A strong start to the week

The Indian markets surged higher as buying activity increased during the final hour of trade. The BSE-Sensex ended with gains of about 290 points or 1%, while NSE-Nifty closed higher by about 75 points or 0.9%. Barring stocks from the information technology and metals spaces, gains were seen across the board with banking and capital goods stocks leading the pack. Midcaps and smallcaps closed the day on a firm note as well, with their respective indices up by about 0.8% each.

Asian stocks ended firm, while stocks in Europe were trading weak. The rupee was trading at Rs 61.46 to the dollar at the time of writing.

Auto Stocks were in demand today with Tata Motors and Ashok Leyland leading the pack of gainers. Passenger car manufacturer Maruti Suzuki ended the day on a firm note today on the back of company reporting a good set of results for the quarter ended December 2014. The company reported a profit growth of 18% YoY while revenues were up by about 15% YoY. As per the company, it was the higher volumes coupled with cost reduction efforts as well as favourable forex movement which led to a faster rise in profits. Sales volumes for the quarter were higher by 12% YoY at about 323,911 units as compared to 288,151 units in the same period last fiscal. From this, domestic sales formed about 91% of volumes (295,202 units) as against 92% or 268,185 units in the same period last fiscal, while exports formed the balance. Maruti closed higher by about 2.2% today.

Stocks of pharmaceutical companies ended the day on a firm note with Cipla and GSK Pharma leading the pack of gainers. As per as leading business daily, drug major Ranbaxy has stated that the US Food and Drug Administration (FDA) has forfeited the 180 day exclusivity of its tablets which are used to treat stomach and esophagus problems. The company has stated that it would be pursuing all legal routes to preserve its rights. It is believed that the US market size of this drug (Nexium) is approximately US$ 2 bn and since Ranbaxy was holding 6-month exclusivity for this drug, this was an important opportunity for Ranbaxy.

Small and mid caps in favour
01:30 pm

After starting the day on a firm note, the Indian stock markets have given up early gains, though trading above the dotted line. Stocks from consumer durables and capital goods spaces were in favour today, while those from the healthcare and software sectors were the leading losers in the pack.

BSE-Sensex is up 83 points and NSE-Nifty is trading 13 points up. Midcaps and smallcaps are too trading firm with BSE Mid Cap and BSE Small Cap indices trading higher by about 0.71% and 0.34% respectively. The rupee is trading at 61.49 to the US dollar.

FMCG stocks are trading mixed today. Nestle and ITC Ltd are the leading gainers while Godrej Consumer Products and United Spirits are the major losers. Colgate Palmolive has announced results for the quarter ended December 2014. Its net profit jumped 16% year-on-year to Rs 1.3 bn, driven by strong operational performance. Advertising spends dropped 2.2% Y-o-Y to Rs 1.8 bn during the quarter. Total income grew 11.8% to Rs 9.9 bn in the December quarter from Rs 8.9 bn in the year-ago period. The growth was backed by 5% growth in offtake. Other income was down 40.5% at Rs 96 m from Rs 162 m during the same period. Colgate stock is presently trading up 0.6%.

Most of the public sector stocks are trading in the red with Union bank and Oriental bank being the biggest losers. According to a leading financial daily, State Bank of India has signed a loan agreement for 100 m Euro (Rs 7 bn) with European Investment Bank (EIB). This is the third tranche of a total sanctioned loan of 200 m Euro by EIB. The loan will be utilized to support the development of private sector, in particular SME's social and economic infrastructure as well as climate change mitigation and adaptation in the country. The agreement was facilitated by SBI Capital Markets, a subsidiary of State Bank of India.

Cap goods stocks lead the gains
11:30 am

After opening the day on a positive note, the Indian markets have remained above the dotted line during the morning session. Sectoral indices are trading mixed with Banking and Capital Goods stocks leading gainers. IT and Metal stocks are trading in the red.

The BSE-Sensex is trading up by 65 points and NSE-Nifty is trading up by 13 points. The BSE Mid Cap index is trading up by 0.7% and the BSE Small Cap index is trading up by 0.6%. The rupee is trading at 61.43 to the US dollar.

Cement stocks are trading mixed today. Ramco Cements and Heidelberg Cements are the leading gainers, while Ambuja Cement and Shree Cement are the leading losers. UltraTech Cement, India's largest cement maker reported a marginal net profit decline for the December quarter, despite 10% growth in cement sales volume. The company's net profit stood at 3.64 bn, 1.7% lower than Rs 3.7 bn during the same quarter of the previous year. The company sold 10.98 m tonnes of cement during the October-December period, compared with 9.98 m tonnes in the year-ago period. The quarter also saw UltraTech acquiring Jaiprakash Associates' 4.9 m tonnes Madhya Pradesh units. With this deal, UltraTech's overall manufacturing capacity has catapulted to 65 m tonnes per year.

