Downward trend continues

Indices in the Indian equity market came off the day's lows during the closing stages but still closed the session in the red. Thus, while BSE-Sensex edged lower by around 59 points (down 0.3%), NSE-Nifty was down around 20 points. BSE Mid Cap and BSE Small Cap indices fared worse, edging lower by 0.9% and 1.3% respectively. Three stocks went down for every two that closed the day in the positive on the Sensex.

While most Asian stocks closed the day in the red, Europe is trading in the positive currently. The rupee was placed at Rs 53.3 to the dollar at the time of writing.

It is now clear that the rate cut put in place by the Reserve Bank of India (RBI) is not going to do much to lift investor sentiments. Perhaps they've already got wind of the fact that as long as inflation remains high, any more rate cuts are unlikely to happen. Besides, the risk in the developed world also seems to be growing what with yields in Euro nations like Spain and Italy again heading northwards. The US is not in the best of shapes either and all of this point towards a weak market environment in the near future. However, it will not hurt to make good investments from a long term point of view at these market levels.

Bajaj Electricals, India's leading consumer appliance and lightings manufacturer recently announced its 3QFY13 results. The company's bottomline witnessed a huge fall of around 64% on the back of a 10% growth in topline. The performance was affected by the 18% fall in revenues of the company's Engineering & Projects division. What more, the segmental profits came in at negative Rs 400 m, leading to the huge fall in overall profits. With the company providing for cost overruns and taking up a major clean up act, the segment is likely to remain under pressure over the next 2-3 quarters as well. The stock closed lower by around 3% today.

Another stock that closed lower today was the two-wheeler major Hero MotoCorp. The stock was down around 2% presumably on the back of reports doing the rounds that the workers of the company have demanded doubling of monthly salary to near Rs 1 lakh per month and also other benefits like subsidized housing as well as interest free loans. It looks unlikely however that the management would give in to the demands for such a radical change will have serious consequences on the profitability of the business. Some amount of wage increase would definitely be forthcoming though and is likely to add to the growing list of worries that the company is already grappling with.

Indian markets back in red
01:30 pm

On the back of poor GDP growth forecast by Central Statistical Organisation (CSO) at 5% for FY13, Indian stock markets shed gains in the last two hours of trade. Heavy selling is being witnessed across all the sectors with consumer durables and metal stocks being the biggest losers.

BSE-Sensex is down by 72 points and NSE-Nifty is trading down by 23 points. While BSE Mid Cap is trading down by 0.9%, BSE Small Cap index is trading down by 1.0%. The rupee is trading at 53.29 to the US dollar.

Most of the mining stocks are trading in the red with Sesa Goa and Guj. Nre Coke being among the top losers. Manganse Ore India Limited (MOIL Limited) declared its results for the quarter ended December 2013. The company has reported a 4.7% YoY decline in net sales. The decline on the topline was largely due to poor performance in its manufacturing and power segments. The company did total production of 285,100 MT and total sales were 285,500 MT during the quarter. The operating profits improved by 4.9% YoY on back of better realization from its mining segment. Further, the power segment witnessed loss at the EBIT level. At the bottom line level, net profits increased by 11.9% YoY, while net profit margin increased by 8% YoY. The company declared an interim dividend of Rs 2 per share for the financial year 2012-13. The stock is trading down by 1.23%.

Majority of the FMCG stocks are trading in the green with Paper Products and Bata India leading in gains. Procter & Gamble Hygiene & Healthcare (PGHH) has declared its results for the quarter ended December 2012. The company recorded a 33% increase in topline led by over 45% growth in the feminine care segment and 19% rise in the personal health care segment. Cost savings from rationalization in raw material expenses and wages was more than offset by a steep 63% jump in other expenses for the quarter. Other expenses were unreasonably high on account of escalation in distribution expense, unrealized foreign exchange loss and contract termination charge of Rs 70 m. As a result the operating margin of PGHH eroded by 3.3% to 14%. Earnings grew by a muted 5.5% on a 6.8% rise in operating income. Tax incidence rose to 26% from 24% in the year-ago quarter. PGHH stock is currently down 0.8%.

Indian equity mkts back in green
11:30 am

Indian equity markets have been back in green during the previous two hours of trade. The most noticeable upward movements have been witnessed in the software and auto sectors while metal and consumer durables have faced the maximum selling pressures.

The BSE-Sensex is up by 35 points and NSE-Nifty is up by 11 points. BSE Mid Cap index and BSE Small Cap index are trading higher by 0.47% and 0.44% respectively. The rupee is trading at 53.32 to the US dollar.

Large software stocks are trading on a mixed note with Mahindra Satyam and Tech Mahindra leading the gains while Info Edge and Moser Baer India are facing the most selling pressures. According to a leading financial daily, the management of Wipro and Infosys have engaged the consultancy and audit firm, Ernst & Young to reviews their current HR practices and the internal procedures within HR in order to protect themselves from legal problems that they have faced overseas recently. The need to reassess internal procedures has come about after a series of incidents in which the carelessness and ignorance of the large software companies, including Wipro and Infosys have been exposed.

