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Monday, December 01, 2008
Sensex down 252 pts, closes at 8,840
Markets opened strong Monday and despite staying in the green throughout the morning went into a tailspin mid-afternoon to end deep in the red with a key index shedding more than 250 points to go below the psychologically important 9,000 mark once again.
There was profit booking at the higher levels, analysts said.
The 30-share sensitive index (Sensex) of the Bombay Stock Exchange (BSE) finished at 8,839.87, down 252.85 points or 2.78 percent from its close Friday last week at 9,092.72 points.
The broader-based 50-share S&P CNX Nifty of the National Stock Exchange (NSE), also showed a similar trend and closed at 2,682.90, down 72.2 points or 2.62 percent from its previous close Friday last week at 2,755.10 points.
The BSE midcap index closed at 2,846.47, down 39.29 points or 1.36 percent from its previous close Friday last week at 2,885.76 points.
The BSE smallcap too ended in the red and finished at 3,297.73, down 6.88 points or 0.21 percent from its previous close Friday last week at 3,304.61 points.
Global cues were mixed. The key index of the New York Stock Exchange closed flat Friday and the Nasdaq index closed Friday with a gain of 0.23 percent.
The Nikkei, key index of the Tokyo Stock Exchange ended in the red Monday with a loss of 1.35 percent but the Hang Seng, key index of the Hong Kong Stock Exchange finished with a gain of 1.59 percent.
Post Session Commentary - Dec 1 2008
The domestic market ended the day in red terrain after paring all its initial gains on account of increased selling pressure. Weak sentiments during the last trading hours was added by negative opening of European markets and a further fall in US index futures. Asian markets also pared their initial gains and contributed to pull the domestic bourses lower. Market opened on pleasant note on the expectations of further cut in interest rates and end of the operation to flush out terrorists in Mumbai. Investors also welcomed Prime Minister Manmohan Singh taking charge of the Finance Ministry after P Chidambaram was appointed Home Minister following the resignation of Shivraj Patil. Further market continued the positive trend till afternoon but afterwards failed to sustain the upswing and slaughtered by some profit booking. The statement from the Finance Minister Mr. P. Chidambaram about the slow economic growth has also affected the markets to some extent. Stocks continued to slip stridently till end on weak global cues. NSE Nifty ended below 2,700 mark and BSE Sensex below 8,900 level. From the sectoral front, all indices ended in red and among those, most of the selling was seen in Reality, Auto, Consumer Durables, Bank, Capital Goods, Power and FMCG stocks Midcap and Small cap stocks also remained out of favor.
Among the Sensex pack 24 stocks ended in red territory and 6 in green. The market breadth was negative as 1160 stocks closed in red while 970 stocks closed in green and 65 stocks remained unchanged.
The BSE Sensex closed lower by 252.85 points at 8,839.87 and NSE Nifty ended down by 72.20 points at 2,682.90. The BSE Mid Caps and BSE Small Caps ended with losses of 39.29 and 6.88 points at 2,846.47 and 3,297.73 respectively. The BSE Sensex touched intraday high of 9,326.68 and intraday low of 8,803.34.
Losers from the BSE Sensex pack are DLF Ltd (9.96%), Reliance infra (3.26%), Maruti Suzuki (9.40%), ICICI Bank Ltd (7.21%), Reliance Infra (6.95%), BHEL (6.71%), Ranbaxy Lab (4.96%), ITC Ltd (4.61%), Wipro Ltd (3.90%), Tata Power (3.45%), M&M Ltd (3.37%) and L&T Ltd (3.22%).
Gainers from the BSE Sensex pack are Grasim Industries (1.75%), Tata Steel (1.69%), TCS Ltd (1.06%), Sterlite Industries (0.74%), Reliance Communication Ltd (0.43%) and HJP Associates (0.36%).
The BSE Reality index ended lower by (5.34%) or 83.36 points at 1,477.65. Major losers are DLF Ltd (9.96%), Akruti City (6.15%), Orbit Co (5.17%), Parsvnath (4.39%), Sobah Dev (3.93%) and Housing Dev (3.77%).
The BSE Auto index dropped by (4.64%) or 108.23 points to close at 2,222.33. Losers are Maruti Suzuki (9.40%), Hero Honda Motors (5.69%), Bajaj Auto (4.33%), Cummins Indi (3.85%), Amtek Auto (3.69%) and M&M Ltd (3.37%).
