No respite from selling pressure

Mirroring the trend yesterday, Indian indices languished in the red throughout today’s trading session as well. Relentless selling pressure across index heavyweights ensured that the markets closed well below the dotted line. While the BSE-Sensex closed lower by around 493 points (down 2%), the NSE-Nifty lost around 144 points (down 2%). The BSE Midcap and the BSE Small cap were not spared either as they raked losses of 3% each. Losses were largely seen in metals and auto stocks.

As regards global markets, most Asian indices closed mixed today while European indices have opened in the red. The rupee was trading at Rs 45.43 to the dollar at the time of writing.

Cement stocks closed in the red today and the key losers were India Cements and Ambuja Cement. The domestic cement industry had a rough 2010. And it doesn’t seem to be over yet. The industry is gearing up for its last leg of expansion in the current down cycle. So the supply overhang may continue till FY13. India, the world’s second-largest cement industry, had an installed annual capacity of 280 m tonnes (MT) by the end of November. This is set to cross 300 MT by FY12 when the projected demand is expected to be 235-240 MT. This would result in an oversupply of 60 MT. It may be noted that the current oversupply is 30 MT with capacity utilisation at about 78%. Between 2007 and 2010, the industry supply-demand dynamics went haywire. Of the 195.8 MT added in the last 16 years, about 92 MT (47%) capacity was added during this time. So realisations will remain under pressure for a while. On the other hand, rising input costs, especially that of coal will only make matters worse.

Indian pharma stocks closed weak today with the key losers being Lupin and Wockhardt. Although the stock of Sun Pharma also closed in the red today, it did very well in 2010 to notch gains of 59%. The company’s performance during 1HFY11 was impressive with sales and profits growing by 40% YoY and 73% YoY respectively. Having said that, this performance was largely attributed to the one-time sales that the company generated from the cancer drug ‘Eloxatin’, which was distributed by Caraco in the US market. Due to a court order which banned Sun Pharma from selling the drug, there were no revenues from the same in the second quarter. The company was up against Sanofi-Aventis SA, which had appealed for barring Sun Pharma to market the generic version of the drug in the US. However, recently, a US appeals court ruled a case in favour of Sun Pharma with respect to this drug which could be one of the reasons for the interest in the stock.

The second major development that took place for Sun Pharma in 2010 was related to the Israeli firm Taro. The uncertainty surrounding the acquisition of this company came to an end when the Israeli Supreme Court ruled in Sun Pharma’s favour. Now with Taro’s financials being clubbed with that of Sun Pharma’s, the latter’s sales are expected to ramp up during FY11.

Meanwhile, India did quite well on the mergers and acquisitions (M&A) front in 2010. As per a leading business daily, M&As involving Indian companies trebled to US$ 68.3 bn in 2010 as compared to the previous year. What is more, the average deal size also increased to US$ 120 m which was more than 3 times compared to the average deal size in 2009. What led to the surge in M&A deals was easy availability of finance as well as better economic prospects. There were a lot of outbound deals especially from the oil & gas, metals and mining sectors as companies looked for assets to match India’s growing energy needs. That said, valuations now seem to be higher than what they were in 2009 and so it remains to be seen whether this momentum in M&A activity continues in 2011 as well.

Selling pressure persists
01:30 pm

Indian indices continued to witness selling pressure across all counters during the previous two hours of trade. Stocks from the auto, metal and consumer durable space were the biggest losers.

The BSE-Sensex is currently trading down by around 271 points, while the NSE-Nifty is down by about 82 points. Stocks from the midcap and smallcap spaces are also trading weak with the BSE Midcap and BSE Small cap indices down by 1.41% and 1.52% respectively. The rupee is trading at 45.35 to the US dollar.

Automobile stocks are trading weak with Ashok Leyland, M&M and Tata Motors facing substantial selling pressure. However, Hero Honda is trading marginally in the green. Entry-level sedan segment is witnessing a price war. Dzire, leader in the entry sedan segment, is a hot seller for Maruti Suzuki. It accounts for about 8,000-9,000 units monthly. However, the entry of Toyota Etios at a highly competitive price has prompted Maruti to go for a rejig. The company is looking to downsize the Dzire to under 4 metres to fit the car in the small car definition and avail lower excise benefits. This move will give it room to be more price-competitive. At present, the Dzire has a length of 4.16 metres that puts it in the category of a big car, thus attracting excise duty of 22%.