Infosys is fighting allegations that it broke visa rules while sending engineers to the US. It is further envisaged that once E&Y's audit with respect to the existing procedures is complete, the consultancy's legal experts in each of the foreign locations would devise new procedures to make Wipro and Infosys fully compliant with the local laws. While most of the current troubles tend to be around sending employees to the US, in the near future, the same could be true for other markets as well. Wipro's share is trading up by 0.20% and Infosys's share is trading up by 0.59%.

Indian pharma stocks are also trading on a mixed note with Ranbaxy and Wockhardt leading the gains while Zandu realty ltd. and Strides Arcolab are leading the losses. Ranbaxy's shares have fallen by over 18% in the last month following its recall of the cholesterol lowering drug, Lipitor from the US in November 2012. Lipitor is a generic drug and the company was expected to restore supplies post the recall, however, it failed to do so in the indicated time frame of December 2012. The Company earlier indicated its objective of meeting the deadline, but after more than a month's delay in resupplying the drug in the worlds' biggest drug market, questions are being raised on the Company's efficiency and on the generic product, Lipitor with obvious negative impact on the Company's share price.

Indian share markets open in red
09:30 am

The major Asian stock markets have opened the day on a mixed note with stock markets in Japan (down 1.0%) and China (down 1.3%) leading the losses. However, markets in Taiwan (up 0.3%) and Malaysia (up 0.2%) have opened in the green. The Indian share market indices have opened the day on a weak note. Barring software, all sectoral indices have opened in the red with stocks in the metal and capital goods leading the losses.

The Sensex today is down by around 45 points (0.2%), while the NSE-Nifty is down by around 12 points (0.2%). Mid and small cap stocks have however opened in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.1% each. The rupee is trading at Rs 53.12 to the US dollar.

Software stocks have opened the day mainly in the green with Mahindra Satyam and NIIT Ltd leading the gains. Tech Mahindra Ltd, the country's sixth largest software exporter has announced its results for the third quarter of financial year 2013 (3QFY13). The consolidated net sales for the quarter grew by 9.8% on a quarter on quarter basis (QoQ). In terms of US dollar revenues, growth in sales was 10% QoQ. The operating profit margins for the quarter improved slightly by 0.3% QoQ to 21%. That was because of a relatively modest growth in the operating expenses. On an absolute basis, the operating profits grew by 11.4% QoQ. The net profits for the quarter declined by 6.9% QoQ. This was because of lower contribution to the share of profits from its associate Mahindra Satyam. The contribution from the latter declined by a 71% QoQ. The total number of active clients increased from 126 at the end of 2QFY13 to 140 at the end of 3QFY13.

Pharma stocks have opened the day on a mixed note with J.B Chemicals and Zandu Realty leading the losses. However, Aurobindo Pharma and Ipca Labs have opened in the green. The leading pharma company Cipla has announced its results for the third quarter of financial year 2013 (3QFY13). The company has reported an 18% year on year (YoY) growth in the revenues for the quarter. The growth in the topline was mainly driven by growth in international business and technology income. Total exports for the quarter grew by 28% YoY, fuelled by the sales of anti-depressants, anti-malarials, anti-retroviral and anti-asthma medicines. In the domestic markets, the growth was modest (10% YoY) as a delayed winter affected the demand of antibiotics. The operating profits for the quarter grew by 26% YoY. The net income for the quarter also registered a growth of 25% YoY. This was despite a significant increase in the tax expenses on an annual basis.

Will fiscal deficit numbers surprise all?

It is no secret that India's fiscal deficit is out of the government's control. The country's fiscal deficit has grown almost four-fold in the last five years. Government finances are in disarray largely because of a mounting subsidy and interest payment burden. Looking at the growing fiscal deficit, rating agency Standard and Poor (S&P) revised its outlook on India's long-term rating, which had been stable, to negative. Moody's had also cautioned that a high fiscal deficit could pull down the growth in the coming years. However the global rating agency reaffirmed sovereign credit rating of India at Baa3, which indicates investment grade, with a stable outlook.

This prompted the government to take serious look at the fiscal deficit problem. The government has rolled out the fiscal deficit road-map for the 12th five year plan and has announced steps to keep it within the range. It estimates fiscal deficit to come down to 3% of the GDP by 2016-17. For the current year, the deficit is estimated at 5.3%, up from earlier estimate of 5.1%.

And now it seems that the efforts to control the swollen fiscal deficit are finally paying off. India's fiscal deficit during the first nine months of FY13 has come down to 78.8% of the budget estimates (BE) compared with 93.1% a year ago period. This is partly seasonal, but also reflects the ongoing clampdown on expenditure and robust indirect tax receipts.

In a renewed effort to revive growth, the Indian government has since September taken measures to allow greater foreign direct investment in sectors such as retail and civil aviation, as well as increased state-set prices of diesel to reduce subsidies that strain its finances. Last month, the government also liberalized the price setting mechanism for diesel, allowing state-run retailers to make small but periodic increases.

Thus if the government slashes plan expenditure by 28% in the fiscal year to March 2013, as reported in the various sections of media, and postpones subsidy payments, then the revised fiscal deficit target could be within reach. Lower fiscal deficit and better credit rating could be a pleasant surprise for India Inc. in the new financial year.