Markets close the week 2% higher

After a brief session of profit booking, the indices in Indian stock markets managed to end today's session firmly in the positive territory. While the indices could not hold onto their intra-day high, they still staged a strong finish towards the end of trade for the week. Markets closed the week a strong 2% higher. The year to date returns for the index also are positive, currently at 4%. The BSE-Sensex closed the day higher by 117 points (0.7%) while the NSE-Nifty traded 35 points higher. The BSE Mid cap and BSE Small cap indices however saw a relatively better performance and gained 1.1% and 1.4% respectively.

The metal index closed higher on account of a rise in steel prices led by gains from JSW Ispat and Tata Steel. The capital goods index also closed higher while consumer durables and oil and gas stocks failed to impress.

Most Asian indices closed in the mixed today with Europe trading higher currently. The rupee was trading at Rs 52.72 to the dollar at the time of writing.

Sintex Industries, recently announced its results for the third quarter of the financial year FY12 (3QFY12). The plastic products manufacturer reported a 27.3% fall in consolidated net profit in 3QFY12. Even its consolidated net sales dipped over 2% in the December quarter. However the rupee depreciation caused the company to post a forex gain of Rs 135 m as against loss of Rs 600 m previously. The overall growth moderation in the economy has led to a slowdown in the company's monolithic business and custom molding which has resulted in lower margins. On a set of disappointing numbers the company was trading 0.6% lower.

Glenmark Pharma announced that it received an interim order from a US based arbitration panel against Napo Pharmaceuticals Inc's termination of a collaboration pact for an HIV-associated diarrhea drug. Glenmark had earlier developed Crofelemer with two American firms Napo and Salix Pharma. Napo was the initial developer of the molecule and licensed it out to Glenmark and Salix. According to the initial agreement, Salix would sell the drug in regulated markets such as North America, Japan and Europe. The agreement which was signed in July 2005, conferred exclusive rights to Glenmark to develop, commercialize and distribute the drug, Crofelemer, in 140 countries. The latest move provides interim relief to Glenmark, as the pharma major recently started trials of the drug to treat cases of adult acute diarrhea, including cholera. On account of this positive development the stock was trading 2.8% higher.

Indian stock markets rule high
01:30 pm

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

The BSE-Sensex is trading up 92 points and NSE-Nifty is trading up 55 points. BSE Mid cap and BSE Small cap indices are up by 1.4% and 1.7% respectively. The rupee is trading at 51.33 to the US dollar.

Majority of the food stocks are trading positive with United Spirits and Golden Tobacco trading the strongest. As per a leading financial daily, US-based coffee chain giant Starbucks is going ahead with the Memorandum of Understanding (MOU) signed with Tata Coffee in 2011. Starbucks had entered an agreement with Tata Coffee to form a strategic alliance for sourcing of coffee beans and to explore opportunities for opening coffee shops in the country. This development comes in the wake of the government allowing 100% FDI in single-brand retail in India thereby allowing full ownership control to multinational companies setting shop in the country. Tata Coffee stock is trading up 3.7%.

All of the mining stocks are in the green with Ashapura Minechem (up 9.5%) and Coal India (up 5.7%) leading the gainers. As per a leading financial daily, Coal India will sign a five-year agreement with workers' union to hike wages by 25% in the forthcoming National Coal Wage Agreement (NCWA)-IX. The agreement will come into effect from July 1 2011 and provide for a minimum of 3% increase in wages annually which coupled with increase in other allowances will push up the cost further. According to Coal India, the wage rise is as per their expectations for which adequate provisions have already been made.

Realty stocks drive the gains
11:30 am

Indian stock markets continued to trade strong after a strong opening to today's trade. Barring a few IT stocks, all sectoral indices were in the green

The BSE-Sensex is trading up by 44 points and NSE-Nifty is trading strong by 14 points. BSE Mid cap and BSE Small cap indices are trading strong by 1% and 1.2% respectively. The rupee is trading at 52.72 to the US dollar.

Steel stocks are mainly trading strong led by Adhunik Metaliks and JSW Ispat. According to a leading financial daily, producers of primary steel have hiked the prices yet again. This is the third hike since January this year. The prices of long products have gone up by almost Rs 1,750 per tonne during this year. It may be noted that these steel makers supply to the construction industry. As per industry experts, slowdown in the construction industry affected demand for steel. This along with high input costs is forcing the steel makers to raise the prices.

Also, an interesting trend has been witnessed in the steel industry over the last few months. The premium at which primary producers used to sell their products as compared to the secondary steel makers is fast reducing. In fact, the items produced by secondary steel makers have become dearer. Thus, the rise in prices was inevitable. We may note here that primary producers like JSW Steel, Tata Steel, Steel Authority of India (SAIL), Essar Steel and Rashtriya Ispat Nigam Limited produce steel directly from ore. Secondary steel producers use scrap and ingots.

