'Crash' course!

Profit booking led to the markets crashing in the final hour of trade today. At close, while select index heavyweights were reeling in the red, pressure was also seen in stocks from the auto, banking, software, commodity and pharma sectors.

The BSE Sensex closed at 6,546 (down 60 points) and the Nifty closed at 2,050 (down 19 points). The rupee was trading at Rs 43.73 per US Dollar.

Today marked another round of volatility in the Indian markets as the benchmark indices 'crashed' into the negative territory after holding ground in the black till the penultimate hour of trade. After opening marginally in the positive, the indices slipped into the red for a short duration as profit booking emerged. Though post noon, there was some buying witnessed which saw the indices recover almost all its losses, a strong bout of selling pressure pushed the markets back deep into the red in the final hour. Major losers among Sensex stocks were Bajaj Auto (BJAT.BO, news) (3%), BHEL (3%) and Cipla (2%).

Energy stocks closed today on a mixed note and major gainers here included Petronet LNG (3%), Kochi Refinery (2%) and MRPL (1%). On the other hand, Essar Oil (ESRO.BO, news) (3%), IGL (2%) and ONGC (2%) led the losers' pack. Earlier, PSU oil major IOC was reported to have sought a Rs 4.7 hike in the price of petrol and a Rs 5.2 per litre hike in the price of diesel due to the ongoing surge in global crude oil and petroleum product prices. Besides international pressure, the excise duty on the two products warrants a Rs 1.1 per litre hike in diesel and Rs 2.2 per litre in petrol prices. IOC lost Rs 3 bn in petrol and diesel sales in the last fortnight of April alone due to its inability in increasing prices. This is the latest round of pressure on the government to raise prices in a bid to stop the oil PSU from bleeding. IOC's stock closed today marginally in the positive.

FMCG stocks also closed on a mixed note. While gains were seen in Colgate (3%), Dabur (1%) and P&G (1%), selling was seen in Godrej Consumer (4%), Marico (3%) and Pidilite (1%). Diversified major, ITC (ITCd.BO, news) closed with gains of 1%. This was seemingly a result of newspaper reports that the company is planning to spend Rs 1.7 bn in FY06 to set up rural supermarkets in the country. The company plans to set up 33 such supermarkets known as 'Choupal Sagars' with an investment of Rs 50 m each, as indicated by the management. This will be an extension of its agri-IT initiative, the 'e-choupal'. The company has piloted one project so far. Of late, ITC has been moving its focus away from its core cigarette business. This has been mainly due to reasons such as adverse effect on public health and an increase in excise duties levied by the government on cigarettes in the current budget. As a matter of fact, ITC earns revenues from a diversified portfolio of businesses, including cigarettes, hotels, paperboards and agriculture.

Stocks from the domestic pharma sector had a poor run in today's trades and major losers here included Nicholas Piramal (4%), Cipla (2%) and Wockhardt (1%). Leading player, Dr. Reddy (REDY.BO, news) 's was, however, among the very few gainers and the stock closed marginally up. Some newspapers had earlier reported that the company is looking at further ways to finance its R&D and litigation related expenses. One must remember that the company has recently successfully entered into a US$ 56 m agreement with ICICI (ICIC.BO, news) Venture Funds Management Company for the development and commercialization of ANDAs to be filed in 2004-05 and 2005-06. Under the terms of the agreement, ICICI Venture will fund the development, registration and legal costs related to the commercialization of ANDAs on a pre-determined basis. This agreement covers most of the ANDAs to be filed by Dr. Reddy's during the years 2004-05 and 2005-06. On commercialization of these products, Dr. Reddy's will pay ICICI Venture royalty on net sales for a period of 5 years. The specific financial terms of the agreement have not been disclosed. Under the terms of the agreement, ICICI Venture will fund US$ 22.5 m in the first phase with an option to invest an additional US$ 33.5 m in the second phase. We believe that the move is a positive for Dr. Reddy's in the long run.

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