Market Movers: Asian Paints flounders, RIL dips and momentum suffers

MUMBAI: Inflation is here and it is biting into the profitability of Indian companies hard, very hard.

If the warning by Hindustan Unilever was not enough to discourage the bulls, Asian Paints provided new evidence of how adversely inflation is affecting the earnings of India Inc.

The company today reported 32-quarter low gross margins and 29 per cent fall in consolidated net profit for the quarter ended September all because of a sharp rise in raw material costs for the company over the year-ago period.

Asian Paints' consolidated operating margin was crimped more than 1,000 basis points on-year reflecting the extent of the pain. With companies still cagey on whether there is enough demand in the economy to absorb substantial price hikes, they are taking a hit on their profitability for the time being.

All this is a bad omen for the bulls who prior to the earnings season were pricing in the best possible earnings scenario. A reality check has been dealt.

RIL suffers because of Jio
Before the August data for telecom subscribers came out, the view on the Street was that Reliance Jio was having a gala time adding millions of new subscribers. The data for July suggested as much.

However, in August, Jio saw a remarkable drop in the pace of user additions, which has raised doubts if the company will be reporting as good numbers on the subscribers front as analysts had us believe. Those doubts were reflected in the stock’s 2.4 per cent decline just ahead of its earnings announcement for the September quarter on Friday.

Navin Fluorine has to answer doubts
The chemical company has been one of the biggest gainers in the ongoing bull market aided by investors’ optimism for the sector as China cedes ground in the international market.

However, the company’s September quarter earnings left a lot to be desired and raised many doubts among analysts. Brokerage firm Kotak Institutional Equities said that time is running out for the company as it faces questions over its ability to execute on the high expectations that investors have placed on it. Shares of the company ended the day 3.5 per cent lower.

Banks' only silver lining
On a day when largecaps, midcaps and smallcaps looked beat, shares of banks stood tall and helped cushion the market’s fall to a large extent.

The Nifty Bank index rose 1.3 per cent whereas the Nifty PSU Bank index rose 2.7 per cent aided by some rotation of funds by investors towards pockets of the market with some semblance of reasonable valuations.

The gains were also buttressed by the fact that speculators had to cover some of their short positions in the sector ahead of the expiry of the weekly call options on the Nifty Bank.

VIX sees red too
The volatility index, India VIX had climbed close to 15 per cent this week, however, today it fell 1.5 per cent despite the weakness seen in the market.

The decline in the VIX should encourage investors as it could portend some short-term relief from the selling intensity of the past three sessions. The Sensex has fallen over 1,000 points in the last three days, and while the index is not even down 5 per cent from its record high, individual counters have suffered massively.