Selective buying in blue chips

Taking cues from their peers across the globe, the indices in Indian stock markets witnessed a lackluster session today. Despite selective buying in blue chips across few sectors, the indices failed to make inroads into the positive territory throughout the session today. While the BSE-Sensex closed lower by around 48 points (down 0.3%), the NSE-Nifty closed lower by around 10 points. The BSE Mid cap and the BSE Small cap indices, however, bucked the trend and notched gains of 1% each.

As regards global markets, Asian indices closed lower today while European indices have also opened in the red. The rupee was trading at Rs 49.38 to the dollar at the time of writing.

Power stocks including National Thermal Power Corporation (NTPC), Tata Power and GIPCL gained on the bourses today. The government's directive to Coal India to ensure adequate fuel supplies to the power generators is expected to put an end to the ordeal the companies have been going through over the past year. That the onus of importing power in case of supply deficit is also on Coal India, will ensure that the power producers' margins remain safeguarded. The BSE Power Index, a measure of 19 Indian companies, climbed to the highest intraday level today since August 2011.

Nestle India reported results for the fourth quarter and full year ended December 2011. The company has reported 16.9% YoY and 13.5% YoY growth in sales and net profits respectively. Sales for CY11 were up by 19.7% on a 20.2% YoY rise in revenues in the domestic market. Exports grew by a relatively slower 11.8% due to ban on milk powder exports. Operating (EBITDA) margin improved by 120 basis points on the back of lower raw material cost as a proportion of sales. During CY11, the company has been able to tide over input cost inflation through improved product/channel mix and maintain its operating margin at 20.5%.

Indian markets recover some losses
01:30 pm

Indian stock markets recovered losses to some extent over last two hours though are still trading in the red. Amongst the sectors, stocks from power and realty witnessed maximum gains while Energy stocks and metal stocks were leading the losers.

The BSE-Sensex is trading down by 104 points and NSE-Nifty is trading down by 33.2 points. However, BSE Mid cap and BSE Small cap indices are trading up by 0.5% and 0.7% respectively. The rupee is trading at 49.45 to the US dollar.

Power stocks are mainly trading in the green with PTC India Ltd and Neyveli Lignite leading the gainers. As per a leading financial daily, National Thermal Power Corporation (NTPC) plan to set up a 2x800 Megawatt (MW) coal based super thermal power plant in Orissa has taken a setback on environmental concerns. The Environment and Forest Ministry (MoEF) has refused to give the project a clearance. The project had already been facing opposition from locals on land acquisition issues. As per the Committee under MoEF, the project will require acquisition of forests and grazing land. NTPC now will have to formulate some terms for wildlife conservation in consultation with the wild life department at the earliest .The Committee has also suggested NTPC to acquire a grazing land of equivalent area and to develop and upgrade it. The stock was trading in the green.

Majority of the telecom stocks are trading in red. As per a leading financial daily, the government announced the new telecom policy. According to the new policy, the prescribed limit on spectrum allocated to service providers has been raised from the present 6.2 MHz of spectrum to 2X8 MHz (paired spectrum) for GSM technology for all service areas. In Delhi and Mumbai, the prescribed limit has been raised to 2X10 MHz (paired spectrum) for GSM technology. This is likely to benefit subscribers in the form of better quality services at economical rates. Additionally, the policy announced a uniform licence fee of 8% compared to the current range of 6-8% of Adjusted Gross Revenue (AGR) paid by operators annually. Besides the policy provided allowance for 35% market share in case of mergers paving way towards a liberal merger and acquisition regime in the industry.

Indian stock markets extend losses
11:30 am

Indian stock markets continued to trade in the red after opening the day's proceedings on a weak note. All sectoral indices were trading in the green except for power, realty and capital goods stocks.

The BSE-Sensex is trading down by 130 points and NSE-Nifty is trading down by 42 points. However, BSE Mid cap and BSE Small cap indices are trading strong by 0.1% and 0.5% respectively. The rupee is trading at 49.40 to the US dollar.

PSU stocks are trading strong led by NMDC Ltd and Bharat Heavy Electricals (BHEL). As per a leading daily, the government will be offloading 5% stake in Oil and Natural Gas Corporation Ltd. (ONGC). The stake will be sold to institutional investors and is aimed at improving the financial position of the government. This would help the government in mopping up Rs 120 bn. However, divestment in BHEL is expected only in the next year. We may recollect here that the divestment target for this fiscal had been set at Rs 400 bn. So far, it has collected only Rs 11 bn by selling stake in Power Finance Corporation (PFC). A few stake sale proposals have been put on hold as of now due to unfavourable market conditions. These include follow-on-issues by Steel Authority of India (SAIL), Indian Oil Corporation (IOC) and MMTC.

Mining stocks are trading strong led by NMDC and Gujarat NRE Coke. As per a leading daily, the Prime Minister of India has instructed Coal India to ensure supplies for 20 years to 50,000 megawatt power plants. These are the plants that are to be commissioned by 2015. In the event of Coal India failing to supply lesser than 80% of this, it will face penalty and if it is able to supply more than 90%, it will get incentives. As per the Prime Minister, coal supply issue in the power sector has to be dealt with immediately. He would now concentrate on the other medium and long term problems faced by the sector. This move is likely to bring back the confidence of bankers who were unwilling to fund power companies for want of assured fuel supply.

