Volatility mars Indian indices

Indian equity markets had a rather volatile trading session today. The indices began the day's proceedings on a firm note, but subsequently profit booking at higher levels pushed them into the red. From thereon, the indices oscillated to either side of yesterday's close and closed marginally in the negative in the final trading hour. The BSE-Sensex today and the NSE-Nifty each closed marginally lower. At the same time, the BSE Mid Cap and the BSE Small Cap closed lower by 1% each. Losses were largely seen in FMCG, auto and banking stocks, while metals and oil and gas stocks managed to buck the trend.

As regards global markets, most Asian indices closed in the red today while European indices have opened in the green. The rupee was trading at Rs 62.02 to the dollar at the time of writing.

Auto stocks closed in the red today and the key losers were TVS Motors, Tube Investments and Ashok Leyland. As per a leading business daily, annual car sales in 2013 fell by 10% YoY. This is the first time in the past 11 years that volumes have declined and reflects the prolonged slowdown in the Indian economy that has adversely affected the auto industry as well. Among the segments in the auto space, volumes of commercial vehicles (CV) have been the worst hit and have fallen by more than 20% as this segment is closely linked to that of the economy. Indeed, lack of mining activities and stalled infrastructure projects have badly impacted CV volumes. Even the festive season was not much to write about as volumes did not rise to the levels seen in previous festive seasons. Meanwhile, auto companies have not stopped bringing out new products. In the April-December 2013 period, the auto industry saw the launch of 22 new car models, 40 new variants and 10 model refreshes.

Pharma stocks closed mixed today. While Cadila Healthcare and Dr.Reddy's found favour, Biocon and Cipla closed weak. As per a leading business daily, Ranbaxy has received approval from Health Canada to manufacture and market Donepezil Hydrochloride 5 mg and 10 mg tablets. This drug is the generic version of Pfizer's drug 'Aricept' and is indicated for the treatment of dementia in Alzheimer's patients. The total market size of this drug in Canada was pegged at CAD$ 153.9 m and is growing at 38%. The finished dosage of this drug will be manufactured at Ohm Laboratories in the US. This is a positive for the company and will enhance revenues from the North American geography. Ranbaxy, in recent times, has run into trouble with the USFDA as a few of its manufacturing plants failed to adhere to the good manufacturing practices (GMP) norms set by the US regulator. Because of this, it also had to pay damages to the tune of US$ 500 m. All of this has considerably tarnished the company's image.

Indian share markets remain weak
01:30 pm

Indian share markets remained in the red in the post-noon trading session. Majority of the sectoral indices are trading in the green with oil & gas, metal and IT stocks being the biggest gainers. Realty, capital goods and banking are among the few stocks trading in the red.

BSE-Sensex is down 21 points and NSE-Nifty is trading 10 points down. BSE Mid Cap is trading down 0.8% and BSE Small Cap index is trading down 0.7%. The rupee is trading at 62.1 to the US dollar.

Majority of the Indian pharma stocks are trading in the red with Dishman Pharma and Aurobindo Pharma being among the major losers whereas Ipca Labs and Dr. Reddy's Labs are among the few stocks trading in the green. As per a leading financial daily, Glenmark Pharmaceuticals has challenged the domination of multinational companies in anti-diabetes market with its drug offerings Zitamed and Zita. These drugs which are generic versions of Sitagliptin have been priced 30% cheaper than rival drugs. As per All India Organizations of Chemists and Association (AIOCD), the two drugs raked in Rs 160 m within eight months of launch. Glenmark is embroiled in a legal battle with Merck Sharp and Dohme's (MSD) over patent infringement of the latter's drugs Januvia and Janumet that were launched in 2008 and have a patent protection of 20 years. MSD is the market leader in gliptin market and its sales have dropped sharply by 18% in FY13, as a result. Other companies having significant presence in this market are Novartis, USV Pharma and Sun Pharma. Glenmarck is currently trading marginally up.

Most of the FMCG stocks are trading in the red with Gillette and Marico being among major losers. Jyothy Consumer and Pidilite are among the few stocks trading in the green. As per a financial daily, Hindustan Unilever's entry into the premium hair oil market through Dove Elixir has made a slow start. Reportedly, Dove Elixir has been able to acquire only 0.2% of the light hair oil market so far. As per Nilsen figures, the Rs 13.5 bn light hair oil market has grown by 13% (up till Nov'13). In the light hair oil market, Bajaj Corp's Almond Drops hair oil is the market leader with over 50% market share. The Dove Elixir brand is priced much higher than existing premium hair oil brands. While brands such as Dabur Vatika, Almond Drops hair oil and Parachute Advanced Hot hair oil are priced at Rs 50, Rs 55 and Rs 45 respectively for a 100 ml bottle, Dove Elixir sells at Rs 185 for a 90 ml bottle. However, Elixir is a part of premiumization drive of HUL that has not met roaring success due to slowdown in discretionary spends on personal care products. In the light of Unilever's focus on a few but globally uniform brands, local innovations in hair oils may not be receive its share of attention. HUL stock is currently trading down by 0.6%.

Mid and smallcap stocks outperform
11:30 am

After opening weak, the Indian indices are trading flat in the morning session amid outperformance among midcap and smallcap stocks. The buying interest is highest in metal and energy stocks while the selling pressure is the highest in banking and FMCG stocks.

