Flat end to a volatile session

Volatility continued to make its strong presence felt in the final hours as well. And while indices in the Indian stock market recovered from their day's lows, all they could manage at the end was a flat closing. Both Sensex as well as NSE-Nifty edged higher by only about 10 points. BSE Mid cap and BSE Small cap indices however stole the show from their larger counterparts and gained nearly 1% each. Advance to decline ratio on the BSE-Sensex came pretty close to 1 today with there being as many gainers as losers.

Most Asian indices closed in the green today with Europe too trading higher currently. The rupee was trading at Rs 52.9 to the dollar at the time of writing.

Although the Sensex is perched above the 16k mark currently, there remains a big question mark whether this is sustainable and whether the index will go still higher from the current levels in the near term. With the kind of risk aversion that is on view right now, a lower or a near flat Sensex in the near term looks more a possibility than a higher Sensex. After all, we do not seem to be out of the woods yet both domestically as well as internationally. For the long term investor though, the opportunity in blue chips amongst other stocks should be taken full advantage of we believe.

With 5% gains, Hindustan Aluminium Company (Hindalco) emerged as the best performer amongst the Sensex stocks today. The positive sentiment emerged in view of its subsidiary Novelis renewing its contract with Coca-Cola Bottlers' Sales & Services Company (CCBSS). The two companies have signed a multi-year agreement for the supply of aluminium can sheet. A note released by Novelis said that the agreement covers the supply of aluminium can body stock, can end stock and can tab stock to the various producers of beverage cans for Coca-Cola in North America. This renewal agreement assumes importance in the backdrop of CCBSS filing a case against Novelis in 2007 on grounds of breach of contract. With both the players deciding to bury the hatchet and forget past differences, Novelis could be in for some good times ahead.

As per reports, Maharashtra Seamless, one of India's largest manufacturer of seamless pipes, has commissioned a 5 MW solar power project in the Jaisalmer district of Rajasthan. The company was one of the allottees under the Jawaharlal National Solar Mission (JNNSM). The plant is expected to generate close to 10 m units of electricity annually. It should be noted that Maharashtra Seamless is already in the field of renewable energy and is operating 20 wind mills producing 7 MW power in the state of Maharashtra. The stock closed flat today.

Indian indices maintain status quo
01:30 pm

Indian stock markets were staid in the last two trading hours. Majority of the sectoral indices are marginally positive with realty and metal stocks leading the pack of gainers. IT, FMCG and auto stocks were amongst the few sectors trading in the red.

The BSE-Sensex is trading up 10 points and NSE-Nifty is trading up 7 points. BSE Mid cap and BSE Small cap indices are up by 1% and 1.6% respectively. The rupee is trading at 51.66 to the US dollar.

All the retailing stocks are trading positive. Kouton's Retail, Shopper's Stop and Pantaloon are the major gainers. As per a leading financial daily, the government has hiked the Foreign Direct Investment (FDI) limit in single-brand retail trading from 51% to 100%. But all FDI above 51% limit will have to mandatorily source at least 30% of the value of sold goods from domestic small scale village and cottage industries. This is likely to provide a fillip to domestic industry and enable in its technical upgradation. The move will enable multinational retail chains such as Louis Vuitton, Nike, Addidas, Gucci and Toyota to fully own and control operations in India. The 100% FDI in single-brand is being viewed as a precursor to multi-brand retail opening up in the country.

Most of the mining stocks are in the green with Ashapura Minechem and Gujarat NRE Coke leading the gainers. As per a leading financial daily, Coal India will review the recently adopted mechanism of pricing coal based after three months. The new policy prices coal on gross calorific value which results in 30% to 60% higher than earlier average prices. The company will consider the impact on the topline 'company wise' and will take a view on prices after three months. This is likely to give relief to thermal power generating companies that may bear the brunt of higher fuel costs, specifically the ones that cannot pass through the higher costs of generation to the customers. Coal India stock is up by 1%.

Indian stock markets trade flat
11:30 am

Indian stock market indices traded flat over the last two hours of trade. IT and FMCG stocks witnessed maximum selling pressure, while realty and consumer durables stocks witnessed maximum buying interest.

The BSE-Sensex is up by 18 points, while the NSE-Nifty is up 5 points. BSE Mid cap index and the BSE Small cap index are up by 1.08% and 1.50% respectively. The rupee is trading at 52.98 to the US dollar.

