Auto stocks drive final hour gains

Impending risks in the Euro zone and a series of credit rating cuts seems to have has unnerved investors across Asian markets today. Taking cues from peers in Asia, the indices in Indian stock markets opened lower and stayed close to the dotted line in early hours. The final hours, however, saw buying interest in the auto sector and select banking and engineering stocks. While the BSE-Sensex closed higher by around 75 points, the NSE-Nifty closed higher by around 26 points. The BSE Mid cap and the BSE Small cap notched gains of 1.2% and 0.8% respectively.

As regards global markets, Asian indices closed mixed today while European indices have opened firm. The rupee was trading at Rs 49.32 to the dollar at the time of writing.

The Reserve Bank of India (RBI) today raised the bank rate or the bill discounting rate, to 9.5% from 6% earlier, with immediate effect. While key lending rates have been tweaked, the bank rate has, however, been kept unchanged at 6% since April 2003. This was mainly because monetary policy signaling was done through modulations in the reverse repo rate and the repo. The rise in bank rate therefore does not signal any change in the RBI's monetary policy stance.

As per a business daily, the Oil Minister has announced the launch of India's first-ever bid round for exploration of shale gas by December 2013. Six basins, namely Cambay, Assam-Arakan, Gondawana, KG onshore, Cauvery onshore and Indo Gangetic basins, have been identified that may have shale gas potential. The country has, so far, only explored and produced conventional oil and gas as well as unconventional sources such as coal bed methane (CBM). Shale gas trapped in sedimentary rocks below the earth's surface is the new focus area in the US, Canada and China as an alternative to conventional oil and gas for meeting growing energy needs. These unconventional deposits have raised estimates for US gas reserves from 30 years to 100 years at current usage rates. With India facing huge energy shortage and rising import bill, effective exploration of shale gas could be benign for oil and gas companies and the economy as a whole.

Textile major, Arvind Ltd, declared results for the third quarter of financial year 2011-12 (3QFY12) yesterday. The company reported 20% growth in set sales for the third quarter. The profit numbers, however, appreared bloated due to the profit from sale of stake in Arvind's erstwhile JV with VF Corp. Excluding the extraordinary gains, the growth in profit was 8% YoY despite some forex losses. The textile business that comprised 68% of revenues grew 21% YoY. The brand and retail business on the other hand grew by 32% and comprised 22% of overall revenues. The company's debt to equity stood at 1.1 time while the return on capital employed stood at 15.5% for the nine month period.

Indian stock markets trade above the dotted line
01:30 pm

Indian stock market indices continue to trade above the dotted line over the last two hours of trade. Realty and Auto stocks witnessed maximum buying interest while Pharma and Power stocks witnessed maximum selling pressure.

The BSE-Sensex is up by 29 points, while the NSE-Nifty is up by 13 point. BSE Mid cap index and the BSE Small cap index are up by 0.65% and 0.63% respectively. The rupee is trading at 49.28 to the US dollar.

Stocks in the Energy sector are trading mixed with Essar Oil and Gujarat State Petronet Ltd. leading the gainers and Mangalore Refineries and Petrochemicals Ltd.(MRPL) and Oil and Natural Gas Ltd. (ONGC) trading the weakest. Castrol India Ltd. has reported results for the fourth quarter of calendar year 2011(4QCY11). The growth in the topline came at 10.7% YoY during the quarter. The company was able to achieve this growth despite a decline in demand mainly due to pro active pricing moves throughout the year. The operating profits for the quarter declined slightly by 0.4% YoY, with margins at 20.2% (versus 22.5% last year). For CY11, the decline was more prominent at 8.6% YoY with margins at 22.4% versus 26.7% last year. This was mainly on account of increase in the cost of base oil and additives. The net profits for the quarter gained 0.8% YoY with margins at 13.8% (versus 15.2% last year).For CY11, the bottomline declined by 1.9% YoY with margins at 16.1% (versus 17.9% last year). The stock was trading in the green.

Essel Propack has declared its December 2011 results. Consolidated sales of the company increased by 13.7% YoY backed by 18% growth in its India operations and double-digit growth recorded by each of the four overseas markets. However higher raw material expenses kept margins under pressure at around 16.2%. At the net level, profits tumbled by 12.9% on account of large foreign exchange loss of Rs 5.2 m as compared to a gain of Rs 59.7 m in the year-ago quarter. Earnings from its Indian operations fell by 5% on account of high input prices, weak rupee and steep rise in interest rates.

Indian stock markets move north
11:30 am

Indian stock market indices are trading strong over the last two hours of trade. Realty and Banking stocks witnessed maximum buying interest while Pharma and IT stocks witnessed maximum selling pressure.

The BSE-Sensex is up by 55 points, while the NSE-Nifty is up by 19 point. BSE Mid cap index and the BSE Small cap index are up by 0.67% and 0.76% respectively. The rupee is trading at 49.30 to the US dollar.