In reducing the size of the Dzire, Maruti seems to be following the industry trend of downsizing vehicle size to avail of lower excise duty. Tata Motors was perhaps the first one to do this when it reduced its Indigo sedan to less than four metres. The Indigo CS looked like a sedan but came around the pricing of an upper compact car. M&M is also believed to be doing the same with the Logan sedan and the multi-utility Xylo.

Stocks of capital goods companies are currently trading weak led by Jyoti Structures, ABB, Punj Lloyd and Thermax. Wind turbine manufacturer Suzlon Energy has been in the news for a few reasons over the past few days. First, there were reports of the company's promoters selling majority of their stake to Gamesa Corporacion Tecnologica, a Spanish company. However, the company's management soon clarified stating that there was no question of the promoters exiting the company. Nevertheless, the market seem to have not taken this seriously as the company's stock had moved up significantly on that day. In other news, the company has won an Rs 8.7 bn order from the Vedanta Group company Hindustan Zinc. This is towards setting up wind farms in four states with a total installed capacity of about 150 megawatts (MW). The scope of this order includes setting up the capacity as well as operating and maintaining the mills.

Red marks all over
11:30 am

Indian indices are trading weak on account of profit booking in heavy weights over the previous two hours of trade. Stocks from the auto and consumer durable space are the biggest losers, while stocks from the realty and power space have lost the least.

The BSE-Sensex is down by 143 points, while NSE-Nifty is trading 46 points below the dotted line. BSE Midcap is trading down by 1.1%, while BSE Small cap index is trading 1.2% below yesterday's closing. The rupee is trading at 45.39 to the US dollar.

Auto stocks are trading weak led by Ashok Leyland and Escorts. As per a leading financial daily, Tata Motors has entered the 4-axle construction truck market with the launch of its Tata Prima Construck range. The price of this truck ranges from Rs 3.3–4.0 m. Tata Motors with this launch joins the ranks of Mercedes, Volvo and Man Force Trucks as the only companies offering 4-axle construction tippers in India. As per the company's strategy, distribution of the Tata Prima Construck range will start with select customers in Andhra Pradesh, Tamil Nadu, Karnataka, Maharashtra, Gujarat, Madhya Pradesh, Rajasthan, Delhi, Chhattisgarh, Orissa, West Bengal and Jharkhand. Moreover, for an easy induction of this truck in the customer's fleet, Tata Motors will train the driving crew of its customers at its manufacturing facility in Jamshedpur. The company's service network has already been geared to support the new truck.

As per Tata Motors, the demand for construction trucks in India is huge and is majorly driven by increasing construction and mining activities. In fact, the company is in the process of expanding its product portfolio in the construction equipment segment. In 2009-10, Tata Motors sold 23,000 construction trucks out of the 115,000 M&HCVs sold during the same period. The prospects for the construction truck business look bright as the company sees a growth of around 25% year on year in this segment.

NBFC stocks are trading weak with IFCI and IndiaBulls Financial Services leading the pack of losers. PFC is likely to come out with a 20% follow-on offer (FPO) by 15 May 2011 to raise about Rs 70 bn. The government plans to divest 5% stake in the company via the FPO while the balance amount will be raised by issuing 15% fresh equity. It may be noted that government currently holds 90% stake in the firm and had already divested 10% via an IPO in 2007.

Separately the company also plans to launch tax-free infrastructure bonds worth Rs 60 bn to retail investors by the end of the month. For this, the company has already received an approval from the finance ministry. The minimum tenure of these bonds will be 10 years, with a lock in of five years for the investors. Proposal to raise money via tax free infrastructure bonds was introduced in the recent budget. It may be noted that in India there are only two niche power finance institutions – REC and PFC. However, both of them do face funding constraints in terms of lending to the power sector due to the lack of cheaper source of long term finance. In such a scenario allowing these power finance institutions to raise long term money via infrastructure bonds should ease funding constraints to some extent.

Banks & autos weigh on the markets
09:30 am

Asian markets are trading mixed. Benchmark indices in China (up 1.4%), Hong Kong (up 0.2%) and Malaysia (up 0.2%) are trading in the positive zone. However, Indonesia (down 1.7%), Taiwan (down 0.9%) and Japan (down 0.2%) are trading in the negative. Indian markets have opened the day in the negative as well. Banking and auto stocks are the biggest losers. However, FMCG and IT stocks are trading in the positive.