Pharma stocks are trading mixed with Dishman Pharma and Glenmark Pharma leading the gains while Lupin and Biocon are on the losing end. As per a leading daily, Taro Pharmaceuticals is evaluating an offer by Sun Pharma over complete buyout. Presently Sun Pharma owns 66% in Taro. Sun Pharma had made an offer in October last year announcing a cash offer of US$ 24.5 per share for the remaining stake. The Mumbai based Indian pharma company had stated that the offer price represented a premium of almost 26% over the most recent closing of Taro stock. It is expected to invest around US$350-370 m to buy the remaining stake and gain 100% ownership.

Indian stock markets open firm
09:30 am

Most Asian stock markets have opened the day on a firm note with stock markets in Japan (up 1%), Singapore (up 0.8%), South Korea (up 0.5%) and Indonesia (up 0.5%) trading firm. However, markets in China (down 1.8%) and Hong Kong (down 0.1%) are facing selling pressure. The Indian stock markets have opened the day on a firm note as qwell. Stocks in the metal and power space are leading the gains.

The BSE-Sensex is trading higher by 96 points (0.6%), while the NSE-Nifty is up by around 28 points (0.6%). Mid cap and small cap stocks are also trading in the green with the BSE Mid cap and BSE Small cap indices up by 1% each. The rupee is trading at 52.72 to the US dollar.

Auto stocks have opened the day on a mixed note with Ashok Leyland and Tata Motors (Telco) trading in the green. However, Hero MotoCorp and Mahindra & Mahindra Ltd. (M&M) are trading in the red. Maruti Suzuki's car models in the economy segment like the Maruti 800 and Alto have been India's best selling cars till date. The passenger car manufacturer is now working on a replacement for the 800cc cars. Though the new models will have an 800cc engine, the design will be more contemporary and the engine will have higher fuel efficiency. It will take about 2 years to launch the new models. Maruti will incur a capex of Rs 5.5 bn for this model change.

Mining stocks have opened the day on a firm note with Coal India, Manganse Ore India Limited (MOIL Limited) and Sesa Goa Ltd leading the gains. The consumers of coal have strongly opposed the new pricing system by Coal India. The new pricing system seems to be increasing the cost of coal drastically for everyone. Fuel costs for steel companies will be higher by up to 70% while some cement companies may face a shutdown now. Power companies will also have to increase the tariffs by 40% in order to mitigate the impact of coal price increase. Coal India began its new pricing method from the start of the year based on gross calorific value or heat produced by burning it. Prior to this, the pricing was fixed based on the moisture and ash content present in coal. Consumers have alleged that Coal India is misusing its monopolistic power. However, Coal India defended saying that this is a global method and will improve the quality of coal.

Profit margin blues for India Inc

The last two quarters were a big disappointment as far as the operating profits of India Inc was concerned. High interest rates, rising commodity prices and weaker rupee impacted the profitability of most companies. According to news report, not a single brokerage is upbeat on India Inc's results for the upcoming quarter (3QFY12). Indian companies are likely to report a 2% drop in operating profit margins in 3QFY12. While revenue growth is expected to drop following a slowdown in consumption growth and sluggish investment activity, the pressure on net profits would be more acute.

Let us take a sneak peak of how operating profit of some of the sectors are expected to fare in the coming quarter.

Automobile: The successive interest rate hike undertaken by the Reserve Bank Of India (RBI) to curb inflation has dented the demand for automobiles. The price hikes implemented by auto companies over the past year may boost revenues in the past quarter, barring Maruti Suzuki. Input cost has also been high during the quarter and any fall in input prices is expected to be negated by adverse currency movements which will keep operating margins under pressure.

Real Estate: Although this quarter is expected to be seasonally strong due to the festive season, the operating profit of companies is expected to be muted due to approval delays and liquidity concerns. Overall, we expect developers to offer a cautious sales guidance for the next six to nine months due to slowing demand and high interest rates.

Capital Goods: Operating profit will continue to remain under pressure due to execution issues and rising input costs. Slowdown in the power sector due to coal shortages and environmental issues will continue to impact the order pipeline of power equipment manufacturers.

Pharmaceuticals: This sector is expected to come out with strong numbers led by gains from the rupee's depreciation. Export oriented firms are expected to report strong margins on the back of improved realisations.

India Inc is expected to post worst operating profit in two years. Going forward, we believe that unless the interest rate environment turns conducive and government comes to a meaningful conclusion from policy perspective, performance of India Inc will continue to remain lukewarm in the near future.