Shipping stocks are trading in the green led by Dredging Corp and Great offshore. Great Eastern (GE) Shipping announced results for the quarter ended December 2011. The company has reported a 4% growth in standalone topline and a 64% drop in bottomline. The growth in topline was mainly driven by freight and charter hire division as the company earned very little from sale of ships. Operating margins contracted by 15.4% on the back of higher outgo towards hiring of chartered ships and rigs. The biggest impact has come on account of costs incurred for hire of chartered ships and rigs. The company's offshore business continued to do well, increasing its revenues by about 61% YoY and segmental profits by more than 50% YoY. Another Rs 983 m were pumped into the offshore business related subsidiary, taking the total investment till now to Rs 17 bn.

Steel stocks are trading strong led by JSW Steel and Maharashtra Seamless. Steel Authority of India (SAIL) has announced results for the quarter ended December 2011. The company has reported a decline of 4.9% YoY and 42.9% YoY in net sales and net profits respectively. The decline in net profit was due to high raw material cost and foreign exchange fluctuations. During the nine months ended December 2011, net sales increased by 4.8% YoY while net profits declined by 41.7% YoY. Despite the slippage in profit during the nine-month period as compared to the year-ago period, SAIL's performance reflected an uptrend during the third quarter as compared to the preceding quarter. The company has declared an interim dividend of Rs 1.2 per share.

Indian stock markets open flat
09:30 am

Asian stock markets have opened the day on a weak note as leading ratings agency Moody's, downgraded the debt ratings of six European countries including Italy, Spain and Portugal. Stock markets in China (down 0.6%), Taiwan (down 0.4%) and Korea (down 0.4%) are leading the losses in the region. The Indian stock markets have opened the day on a flat note. Stocks in the auto and consumer durables sectors are trading in the green. However, healthcare and technology stocks are witnessing selling pressure.

The BSE-Sensex is up by around 15 points (0.1%), while the NSE-Nifty is up by around 3 points (0.1%). Mid cap and small cap stocks are trading in the positive zone, with the BSE Mid cap and the BSE Small cap indices up by about 0.6% and 0.4%% respectively. The rupee is trading at Rs 49.35 to the US dollar.

Power stocks have opened the day on a lackluster note. On one hand GVK Power and Torrent Power are witnessing some gains. On the other hand, Suzlon Energy and Power Grid Corporation are trading in the red. National Thermal Power Corporation (NTPC) has declared its third quarter results for the financial year 2011-2012 (3QFY12). The company has reported a 14% YoY growth in sales during the period. This was largely driven by the growth in electricity tariffs as growth in volumes was marginal. However, operating profits declined by 20.5% YoY on account of higher fuel costs (as a percentage of sales). As a result, operating margins declined to 18.6% during the quarter as compared to 26.7% during the same period last year. Lower operating margins combined with higher depreciation and interest charges, led to a decline in net profits. However, lower tax outflow mitigated the decline to some extent. As a result, net profits declined by 10.2% YoY during the quarter. For the nine months ended December 2011 (9MFY12), revenues increased by 14% YoY while net profits declined by 17.5% YoY.

Finance stocks have opened the day on a weak note with India Infoline, Srei Infra Finance and Shriram Transport Finance leading the losses. IDFC Ltd has declared its 3QFY12 results as well. The institution reported a 26% YoY growth in income from operations during the quarter. For the nine months ended December 2011 (9MFY12), income from operations grew by 30% YoY driven by the 25% YoY growth in advances. Net interest margins for 9MFY12 improved marginally to 4.3% from 4.2% seen during the same period last year. Other income declined sharply by 82% YoY during the quarter. For 9MFY12, other income declined by 30% YoY. Higher net interest income as well as lower operating expenses led the net profits to increase by 18.6% YoY during the quarter. For 9MFY12, net income grew by 22.5% YoY. IDFC's capital adequacy ratio stood at 21.9% as at the end of December 2011.

Engines of manufacturing growth

Sound manufacturing policy plays a key role in shaping up the growth prospects of any economy. A well set of framework or guidelines on the manufacturing front improves the output and trade balance (exports increase) of any nation. This in turn increases the national income. However, for India manufacturing has never been the engine for growth (manufacturing contributes 16% to the GDP). Being a heavily populated country, consumption takes that honor. However, if India has to continue its growth supremacy concrete steps have to be taken in improving the share of manufacturing output to the overall GDP.

Facilitation of growth in manufacturing needs an effective industrial policy. A sound industrial policy has a set of regulated guidelines that promote business confidence and increase competitiveness in the long run. And this comes through collaboration and learning. Ability to integrate these values in environmental ecosystem is a key challenge for the policy makers as collaboration is difficult in the Indian context (rigid bureaucracy) and learning comes over time/experience.

Further, there are many other areas like industrial relations, land acquisitions and employment issues which the policy makers should address in order to bolster the growth in the manufacturing sector.

Industrial relations will involve collaboration with state governments and employee unions. Land acquisition issues involve dealing with bureaucracy and civil society (environmentalists). Further, in order to bolster manufacturing output pecuniary benefits (tax advantages) to corporates for starting up manufacturing zones should not be restricted to Special Economic Zones (SEZs). Thus, it appears that the quantum of manufacturing output is directly correlated with the industrial policy framework. However, participation from the other stakeholders (state governments, civil society and concerned ministries) is equally important. Without collaboration from them implementation will become a major issue.

Thus, we believe integration amongst various stakeholders and implementation are key challenges for the manufacturing policy to steer the India growth story from here on. If the policy makers are able to address them, manufacturing could be our next engine of growth.