The BSE Consumer Durables index lost (4.47%) or 80.18 points to close at 1,713.39. Major losers are Titan Ind (6.86%), Videocon Ind (3.67%), Blue Star L (3.23%) and Gitanjali GE (0.79%).
The BSE Bank index ended lower by 3.87%) or 179.58 points at 4,465.82 as ICICI Bank Ltd (7.21%), Bank of Baroda (4.71%), Kotak Bank (4.55%), Yes Bank (4.24%), Indus Ind Bank (3.90%), Canara (3.87%) and Bank of India (3.85%) ended in negative territory.
The BSE Capital Goods index dropped by (3.79%) or 241.91 points to close at 6,145.41. Losers are BHEL (6.71%), ABB Ltd (3.96%), Elecon Eng C (3.61%), Praj Indus (3.54%) and L&T Ltd (3.22%).
The BSE Power index lost (3.78%) or 61.63 points to close at 1,570.06. Losers are Reliance Infra (6.95%), BHEL (6.71%), Suzlon Energy (5.28%), ABB Ltd (3.96%), Tata Power (3.45%) and GVK Power (2.48%).
252 points lower
The market saw high volatility during the day, as stocks gyrated between either sides of the zones throughout the session with the Sensex witnessing the intra-day swing of 524 points. The market opened higher, buoyed by overnight gains in the US markets, but pared early gains as investors' sentiment turned cautious as the Sensex neared its intra-day high of 9,327 points. Thereafter, sustained selling in frontline, realty and auto stocks saw the Sensex enter into the negative territory. After displaying some range-bound moves, the market plunged deep into the red on heavy selling towards the close to touch the day's low of 8,803. The Sensex finally closed the session at 8,840, down 253 points. The Nifty closed at 2,683, down 72 points.
The breadth of the market was negative. Of the 2,195 stocks traded on the BSE, 1,160 stocks declined, whereas 970 stocks advanced. Sixty five stocks ended unchanged. Among the sectoral indices, BSE Realty shed 5.34%, BSE Auto declined 4.64% and BSE CD was down 4.47%.
Selective buying helped the index overcome its losses. Grasim Industries gained 1.75% at Rs904.80, Tata Steel advanced 1.69% at Rs153.50 and Tata Consultancy Services added 1.06% at Rs563.95. Sterlite Industries, Reliance Communications and JP Associates notched up steady gains.
Selling was evident in select heavyweights. DLF dropped 9.96% at Rs178.50, Maruti Suzuki India declined 9.40% at Rs485.50, ICICI Bank tumbled 7.21% at Rs326.05, Reliance Infrastructure shed 7.21% at Rs467, BHEL dipped 6.71% at Rs1,2669.95, Ranbaxy Laboratories was down 4.96% at Rs198.45 and ITC shed 4.61% at Rs165.50.
Over 2.51 crore shares of Unitech changed hands on the BSE followed by Suzlon Energy (0.94 crore shares), GVK Power & Infrastructure (92.52 lakh shares), Reliance Natural Resources Ltd (63.91 lakh shares) and ITC (46.21 lakh shares).
Axis Bank - BUY
Investors with a more than a one-year horizon can consider adding the Axis Bank stock to their portfolio.
The bank’s stock has been beaten down amidst concerns about asset quality and a slowdown in advances growth, but we believe these concerns are overdone.
We reiterate a ‘buy’ on the stock considering the bank’s high proportion of investment grade advances, apart from superior net interest margins and potential for growth in core fee income.
At the current market price of Rs 406, the Axis Bank stock is trading at 10.3 times its trailing 12-month earnings and 1.5 times its September 30 book value. This is well below the bank’s peak valuation of 43 times earnings and 5 times book value.
Top performer
Historically, Axis Bank has been among the top performers in the banking space. The net profit has grown at 40 per cent compounded annually in last 4 years.
The first half saw net profit growth of 82 per cent, helped primarily by net interest income growth of 71 per cent. Fee income for Axis Bank now covers more than 90 per cent of the operating expenses.
Net interest margin at 3.43 per cent has slightly moderated, but remains high relative to peers and is helped by a high proportion of low cost deposits.
Points of concern
The bank’s exposure to commercial real estate (9 per cent), textiles (6.5 per cent) and gems and jewellery (2.5 per cent) could be the key points of concern on asset quality. However, with 84 per cent of the corporate advances and 78 per cent of SME advances being investment rated, the advances book appears fairly protected.
The NPAs of the bank are currently among the lowest in the industry, with net NPA/advances at 0.43 per cent; this may remain superior to that of other banks even in the event of slippages. The capital adequacy ratio is at comfortable 12.2 per cent.
