Markets fall towards end of trade

After spending most of the day in the green, the Indian equity markets closed flat. While the BSE Sensex today closed higher by 41 points, the NSE-Nifty closed higher by 4 points. The BSE Mid Cap and BSE Small Cap indices closed flat today. FMCG stocks were the biggest gainers while Banking stocks were the biggest losers today.

Most Asian stocks closed higher today. European stock markets were trading mixed at the time of writing. The rupee was trading at Rs 62.21 to the dollar.

As per a leading financial daily, there could be a further delay in the telecom spectrum auctions scheduled for the first week of March 2015. Three leading telcos, Bharti Airtel, Idea Cellular and Reliance Communications have separately moved the courts over various proposed guidelines of the auctions. Idea Cellular has alleged the auction rules will affect availability of spectrum. Bharti Airtel has alleged that the rules make it ineligible from participating in certain key circles. Reliance Communication has alleged that the government should increase the amount of spectrum in the 1,800 MHz band. This could potentially lead to a face off among telcos and the government before the auctions.

IT stocks ended mixed today. While Tata Consultancy Services (TCS) was among the biggest gainers; Infosys was among the biggest losers. India's second largest IT firm Infosys, has announced an acquisition in the US. The company has acquired Panaya Inc, a company that provides automation technologies to large enterprises. The size of the acquisition is about US$ 200 m and it will be an all cash deal. This is the first acquisition under new CEO Dr. Vishal Sikka and the second biggest in the company's history. The stock closed down 0.7% today.

Banking stocks out of favor
01:30 pm

Indian Indices have shed some of their early gains during the previous two hours of trade but are still trading above the dotted line. Majority of the sectoral indices are trading on a positive note today with realty and FMCG stocks leading the pack of gainers. Banking, healthcare and consumer durables witnessed maximum selling pressure.

BSE-Sensex and NSE-Nifty were trading higher by 80 points and 20 points respectively. BSE Mid Cap and BSE Small Cap index are witnessing marginal gains. The rupee is trading at 62.13 to the US dollar.

Majority of the automobile stocks are trading in the green. Tata Motors and Mahindra and Mahindra are the leading gainers. According to a leading financial daily, auto major Mahindra & Mahindra (M&M) has announced that it will make a new investment of Rs 40 bn in Tamil Nadu for setting up automotive and testing facilities at Cheyyar near Chennai. The company will make the investment in two phases over a period of 7 years. The company has identified 250 acres of land at Cheyyar and the government has agreed to allot the same. In the first phase, the company will set up a vehicle testing facility to test all its models in future. The company is now testing all its vehicles abroad before commercially launched. In the second phase, the company would set up a flexible automotive plant, which will make both passenger and commercial vehicles.

Barring HDFC and IDBI Bank, banking stocks are trading in the red. Axis Bank and Yes Bank witnessed maximum selling activity. According to a leading financial daily, Yes Bank has stated that it will enter into mutual fund business next fiscal through organic or inorganic way. Reportedly, Rs 500 m is allocated by the bank for the business. According to the company's CEO, the asset management company will also complement the bank's retail strategy and help in leveraging existing infrastructure to provide necessary retail drive. Meanwhile, Yes Bank has decided to fund Rs 200-250 bn on renewable energy projects over a period of 5 years.

Indian Indices trade positively
11:30 am

After opening the day on a positive note, Indian equity markets have continued to witness buying interest during the previous two hours of trade. Realty and FMCG stocks are the leading gainers. Banking and pharma stocks are the leading losers.

The BSE-Sensex is up by 70 points and NSE-Nifty is up by 17 points. BSE Mid Cap index and BSE Small Cap index are trading up by 0.1%. The rupee is trading at 62.18 to the US dollar.

Majority of the Indian pharmaceutical stocks are trading in the green. Wockhardt Ltd and Ipca labs are the leading gainers while Ranbaxy and Sun Pharma are trading the weakest. According to a leading financial daily, Cipla has been awarded a tender worth Rs 11.7 bn for antiretroviral drugs by The Global Fund to Fight AIDS, Tuberculosis and Malaria. Cipla has been selected as a 'panel supplier' under a supplier partnership agreement. The contract is effective from January 1 and will run for three years. The supplies will begin from the fourth quarter of FY15. The antiretroviral drugs will be manufactured in Cipla's facilities in India.