Real estate stocks are trading strong. DLF Ltd. and Sunteck Realty are the biggest gainers, while DB Realty and Phoenix Mills are the biggest losers. According to a leading financial daily, DLF Limited has sold its 28 acre of prime land in Gurgaon to real estate firm M3M for Rs 4.4 bn. The company has been selling its non-core assets such as hotel plots since the last couple of years to cut debt. It had raised Rs 3.4 bn from the sale of non-core assets till the second quarter of this fiscal. They plan is to raise a total of Rs 100 bn from this process over the next few years. The company is also in the process of selling its hospitality venture Amanresorts, which it had acquired in 2007.

Auto stocks are trading strong led by Escorts and Maharashtra Scooters. According to a leading financial daily, the Indian automobile industry is likely to report a lackluster performance this financial year. This is in contrast to the 26%-30% growth rates recorded in the previous two years. At the start of the year, Society of Indian Automobile Manufacturers (SIAM) had forecasted a growth of 14%-16% for the year but recently this has been cut drastically to only 0%-2%. However, things could get better in FY13 on account of over 50 new launches in the Auto Expo and some favorable initiatives from the government. Also, there has been some revival in the industry recently with car sales recording a growth for the second consecutive month as a result of discounts and freebies.

Indian stock markets open flat
09:30 am

Asian stock markets have opened the day on a mixed note with stock markets in Taiwan (up 0.3%) and Singapore (up 0.2%) trading firm. However, markets in China (down 0.4%) and South Korea (down 0.3%) are facing selling pressure. The Indian stock markets have opened the day on a flat note. Stocks in the realty and metal sectors are trading n the green.

The BSE-Sensex is trading marginally higher by 7 points (0.04%), while the NSE-Nifty is up by around 5 points (0.1%). Mid cap and small cap stocks are trading in the green with the BSE Mid cap and BSE Small cap indices up by 0.5% and 0.6% respectively. The rupee is trading at 52.98 to the US dollar.

Pharma Stocks have opened the day on a mixed note with Dishman Pharma, Ranbaxy Laboratories and Lupin trading in the red. However, Indoco Remedies and Biocon are trading firm. India's premier biotech company, Biocon, announced positive results for treat-plaq study with Itolizumab in chronic plaque psoriasis (skin related disease). The company came out with a press release stating that its double blind, placebo controlled, phase III treat-Plaq study of the first humanised anti CD-6 monoclonal antibody, successfully met the pre-specified primary end-point of significant improvement in PASI-75 (Psoriasis Area and Severity Index) score. Many other secondary end-points were also met by the trials after 12 and 28 weeks of treatment. The Chairman of Biocon commented that Itolizumab has shown significant advancement in the treatment of psoriasis. If the success of the phase III trials goes in a similar manner, this can well become India's first novel discovery of biologic.

Auto Stocks have opened the day on a mixed note with Ashok Leyland and Tata Motors trading in the green. However, Mahindra & Mahindra (M&M) is facing selling pressure. TVS Motor has announced that it will re-launch one of its best selling motorcycles 'Victor' in India in December 2012. The two-wheeler maker had discontinued the Victor four years back and the same was replaced by Centra. However, the company believes that Victor still has a lot of consumer demand. TVS also plans to introduce three more products in 2012. It is planning a capex of Rs 1.25 bn for the financial year 2012-13 (FY13). The company is also considering an increase in its overall production capacity to about 32 lakh units annually by 2013-14 (FY14). For this, it may have to invest an additional sum of about Rs 1.6 bn.

Will diesel prices be hiked?

Thanks to costlier crude, depreciating rupee and fixed fuel price regime in India, the state run oil marketing companies (OMCs) in India are bleeding and the Government is overburdened with a heavy fuel subsidy bill. It's been more than a year and half since petrol prices were deregulated. However, with majority of the burden to meet the public's energy needs falling on diesel which is still regulated, the issue of under recoveries has assumed proportions bigger than ever.

The under recovery burden for the current year is expected to be at Rs 1,210 bn, up 55% on a year on year basis (YoY). While the Government has historically managed to earn net inflows from OMCs (inflows from excise duties on crude and fuel products were higher than outflows as subsidies), with the cut down in custom and excise duties on crude and petroleum products this year, if fuel prices are kept unchanged, the tables will turn as the direct subsidies will exceed inflow from taxes by around Rs 40 bn.

The deregulation of diesel at one go seems unlikely considering it's a mass fuel and will have possible cascading impact on the overall economy and inflation. However, one should not be surprised to see diesel prices getting hiked in a phased manner once the state elections get over by the end of March. With inflation showing signs of easing, it seems to be the right time to finally bite the bullet and go for diesel price hikes in consultation with oil marketing companies. However, this will be just one side of the reform. Any step to deregulate the fuel price at the user level should be simultaneously balanced by rationalizing taxes and duties on the fuel products so as to reflect actual supply and demand dynamics of the market without compromising the viability of the business.