The BSE Sensex is trading down 15 points and the NSE-Nifty is trading down 7 points. The BSE Mid Cap index is trading up 0.1% and the BSE Small Cap index is trading up 0.3%. The rupee is trading at 62.18 to the US dollar.

Software stocks are trading mixed today. While Infosys and HCL Technologies are among the stocks leading the gainers; Tata Consultancy Services (TCS) and Wipro are among the stocks leading the losers. Software products firm Persistent Systems has announced a partnership with Dell. The tie-up is for developing a comprehensive disaster recovery software solution. The new solution will enable Dell's users to leverage a cloud based disaster recovery platform for round the clock services. Persistent has deployed its self developed solution, rCloud, to enable Dell's customers to scale up their existing software platforms without having to replace it at end of its life cycle. Persistent Systems is trading down 0.4% today.

Most automobile stocks are trading in the red. Ashok Leyland and TVS are leading among the packs of losers. As per a leading business daily, Tata Motor's owned marquee brands Jaguar Land Rover (JLR) has launched a significant recruitment drive to recruit 1,400 employees at its new engine manufacturing centre based in UK. The luxury car maker will hire employees in different phases. First phase would include 600 employees for manufacturing roles over next 4 years. The new team would be responsible for the assembly and operation, supporting tool changes, material line, and so on. JLR plans to invest more than 500 million pounds on its new manufacturing facility. It may be noted that Tata Motors decent results during the 2QFY14 is mostly driven by JLR performance. And the company plans to focus on new products and technologies. Tata Motors is currently trading down 0.7%.

Indian share markets open in the red
09:30 am

The major Asian stock markets have opened the day in the red with stock markets in Singapore (down 0.2%) and Japan (down 1.4%) leading the losses. The Indian share market indices have also opened the day on a weak note. The sectoral indices have opened mixed with the stocks in the power and software space leading the gains. However, the stocks in banking and FMCG space were leading the losses.

The Sensex today is down by around 33 points (0.2%) while the NSE-Nifty is down by around 14 points (0.2%). Mid and small cap stocks have opened in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.3% and 0.4% respectively. The rupee is currently trading at Rs 62.21 to the US dollar.

Steel stocks have opened the day mainly in the red with Tayo Rolls Ltd and Jindal Steel Ltd leading the losses. As per a leading financial daily, Tata Steel Ltd has bagged a two-year contract to supply over 2 lac tonnes of highly wear-resistant rail tracks to a French rail operator SNCF. Tata Steel's Europe unit will supply the majority of SNCF's rail requirements from its plant at Hayange in northern France. Tata Steel had made a €35 m investment in 2011 in Hayange mill that allowed it to produce 108m lengths of rail that SNCF will use throughout France's standard and high-speed networks. The Hayange rolling mill sources steel from Tata Steel's Scunthorpe steelworks in the UK. The new order is in addition to a previous contract with SNCF.

Indian Pharma stocks have opened the day on a mixed note with IPCA Labs and Cadila Healthcare Ltd leading the gains. However, Dishman Pharma Ltd and JB Chemicals Ltd were facing selling pressure. As per a leading financial daily, the Government has decided against a blanket ban on the incorporation of a 'non-compete' clause if an Indian pharma company is acquired by a foreign drug company. Earlier, the ban was mooted by the Department of Industrial Policy and Promotion (DIPP) as a safeguard to ensure acquisition of Indian pharma companies does not lead to shortage of critical drugs. However, the Government has decided to continue with the existing policy with the condition that such a clause could be allowed by Foreign Investment Promotion Board (FIPB) in special circumstances.

Will elections slow down growth?

The father of value investing, Ben Graham, once famously said: 'In the long run, markets are like a weighing machine but in the short run, they are like a voting machine'. This means, a stock's price is driven in the long term, only by the performance of the business. However, in the short term, people's emotions and news events may drive stock prices, irrespective of the business performance.

In the Indian context, a big event is fast approaching that could have a significant effect on businesses as well as the stock markets. This event is of course the general elections which will be held during April-May 2014. While its effect on the stock markets may be understandable, can the elections have an adverse effect on the larger economy? There is increasing concern that the uncertainty regarding the outcome of the elections, may be affecting the economy adversely.

As per leading news daily, the industry association ASSOCHAM has expressed this concern after conducting a study in this regard. As per the study, many investors, business leaders and economists are now of the opinion that if there were to be an unstable government after the elections, GDP growth could suffer badly due to 'left-of-centre economic policies'. Such policies entail higher government spending to support various social welfare schemes coupled with higher taxes on businesses and the rich. This possibility has increased due to the performance of the Aam Aadmi Party in the recent state elections. Clearly, the mood among businessmen and investors seem to be that there is no political party with the will to push through much needed 'free-market friendly' economic reforms.

While it's true that India has a large number of underprivileged people, many of them below the poverty line, policy making should not follow an overly socialist path. Gradually opening up the economy, both financial markets and various sectors, will have a strong positive effect in terms of higher employment, lower inflation etc. On the other hand, it can be rightly said that the Indian economy has grown despite and not because of the various government policies over the years. In the short term, the results of the upcoming general elections will certainly have an impact on the economy, either positive or negative. However in the long term, various sectors and businesses can thrive even in the absence of sensible economic policies by the government.