Indian stock markets open in the red
09:30 am

Warnings from leading ratings agency, Moody's, to cut ratings of 17 global and 114 European financial institutions, has not gone down well with the stock markets. Most Asian stock markets have opened the day on a weak note. Stock markets in South Korea (down 1.1%), Indonesia (down 0.9%) and Malaysia (down 0.7%) are leading the losses in the region. The Indian stock markets have opened the day on a negative note as well. Stocks in the consumer durables and energy sectors are leading the pack of losers.

The BSE-Sensex is down by around 26 points (0.1%), while the NSE-Nifty is down by around 14 points (0.3%). However, 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 0.5% each. The rupee is trading at Rs 49.31 to the US dollar.

Auto stocks are trading on a subdued note. Tata Motors, Maruti Suzuki and Hero MotoCorp have opened the day in the red. However, the stock of Ashok Leyland is witnessing buying interest. As per a leading financial daily, Tata Motors' global vehicle wholesales increased by 21% year-on-year (YoY) in the month of January 2012. The company sold 119,799 vehicles during the month. The growth was led by robust sales of its luxury Jaguar Land Rover (JLR) vehicles. The company sold 29,293 JLR brands in January, registering a rise of 44% YoY. The company's passenger vehicle sales stood at 66,785 units during the month, a rise of 26% from the corresponding month of the previous year. Commercial vehicle sales were higher by 15% YoY to 53,014 during the same period. Tata Motors reported 40.5% YoY surge in profits during the quarter ended December 2011 on account of strong sales at Jaguar Land Rover which it had acquired in 2008 for US$ 2.3 bn.

FMCG stocks have opened the day on a mixed note. On one hand, Marico Ltd, Colgate Palmolive and Dabur India are trading in the positive zone. On the other hand, Hindustan Unilever and Godrej Consumer Products are trading weak. Marico Ltd has bought the personal care business of Paras Pharmaceuticals from Reckitt Benckiser. Paras Pharma's brands include Zatak deodorant, Set Wet hair gel and Livon hair serum. Though the financial details of the transaction have not been disclosed, industry sources estimate the amount paid to be lower than the original demand of Rs 9,000 m. Marico would be funding the acquisition through a mix of internal accruals, equity and debt. The company's management stated that the deal will help them increase their presence in the youth segment. Marico's key products include Parachute hair oil and Saffola edible oil. The brands of Paras that it has acquired are among the top three in the hair gel, male deodorant and hair serum categories.

Should one invest in infra bonds?

India represents a lot of opportunity. However, until it gets its infrastructure in order, that potential will be muted. In order to hasten the process of infrastructure building, the Planning Commission of India has set an ambitious target of spending US$ 1 trillion in the 12th five year plan. To fund this initiative, the government is trying to tap various sources at its disposal. Infrastructure bond is just one source where the government has given tax breaks for up to Rs 20,000 for individuals. Beyond that, there are several other debt options that provide better returns. Some of them include debt oriented mutual funds, bank fixed deposit, corporate fixed deposit and fixed maturity plan.

Debt oriented mutual funds allocate major part of the fund in government securities, corporate bonds and debentures, and sometimes in fixed deposit. However a small part (up to 30%) goes towards equity. Hence, investors tend to see fluctuation in returns. Bank fixed deposits also provide good rate of return. Corporate fixed deposits are offered by blue chip companies. These are highly rated debt instruments. Companies like Mahindra Finance and Tata Motors offer such deposits. Fixed maturity plan are mutual funds which offer an expected return of 9% to 10%.

As compared to the above mentioned debt instruments, infrastructure bonds offer more advantages. Long term infrastructure bonds are declared to be tax saving instruments under section 80CCF. The beauty of this tax saving instrument is that it is not counted under the regular tax saving cap of Rs 1 lakh under section 80C. Once you have exhausted the limit of Rs 1 lakh for tax saving investments, you may further invest in infrastructure bonds to get tax benefits. The maximum limit for investments in infrastructure bonds is Rs 20,000 for getting tax benefits. While investing in the infrastructure bonds, the investor will either have to opt for the annual or the cumulative option. In the annual option, the investor receives the interest amount every year, whereas in the cumulative option, the interest amount gets reinvested and the investor can draw the full amount comprising of both the principal and interest at the end of the investment period.

Infrastructure bonds (long term) do help you save some money in the form of tax savings. However, before investing, you should consider the tax bracket you fall under, the inflation adjustment till maturity date and your risk appetite. So if you are a young person, falling under lower income tax slabs but having more appetite to risk considering the long time horizon, the infrastructure bonds may not be the best vehicle for your money. On the other hand, if you already have significant amount of investments in equity and looking to rebalance your portfolio with some extra tax benefits, then you may consider investing in infrastructure bonds.