said that the High Court of Judicature at Bombay on 7 March 2014 has approved a Scheme of Arrangement between Mahindra Trucks and Buses (MTBL), a wholly owned subsidiary of the company and its shareholders and creditors and M&M [the Scheme] which, inter alia, envisages demerger of the Trucks Undertaking of MTBL and transfer and vesting thereof into the company and other consequential matters under the provisions of Sections 391 to 394 read with Sections 78 and 100 to 104 of the Companies Act, 1956. The certified copy of this Order is yet to be received, M&M said.

Car maker Maruti Suzuki India rose 0.07% to Rs 1,737.10. As per reports, a group of investors of Maruti Suzuki India (MSIL) has ratcheted up pressure on India's top carmaker to abandon a plan for its Japanese parent to build a new plant to make cars for the Indian firm, saying it would hurt shareholders.

Suzuki Motor Co in January 2014 announced plans to invest $488 million on a new plant in India and shelved an earlier plan for Maruti to set up the factory itself. A group of 16 big fund managers said in a letter to Maruti management, dated March 5, that the plan would shift manufacturing activity away from the Indian company and turn it into a "shell company" of its parent, report added.

"The decision of the MSIL board is ill-conceived in its entirety and results in outsourcing of the core manufacturing activity that is fundamental and critical for MSIL," the letter said, referring to Maruti Suzuki. "This clearly is not in the best interest of MSIL and its shareholders and is in fact significantly detrimental to them," the investors said, in a rare case of shareholder activism in India.

A smaller group of shareholders sent a previous letter last month, saying they were concerned that the contract for the plant in Gujarat state meant the Japanese carmaker, rather than Maruti, would reap the benefits of rising domestic sales. Under the plan, Maruti will buy vehicles produced by Suzuki at the new plant and sell them in the open market. Maruti currently produces and sells its own cars.

Maruti will continue to produce cars at its existing factories in Manesar and Gurgaon in north India, which have a capacity of 1.5 million vehicles per year, but incremental production would be sourced from the Suzuki plant. The second letter was signed by HDFC Asset Management, DSP BlackRock Investment Managers, Axis Asset Management and Birla Sun Life Mutual Fund, among others, report said.

Commercial vehicles major Tata Motors fell 3.84% to Rs 393.30.

Tata Power jumped 5.05% to Rs 83.15. The company announced on 10 March 2014 that the Committee for Rights Issue, at its meeting held on 8 March 2014 has decided to issue 33.22 crore shares on rights basis at Rs 60 per share, which is proposed to open on or prior to 31 March 2014. Rights entitlement ratio is 7:50, i.e. an eligible shareholder will be entitled to apply for 7 rights shares for every 50 shares held. Tata Power has fixed 20 March 2014 as the record date for the purpose of issuing equity shares by way of the rights issue.

The rights issue would lead to an equity dilution of 13.99%.

The entire rights issue price, that is Rs 60, shall be payable on application, of which Rs 1 shall be applied towards the face value of each share and Rs 59 shall be applied towards the share premium.

The issue opening date for the rights issue shall be no later than 31 March 2014. The issue shall remain open for a minimum period of 15 days; provided that the Committee for Rights Issue in consultation with the Lead Managers may extend the period of the issue for such further period as may be deemed fit, subject however that in no event would the issue remain open for a period exceeding 30 days, Tata Power Company said.

It may be recalled that Tata Power had on 28 February 2014 said its board approved raising funds up to Rs 2000 crore by way of a rights issue of equity shares, subject to all applicable statutory and regulatory approvals.

Larsen & Toubro (L&T) jumped 4.84% to Rs 1255.50. L&T, the promoter of L&T Finance Holdings, after market hours on Thursday, 13 March 2014, announced an Offer for Sale (OFS) to sell 5.55 crore equity shares, constituting 3.23% of the equity share capital of the company on Friday, 14 March 2014 through stock exchanges mechanism. In addition to the sale shares, L&T may also sell up to 2.77 crore equity shares of face value Rs 10 each of the company in the sale on Friday, 14 March 2014. The offer price for the share sale was fixed at Rs 70 per share after market hours on Thursday, 13 March 2014. The offer price is at a discount of 11.61% to the stock's closing price of Rs 79.20 on Thursday, 13 March 2014.

L&T holds 81.5% stake in L&T Finance Holdings (as per the shareholding pattern as on 31 December 2013).

Shares of IT major Infosys plunged after the company's CEO and Managing Director S.D. Shibulal on Wednesday, 12 March 2014, warned that the company's sales growth for the current fiscal year may be near the lower end of its forecast as some of its clients are tightening spending on technology. The stock fell 9.40% at Rs 3,389.45. The stock was the major loser in the Sensex pack.

