Indices tumble towards close after strong opening

18 October 2005

After yesterday's flat closing, most market analysts were expecting the indices to recover today. Positive closing in the US markets yesterday increased the expectations and recovery in some of the Asian markets further aided the sentiment.

The markets did not disappoint and opened with a significant positive gap. The frontline indices built on the strong opening and were trading with gains of over one-and-a-half per cent within half an hour. The Sensex gained over 120 points from yesterday's closing levels.

The recovery was broad based and at one point all 30 Sensex stocks were trading with gains. The up trend was helped by strong gains in banking, auto and technology stocks. ICICI Bank and HDFC Bank gained over 2 per cent each. Among the technology stocks, TCS added over one-and-a-half per cent while Infosys gained over a per cent. Wipro also was trading with strong gains.

Selling emerged within an hour of opening and the indices gave up part of the gains by noon. From then on, the indices made periodic attempts to claw back to early highs only to be beaten back by fresh selling.

The selling gathered pace in afternoon trades and the indices gave up most of their gains by late afternoon. Even then, not many would have expected the ferocity of the selling pressure in the last hour of trade. Within 40 minutes, the Sensex lost over 100 points or more than 200 points from the highs of the day.

The indices closed at the lows of the day with Sensex down almost 130 points and Nifty losing close to 25 points from yesterday's closing levels. The adjusted closing rates for the indices were higher since much of the decline happened in the last 10 minutes.

Most analysts are blaming the continuing weakness in the rupee for the decline in stock prices today. The currency declined below the Rs45 to a US dollar mark early today and continued to lose more than half a per cent by afternoon. The declining rupee is believed to be discouraging FII's from making fresh purchases.

The indices were severely affected by a sell off in technology stocks. Infosys, which was trading a per cent higher in morning trades, lost over 2 per cent by close. Satyam was the biggest percentage loser, closing over 3 per cent lower. Wipro also lost over 2 per cent. TCS managed to survive the sell off, helped by the news of a major overseas deal.

HCL Technologies stood out in the technology space, adding close to 3 per cent.

The decline in the value of the rupee against the US dollar has ironically turned out to be a negative for technology companies as both TCS and Infosys had stated earlier that they have large forward covers. TCS had covered over $700 million and Infosys over $300 million at the time of announcing their results.

Pharma stocks were among the significant percentage losers among index stocks. Ranbaxy closed with losses of over 5 per cent while Dr. Reddy declined over 2 per cent.

Tata Steel and Gujarat Ambuja Cements were the other big losers among index stocks, losing well over 2 per cent each.

The private sector banks gave up all their early gains by afternoon. ICICI Bank closed more than half-a-per cent lower while HDFC Bank closed half-a-per cent higher. SBI lost over a per cent.

After Bajaj Auto yesterday, it was another 2-wheeler stock, Hero Honda, which turned out to be among the best performers among index stocks. The stock added close to 3 per cent. Maruti added over a per cent.

Engineering majors L&T and ABB added well over a per cent each.

Sensex closed at 8122, a decline of 80 points, and the Nifty at 2468, lower by 17 points. Nifty October futures closed at a discount of 21 points to the spot index.

HCL Technologies, Hero Honda and Cipla were the few gainers among Nifty stocks while Ranbaxy, Dabur and Satyam were the major losers.

US stock markets survived some early afternoon jitters and closed with gains yesterday. Better than expected results from IBM and a sharp jump in the stock price of General Motors helped the main US indices to maintain the up trend from Friday. Higher oil prices helped oil stocks to recover.

The Dow added over half a per cent while the S&P 500 closed a third of a per cent higher. Gains on the NASDAQ were lower at a quarter of a per cent.

Crude oil futures rallied close to 3 per cent yesterday on reports that a tropical storm in the Gulf of Mexico could develop into a hurricane by this weekend. This would mean more problems for the oil production and refining facilities in the US East Coast, struggling to get back to normal after the recent hurricanes. A diplomatic row brewing between Iran and western countries over yesterday's bomb explosions also affected market sentiment.

Crude futures for November delivery gained $1.73 per barrel to close at $64.36 yesterday. The commodity is trading with losses of over one and a half per cent at $62.6 per barrel in early European trades today.

TCS has announced that the company would set up a new subsidiary based in the UK to offer BPO services to life insurance and pension fund management companies. The subsidiary would absorb 900 employees from UK based Pearl Group, an insurance company, and would depute more than 100 employees from India.

TCS has signed a contract with the Pearl Group to offer back office services over the next 12 years. The deal is expected to generate revenues of close to $850 million over the contract period for TCS. The company would be offering mostly higher end non-voice services which have better margins.

TCS management is optimistic that margins from the new business would be closer to the current operating margins of the company after the initial years. Initial margins would, however, be lower than the current average. Revenues from the deal are expected to flow in from the last quarter of the current year. TCS is also planning to offer similar services to other European insurance and fund management companies in future.

According to media reports, global oil giants Chevron Texaco and Exxon Mobil are also interested in picking up a minority stake in the KG gas fields of Reliance Industries. British oil major BP has already indicated that it is interested in a stake. The gas find by Reliance is one of the largest in recent years and has reportedly been valued at $4 billion by independent agencies. Reliance Industries hold a 90 per cent stake at present with the rest being held by Niko Resources of Canada.

Bajaj Auto has reportedly completed all procedural formalities for establishing an assembly unit for motorcycles in Pakistan and is waiting for the approval from the Pakistan government. The company is planning to set up a JV with a local business group. Bajaj Auto would hold a 51 per cent stake in the venture. Pakistan currently does not have any locally manufactured 2-wheeler models and the market is dominated by Chinese imports.

Pharma company Cipla said it would initiate discussions with European drug major Roche for licensing the latter's bird flu vaccine, Tamiflu. Roche is receiving huge orders from across the world after detection of bird flu virus. Cipla has developed a generic version of the vaccine which would be cheaper than the original drug.

Cipla said the patent held by Roche may not be valid in India. The company said it can produce more than 1 million units of the drug per month. The stock was one of the few which survived the afternoon sell off.

Mid-Cap Action

Mid-caps also had another volatile day, giving up all the early gains and closing lower. The mid-cap index rallied in early trades, but the gains were lower than the frontline stocks. After struggling to stay in positive territory during late afternoon trades, the index finally gave up in the closing minutes and closed half-a-per cent lower. The CNX Mid-Cap index lost 20 points and closed the day at 3641.

NDTV has reported a loss of Rs6.6 crore for the quarter ended September as against a profit of Rs2.8 crore for the same period of last year. Revenues for the quarter were higher by 18 per cent to Rs43 crore from Rs36.4 crore during the previous year.

NDTV has been going through a tough period during the first two squarters of the current year as costs have increased substantially. The company had to increase salaries considerably to retain talent during the last quarter. NDTV spent over Rs7 crore to award stock options to employees during the second quarter. The company claims the period of high cost increases are over and expects a revenue growth of over 30 per cent during the second half of the year.

Bharat Forge has reported a profit of Rs52 crore for the quarter ended September as against Rs38 crore for the same quarter of previous year. Revenues for the quarter were higher at Rs388 crore as against Rs291 crore during the previous year. The company had announced some overseas acquisitions in the US and Europe recently.