Markets Close In Red, L&T Up After Q4 Results

As we said in our previous updates, the market remained fragile today in anticipation of the Apr 2012 WPI inflation numbers. They were trading with 0.5% gains until late morning. After the inflation numbers came in at 7.23% against the street expectations of 6.7%, the markets snapped all their gains and turned negative.

Now, the IIP and WIP numbers put together gives a disappointing picture of the economy. The markets will now look at the RBI for another interest rate cut. The worrying state of the economic growth with higher inflation is a very complex situation at the moment, with the RBI's emphasis being on curbing inflation. In such an environment, the markets may go down further in this week.

On the back of these developments, Credit Suisse has said that the RBI may be required to slash the cash reserve ratio to fight the current liquidity crunch. On the other hand, C Rangarajan, the Chairman of the Prime Minister’s Economic Advisory Council, has said that the scope for a rate cut remains very narrow. However, Rangarajan has also said that growth in the next fiscal will remain higher.

The Asian indicators, which were seen in the green zone in the morning, turned directionless by the afternoon. Though Nikkei surged by 20 points, Hang Seng and Shanghai closed in the negative.

The European markets opened the day in the negative, and have further extended their losses.

On the sectoral front, the Healthcare index remained very subdued for the entire day, but closed as the top gainer by end of business. IT, CD, CG, FMCG and Teck have shown some resistance, and closed in the positive. All the other indices closed negative, with major selling pressure seen in the Realty, Bankex and Oil & Gas indices.

Among the Sensex stocks, L&T was the top gainer, surging by 1.84% by the day's end. It has reported its Q4 earnings, where the topline grew by 21% and the bottomline grew by 25%. The company has said that it will grow by 15%-20% in this fiscal. Growth in order inflows will also be in the same range. The shares of Bajaj Auto have been showing good buying since morning, and the stock closed with 1.80% intraday profit by the end of the day. Tata Power is expected to report its earnings tomorrow. There was sudden surge in its stock price, which gives us a feeling that the street expects better net profit growth from the company in Q4. Sun Pharma was also trading in green for all of today, closing with 1.26% gains. Infosys, M&M and Wipro were also marginally up.

On the other hand, DLF tanked 2.64% after the news came of the RBI's statement that it has little scope to cut the rates. The banking stocks closed in the red on this news, with HDFC Bank as a major casulty. The shares of BHEL tanked a further 2% after L&T reported a decline in its order book. RIL also came under selling pressure, and the stock closed down 2.32%.

Divi’s Labs gained strongly by 7.31% as the company posted good earnings in the last quarter. TTK Prestige, MphasiS, Lupin, IRB Infra, Dabur India, etc. also gained strongly. Pharma stocks such as Strides Arcolab, Aurobindo Pharma, etc. came under pressure and closed with over 5% losses each. AstraZeneca lost 7.45% after it reported losses in the Mar 2012 quarter results.

Chettinad Cement touched the upper circuit after the company reported to the BSE about a board meeting to be held to consider the delisting proposal. Elder Health Care was also at the upper circuit.

The market sentiment was negative. 59% stocks declined in value, 37% stocks advanced and another 4% remained unchanged.

With inflation remaining higher than the expectations and the IIP numbers showing a slowdown, the markets are expected to tank further in this week. L&T has commented that it will face margin pressures. We believe this will be true of the rest of the industry too, and hence, investors should only go for safe bets.