Mining stocks are trading on a positive note. Sesa Sterlite and Hindustan Zinc are the leading gainers. According to a leading financial daily, Hindalco Industries has bagged the Kathautia coal block in Jharkhand for Rs 28.6 bn a tonne on the second day of coal auction. This would imply that the company would pay Rs 2.2 bn a year and Rs 68 bn for a period of 30 years. The block is for end-use in the unregulated sector - iron, steel, cement and captive power generation. GMR and Reliance Cement bagged one mine each yesterday for an estimated Rs 13.7 bn and Rs 7.9 bn respectively. Hindalco is trading up by 0.6% on the BSE.

IT stocks solely open in red
09:30 am

The major Asian stock markets have opened the day on a strong note with Japan (up 0.6%) and Taiwan (up 0.3%) leading the pack of gainers. However, Indonesian markets (down 0.2%) are trading in the red. The Indian markets have opened on a positive note too. All of the sectoral indices are trading in the green with the exception of IT.

BSE-Sensex is currently trading up by about 173 points (up 0.6%), while the NSE-Nifty is higher by about 52 points (up 0.5%). Both BSE Mid Cap and BSE Small Cap indices have also opened the day in green, up by 0.44% and 0.4 % respectively. The rupee was trading at Rs 62.12 to the dollar at the time of writing.

Export figures for the month of January were announced recently. And they were quite disappointing to say the least. Exports declined 11.2% YoY, their biggest decline in the past 3 years, to US$ 23.9bn. Fall in the export of petroleum products, gems & jewelry and pharma items led to a fall in growth. Many exporters believed that high cost of credit and absence of interest subvention benefit led to such a massive decline. If the decline of such quantum persists in continuing months then it would be difficult for the government to meet its export target of US$ 340 bn.

FMCG stocks have opened the day on a strong note. Gillette India and Lakshmi Energy are leading the pack of gainers while Kokuyo Camlin and P&G Hygiene are trading weak. As per news report, ITC has entered into agreement whereby it shall buy two major brands of Johnson & Johnson - Savlon and Shower to Shower. While the former is a brand of antiseptic soaps the latter is a powder/talc brand. This is ITC's first acquisition in the personal care segment and bodes well with its strategy to expand its non-cigarette portfolio of offerings. This shall definitely help ITC in the long run. While the size of deal is not disclosed the street believes it is in the region of Rs 1.8-2 bn.

Will our stand on subsidies change?

On multiple occasions we have written about the need to limit the spending on subsidies by the government. This is not because we are opposed to the same in principle. We recognise that India is not a rich nation by any stretch of the imagination. Thus, some amount of subsidy, given in various forms, will be necessary for years to come. However, that does not mean rationalisation of subsidies should not be done. We believe that the government should pursue the same with determination.

It is well known that due to corruption in the bureaucracy, a large part of the funds meant for the poor, do not reach them. Instead of fixing this problem, successive governments have kept increasing dole outs over the years. This has strained the government's finances and has resulted in a large pile up of debt. It is no coincidence that as subsidy payouts have increased to 2% of GDP; the interest payment on existing debt has become the single biggest expense for the government.

So what is the way out? There is no easy answer. There is no doubt that overall subsidy payout needs to be curbed. However, the government will have to tread cautiously we believe. There are four large categories of subsidies: food, fuel, agricultural and education. Thanks to the deregulation and the fall in crude prices, fuel subsidy payouts will reduce over time. However, not much can be done about the other three categories. For example, the food security bill has ensured that food subsidies are here to stay.

The Modi government was elected on the back of promises of economic growth, not higher subsidies. Thus, we expect the government to come out with a clear road map for future subsidy payouts. We have not yet seen such a plan emerge. We hope the budget will provide more clarity on this issue. Subsidies are an extremely serious policy issue and it is high time that the government comes out with a well defined plan for the same.