Outlook
The key risks to earnings arise from a possible slowdown in SME and retail advances in coming quarters, even as the bank makes a conscious attempt to go slow on such advances. There is also the possibility of slippages in credit card, personal loan and other retail segments, in line with peers. But this may be addressed by the bank lowering lending rates in the coming months.
A write-back of provisions on the bond portfolio may help improve profitability over the next quarter. Though the bank has to provide for the future slippages, the lowering of standard asset provisioning by the Reserve Bank of India will help it in limiting the NPA provisioning.
Bajaj Auto
The Bajaj Auto stock has fallen by about 40 per cent since the beginning of this month .
Better financial performance by its peer Hero Honda, a huge 50 per cent year-on-year drop in domestic two-wheeler sales in October, lacklustre three-wheeler performance and the company’s plans to cut production have weighed down the stock.
At the current market price of Rs 321, the stock trades at a price-to-earnings ratio of about 6.5 times its expected FY-09 earnings vis-À-vis Hero Honda’s valuation of 13 times. With the economy losing steam and production targets being scaled down, the medium term triggers for the stock are limited. But, investors with a three-to-four year perspective can hold on to their existing investments as a widening product portfolio, robust export growth, cost rationalisation measures and higher realisations from a better mix, inspire confidence about the company’s earnings prospects .
Domestic picture
The company has been facing challenging times since early 2007. For the year ended March 2008, it posted a 20 per cent decline in overall domestic volumes, thanks to the slowdown in the two-wheeler segment and a tightening of credit availability due to stiff interest rates. For the April-October 2008 period too, the overall domestic volumes fell by about 12 per cent.
Higher segment bikes
What holds promise for the company over the long-term is its focus on: One, the executive and premium segment bikes and, two, the smaller tonnage three-wheelers.
It already has a stronghold in the premium segment with its ‘Pulsar’ range of bikes. This has also spruced up its portfolio in the executive segment. It currently holds a near 50 per cent market share in the 125 cc plus segment.
A variant of the 125cc, Platina was launched ahead of the festive season. Before end-March 2009, the company will also launch two more bikes on the DTSi platform.
Besides, beginning 2010, Bajaj will also roll out bikes through its joint venture with Austrian sports bike manufacturer, KTM.
Exports to boost growth
Product launches may help Bajaj protect its turf in the local markets, but considering the pause in domestic sales, exports are expected to aid growth in the interim period. For the first seven months of the year, two-wheeler exports have grown by about 40 per cent year-on-year.
From about six lakh units in FY-08, the company expects to sell about 8.5 lakh units in the export markets in FY-09 and about 10 lakh units by FY-10.
A well-diversified clientele across West and South Asia, Africa and Latin America which are relatively less affected by the slowdown, the tie-up with Kawasaki to distribute its products in the ASEAN region and plans to foray into the European markets through KTM’s network, bodes well for volume growth on this front.
Scope for higher entry-level volumes
An increasing shift in consumer preferences from entry-level bikes to executive and premium bikes was witnessed last year. In line with this, Bajaj Auto shifted focus and has been concentrating on selling bigger, higher-margin bikes.
But volumes of Hero Honda, the market leader in the entry segment for the April- October 2008 period suggests a reversal of this trend in this period. The company has recorded a 15 per cent growth in sales in 75-125cc bikes while Bajaj showed a decline in this category .
Of course, the entry segment offers thinner margins. But a revival in this segment indicates that this segment offers the prospect of better volume growth now.
Since this demand is expected to have come from the rural segment, Bajaj can use its specialist rural dealerships to regain some of the lost market share in this category.
Financials
For the half-year ended September 2008, sales grew by a modest 9 per cent Y-oY. A large part of this growth has come from the increase in demand for and improved realisations from the sale of high-end bikes. Besides, the company’s focus on exports, given the slowdown in the domestic markets, has also aided growth.
Price hikes, softening commodity prices and improved realisations from a better product mix, led to operating margins expanding to 13.5 per cent.
For the first half, the company’s profits have fallen by about 17 per cent on a Y-o-Y basis (fall of 4 per cent in Q1 and 28 per cent in Q2).
The benefit of better operating margins has failed to reflect in the profits, due to the recognition of VRS expenses for the workers of the Akurdi plant to the extent of Rs 61 crore during the second quarter.
While this one-time expense may hold back profits temporarily, given the rich product portfolio, favourable export environment and ongoing cost control initiatives, the profits picture may be better in the near-to-medium term.
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