The BSE-Sensex is trading lower by around 27 points (0.1%), while the NSE-Nifty is down by about 7 points (0.1%). Mid and small cap stocks are trading in the negative as well, with the BSE Midcap BSE Small cap down by 0.3% and 0.2% respectively. The rupee is trading at 45.45 to the US dollar.

FMCG stocks have opened the day in the green. Godrej Consumers, ITC and HUL are witnessing a strong momentum. However, Nestle is seeing selling pressure. Tea is an important beverage for most Indians. But despite that domestic consumption has been dwindling. Most people feel that tea is bad for health and is only meant for the older generation. The Tea Board of India has embarked on a major campaign to correct this notion and boost the consumption of tea in the country. This has helped boost sales for the tea producers. It has also helped companies like HUL, which has introduced its 'Arogya' brand of tea in 2010. The company has already garnered a market share of 22% across its brands. The company plans to gain market share as a part of its strategy for growth. For this it will embark upon a programme to conduct awareness campaigns to boost tea consumption especially amongst the youth. Considering that India has a huge youth population, this campaign may yield bumper results for the company's tea business at least.

High oil prices are playing spoil sport for the country's top oil firms IOC and ONGC. Their problems are being compounded with the government delaying the decision to increase prices of diesel, kerosene and cooking gas. As a result the two firms are facing huge amounts of revenue losses. The loss between what the firms are paying to the refineries for these products and what they are able to sell these products for in the market, has amounted to a whopping Rs 1.5 bn on a daily basis. Retailers like IOC have to sell diesel and cooking gas at prices fixed by the government. Exploration companies like ONGC have to sell crude oil to the refineries at cheaper rates to help offset some of their losses. Crude oil prices have been moving north for most part of 2010. It is almost US$ 90 per barrel at the moment. The government has been delaying its decision to increase fuel prices in light of higher inflation rates that are affecting the economy. Diesel accounts for nearly one-thirds of the fuel consumption in the country and any price hikes would lead to inflationary pressures. Well if this continues then oil companies are looking at seriously bad times in the days to come. Stocks of these companies are trading in the red along with the other oil retailer HPCL. BPCL, on the other hand, is trading in the green.

Moving from dark to light

"Education is the movement from darkness to light"– Allan Bloom

Simple words but so profound in their meaning. For India to continue on its path to glory, these words need to now become ingrained in every Indian mind.

India is all set to celebrate its spectacular growth in GDP. The country would be amongst the fastest growing nations in the world. However, at this point of time, we take a step back to see if this growth can continue for long. Yes there are other hurdles like infrastructure, fiscal deficit, etc etc. But one of the biggest issues is education.

India is home to the second largest population base in the world. Of this over 40% fall in the age bracket of 0-24 years. To educate this huge population, the government has allocated 4-5% of the country's total GDP. Is this adequate? Is the government doing enough? Point is that yes the government is doing its bit but it is just not enough. Being able to sign one's name is literacy not education. Developing skill sets and broadening the horizons of the students is what would contribute towards making a better society and in turn a better nation.

Unless this important hurdle is overcome, India's growth will become bumpy in days to come.

Realizing the importance of education, Wipro's Chairman, Mr. Azim Premji, has given a new dimension to philanthropy. A foundation set up by him, focuses on ensuring and improving education for the young minds in Karnataka. The best part is that Mr. Premji himself is committed to the foundation and has recently donated 213 m Wipro's shares out of his own holdings towards this noble cause.

The foundation does not donate funds and shift responsibility towards NGOs for doing this. Instead, it implements the projects on its own. Rather than setting up new schools, the foundation has decided to focus on improving the existing schools, especially the government schools. It has a trained army of experts who go out and train the teachers and officials who are already engaged with the students. The best part about the foundation is that it is not run by an NGO but instead is run by someone who has been marked by Mr. Premji as 'potential Wipro CEO material'. The co-CEO of the foundation, Mr. Anurag Behar, had helped grow Wipro's infrastructure solution business from US$ 30 m to US$ 300 m in four years.

What Mr. Premji is doing for the education of the country, is commendable. We hope that more CEOs take cue from him. Maybe when the private sector joins hands with the government, the education system in the country would truly improve and the country would truly prosper.