Thursday 22nd October, 2009
(Closing)
While the indices recouped some of their losses during the closing hours of trade, they still ended the day significantly in the negative. Sensex, the BSE benchmark edged lower by around 220 points (down 1.3%) while Nifty closed lower by around 65 points (down 1.5%). Even the BSE Mid cap and Small cap indices were not spared today as they edged lower by 2% each. More than 4 stocks declined for every 1 that gained amongst the Sensex stocks. The worst hit were stocks from the infra space like L&T, Jaiprakash Associates and Reliance Infra.
While Asian indices closed weak today, Europe is also trading in the negative currently. The rupee was trading at Rs 46.8 to the dollar at the time of writing.
The Sensex has now declined for three days in a row. It could easily have been four but for a microscopic rise during 'Muhurat' trading on the day of Diwali. In other words, the markets have not seen a strong closing in the New Year till date. This could be surprising because the results season has got off to a good start and the positive sentiment should have gotten to the market as well. But with the rise that the indices have seen in the past few months, isn't most of the buoyancy induced by good results already in the stock prices? We believe it could be because from a near term perspective, the markets seem to be trading in the fair value range. Unless there are clear telltale signs that earnings are headed higher or inflation is slowing down, markets may continue to move in a sideways manner. However, any correction in the excess of 20%-25% and it would be a good point to take a fresh longer term exposure as the long-term fundamentals of the country are still intact.
Technology bellwether Infosys was in a minority of few companies that bucked the trend and closed higher today. The stock edged higher by 3%. Besides a weakening rupee that is once again edging towards the Rs 47 per dollar mark, there was perhaps another factor that led to the interest in the counter. Bloomberg has reported that the company is in the hunt for acquisitions and it sees stable pricing that will continue for the next one or two years. The company is looking at acquisitions of the size of US$ 400 m to US$ 500 m so that entries into new industries in US and Europe could be speeded up. While it does have the balance sheet to easily make an acquisition of the size mentioned, getting it at an attractive price may not be easily achievable as it is likely to run into some stiff competition, perhaps from companies from its own country of origin. The Axon deal that its rival HCL Tech managed to grab from it is a case in point. Hence, investors need to be wary of this before going gung-ho about Infosys' acquisition plans.
FMCG behemoth ITC may have underperformed the broader indices in the last one year but has emerged amongst the top gainers on the Nifty in the last one month. There could be quite a few reasons for the sudden interest in the stock. First, with HUL losing market share and looking weak from a medium term perspective, investor would have switched from HUL to ITC as the latter looks more stable. Secondly, with threat of inflation once again coming back to haunt the markets, companies like ITC could use their pricing power to pass on the same to consumers and hence be able to grow their earnings despite inflation. Last but not the least, with the company underperforming significantly in the past few months, its valuations may still be within comfortable limits. All this put together is perhaps driving investor interest towards the counter. Both ITC as well as HUL closed stronger today.