Auto stocks are trading mixed today. Escorts and Tube Investments are the leading gainers, while Mahindra & Mahindra (M&M) and Bajaj Auto are the leading losers. According to a leading financial daily, India's largest commercial vehicle manufacturer Tata Motors will launch an electric version of its popular light truck Ace next financial year. Weighing around 1,600 Kg, the electric Ace will have an all steel chassis and no gears and perhaps no air-conditioning. The vehicle will likely have a top-speed of around 50kmph. Tata Motors is currently trading up 2%.

Indian markets open firm
09:30 am

The major Asian stock markets have opened the day on a firm note with the stock markets in Japan (up 1.3%) and Singapore (up 0.6%) leading the gains. However, the stock markets in China (down 1.9%) and Hong Kong (down 0.8%) were facing selling pressure. The Indian stock markets have also opened on a positive note. Among the sectoral indices, stocks from capital goods and auto are witnessing maximum buying interest whiles software and metal stocks are leading losses.

The BSE-Sensex currently trading higher by about 121 points (up 0.43%), while the NSE-Nifty is higher by about 20 points (up 0.22%). The Midcaps and small caps have too opened the day in green, with BSE Mid Cap and BSE Small Cap indices up by 0.35 % and 0.40% respectively. The rupee was trading at Rs 61.49 to the dollar.

Energy stocks have opened the day on a firm note with Essar oil and Mangalore refinery Petrochemicals Ltd (MRPL) being the leading gainers in the pack. As per a leading financial daily, state-owned Oil and Natural Gas Corporation Ltd (ONGC) has agreed with its partner Cairn India Ltd for extending the prolific Rajasthan oil block license beyond the contractual deadline of 2020. The ONGC board has approved this extension without any conditions. Reportedly, ONGC as a licensee of the block, produces around 181,000 barrels per day of oil, pays royalty to the government on not just its 30% stake but also on Cairn's 70% interest. While the royalty is later cost recovered, the company faces cash flow issues because of having to pay in advance.

Pharma stocks have opened the day on a firm note led by Cipla Ltd and Wockhardt Ltd. As per a leading financial daily, India's biggest pharmaceutical company Sun Pharmaceuticals Ltd, which has recently acquired Ranbaxy is still open for another acquisition but will consider the business which do not require much integration effort. As per the Managing Director Dilip Sanghvi ,the company, however, would be confined to such opportunities that do not put too much pressure on the management. The Ranbaxy acquisition is under way and is expected to get concluded soon.

Is it different this time around?

In stock markets, history has a tendency to repeat itself. The cycle of fear and greed never changes. If history has taught us anything at all, it is that stock markets move in cycles: the boom-bust cycle to be exact. Markets always peak out when optimism is at a peak. The last time this happened was in Jan 2008. The Indian markets peaked at 21,000 levels. The forward P/E of the BSE-Sensex was around 24 times. foreign institutional investors (FIIs) had pumped in a record US$ 17.8 bn in 2007. The IPO market was booming like never before. Reliance Power's Rs 117 bn IPO, the largest ever in India at that time, had been subscribed about 70 times. It seemed then that the good times would last forever!

The mood changed in a matter of a few days when the fears of a US recession set in. Even so, nobody could have foreseen the carnage that would follow later that year. Despite our lack of foresight, it does make sense to keep a keen eye open for such risks. What about now? Does the market situation resemble 2008? In a word: no; still it does pay to be prudent.

The Sensex is around 29,000 levels. The forward P/E of the BSE Sensex is around 18 times. FIIs activity has been buoyant. They pumped in nearly US$ 16.2 bn in 2014. After the ECB's QE announcement, 2015 could very well see a new record in terms of FII flows.

However, there are important differences between 2008 and 2015. For one thing, the IPO market is in the doldrums. GDP growth in the September 2007 quarter was 9.5%. In contrast, GDP growth for the September 2014 quarter was 5.3%. We have also not seen many big bang reforms yet.

The markets don't seem to mind too much thought. IPO activity could soon pick up as could GDP growth. The IMF and the World Bank have both stated that India will soon over take China in this regard. With a pickup in economic growth, improved corporate profitability cannot be far behind. This is why the markets believe that the bull market will continue for now.

However, it is important for investors to not get carried away in the euphoria. Even if 2015 is not like 2008, it does not mean sharp corrections cannot happen at any time. Indeed, they can happen when people least expect them to. Thus investors would be well advised to avoid speculating in the markets and invest only in fundamentally sound businesses, keeping a hawk eye on valuations.