Shibulal said that the company's revenue growth in the fiscal year that begins in April may also be slow if business momentum remains weak. "At the ground level, some of the clients have seen a slowdown across various industry verticals, leading to unanticipated project ramp-downs," Shibulal told investors at a conference organized by Barclays in Bangalore on Wednesday, 12 March 2014. Infosys's clients in the retail and manufacturing sectors are facing "spending pressure," he said. "Many of the factors that have led to the recent slowdown will continue to impact client spending at least in the initial part of fiscal year 2015," Shibulal said.

It may be recalled that Infosys had at the time of the announcement of Q3 December 2013 results on 10 January 2014 raised its revenue growth guidance in both rupee and dollar terms for the year ending 31 March 2014 (FY 2014). At that time, the company forecast 11.5% to 12% growth in revenue in dollar terms for FY 2014. At that time, the company had forecast 24.4% to 24.9% in revenue in rupee terms for FY 2014 based on rupee dollar conversion rate of 61.81 for the rest of the financial year.

Other IT shares also declined. TCS (down 3.77%) and Wipro (down 3.27%), edged lower.

Sun Pharmaceutical Industries dropped 4.97% to Rs 581.75 after the company said that the US FDA issued an import alert for the company's cephalosporin facility located at Karkhadi, Gujarat in India. The stock was volatile. The scrip hit high of Rs 610 and low of Rs 565.60. The import alert was issued by the US FDA as a follow up to the last inspection of the facility, during which some non-compliance of current Good Manufacturing Practice (cGMP) regulations were identified, Sun Pharmaceutical Industries said in a statement.

Sun Pharmaceutical Industries said it remains fully committed to compliance and has already initiated several corrective steps to address the observations made by the US FDA. The contribution of this facility to Sun Pharma's consolidated revenues is negligible. Sun Pharma said that there is no change in the company's consolidated sales growth guidance for the year ending March 2014.

At the time of the announcement of Q3 December 2013 results last month, Sun Pharmaceutical Industries had raised its consolidated revenue growth guidance to 29% for the year ending 31 March 2014, from the previous guidance of 25%. The guidance is at constant exchange rate.

Global equity markets witnessed selling pressure last week as investors evaded riskier assets amid rising concerns in Ukraine and growth worries in China. A standoff between Russia and Ukraine over Crimea weighed on global equity markets as investors awaited a weekend referendum that may lead to Crimea's secession from Ukraine.

The Black Sea region of Crimea votes 16 March 2014 on becoming independent or rejoining Russia, with the US and Germany threatening Moscow with sanctions over its support for the secession. Russia launched new military exercises near its border with Ukraine on Thursday, showing no sign of backing down in its plans to annex its neighbour's Crimea region despite a stronger than expected drive for sanctions from the EU and United States. US Secretary of State John Kerry warned Russia that the US and Europe could take very serious steps the day after the referendum should there be no sign of a resolution to the crisis. Kerry, who told a Senate panel in Washington that "nobody doubts" Crimea will vote to leave Ukraine.

Meanwhile, at least four investment banks lowered forecasts for China's 2014 economic expansion after reports on Thursday, 13 March 2014, showed factory output rose in January and February from a year earlier by the least since the global financial crisis, while retail sales grew at the slowest rate for the period since 2004.

China's Premier Li Keqiang told reporters on Thursday, 13 March 2014, that the nation's 2014 goal of 7.5% economic growth is flexible and some financial-product defaults may be unavoidable.

On the macro front, India's inflation based on the wholesale price index (WPI) eased to a nine-month low of 4.68% in February 2014, from 5.05% in January 2014 and 7.28% during the corresponding month of the previous year, data released by the government Friday, 14 March 2014, showed. Build up inflation rate in the financial year so far was 5.17% compared to a build up rate of 6.15% in the corresponding period of the previous year. The government revised upwards the rate of WPI inflation for December 2013 to 6.4%, from 6.16% reported on 15 January 2014.

Just when inflation had started to cool in India, unseasonal heavy rain and hail storms have hit crops across the country. Parts of central, northern and western India have been lashed by freak storms over the last week, damaging some crops that were just about to be harvested. The unusual weather has affected Madhya Pradesh, Punjab and Haryana as well as Maharashtra and Gujarat, according to reports. Madhya Pradesh grows high-quality durum wheat, the harvesting of which usually starts in early March. The bad weather has also affected fruit, vegetables and oilseed in Maharashtra and Gujarat, according to reports. The India Meteorological Department has predicted heavy rains in Madhya Pradesh and Maharashtra as well as parts of Rajasthan and Uttar Pradesh in the coming week.

The summer season crop will also likely be affected this year by El Nino, a weather phenomenon usually associated with below-average rainfall. El Nino is the warming of the Pacific Ocean that causes a shift of moist winds away from their typical patterns. It generally results in less rain for India's June-to-September monsoon season.

The economy can grow an annual 5.2% in the quarter to end-March on higher farm output growth, the chairman of the Prime Minister's Economic Advisory Council said on Friday, 14 March 2014. C. Rangarajan also said he expects the economic growth to pick up to 5.5% to 6% in the fiscal year that begins on 1 April 2014.