India Markets Monday Wrap-Up: Weak Global Cues Take Their Toll

Weakness in the global markets impacted the Indian indices as well as the latter languished deep into the red throughout the trading session today. While the BSE Sensex closed lower by around 337 points (down 2%), the NSE Nifty lost around 102 points (down 2%). Midcap and smallcap stocks were also at the receiving end as the BSE Midcap and BSE Smallcap closed lower by 1% each. Losses were largely seen in metals and oil & gas stocks.

As regards global markets, most Asian indices closed in the red today while the European indices have also opened on a weak note. The rupee was trading at Rs 47.07 to the dollar at the time of writing.

As per a leading business daily, Tata Steel (TATLY.PK) believes that steel demand in Asia would rise 9% annually in the coming years. This is based on an average GDP growth of 6% in the Asian region and a steel consumption rate estimated at 1.3 times GDP growth in developing countries. Having said that, there are challenges in terms of lack of investments as well as a shortage of scrap metal used for steel production. As far as its US$ 5 bn investment in Vietnam is concerned, Tata Steel has yet to bag the investment license. Further, work on site clearance for the complex is yet to be completed. Tata Steel expects steel consumption in Vietnam to grow 6% per year. The country has projected its economy to expand to 6.5% to 7% in 2010 from 5.3% growth recorded in 2009. This is a positive for Tata Steel as a combination of higher steel prices and lower raw material costs will enhance its performance in the long term. Tata Steel closed 5% lower today.

Pharma stocks closed weak today with the major losers being Piramal Healthcare, Aurobindo Pharma and Ranbaxy (RBXLF.PK). First it was Big Pharma making a beeline for India to either partner with or acquire Indian pharma companies to strengthen the former’s generics business. Now global biotech firms are also following suit to form alliances for drug discovery development. The reason is not hard to find. India has an advantage because of its high-quality scientific talent pool, lower operational costs, development speed and access to a large market. For instance, Bristol Myers Squibb (BMY) has already forged a long term alliance with Biocon for developing drugs in the early stages of discovery. AstraZeneca (AZN) has also started focusing more on India through partnerships with Indian firms and is trimming its operations in the US and Europe. This is a positive for Indian pharma companies as they will be able to capitalise on the brand of global majors to further enhance their performance in the future.

As per a leading business daily, the Indian economy grew by 8.4% in 4QFY10 thereby fuelling the overall growth in GDP to 7.4% in FY10. This is commendable given that India’s growth had slowed down to 6.7% in the previous fiscal on account of the global slowdown. The encouraging sign was that there was no decline in agriculture growth in FY10 despite widespread drought and floods affecting farm output. The manufacturing sector grew by 16.3% in 4QFY10 and 10.8% in the fiscal. Indeed, if monsoons stay on course, a healthy growth in agriculture coupled with sustained growth in the manufacturing and services sector should go a long way in pushing India’s GDP growth above the 8% mark.