Profit booking takes toll

Selling intensified during the final hours of the day and as a consequence, indices in the Indian stock markets ended the session deep in the red. While BSE-Sensex lost in the region of more than 280 points (down 1.5%), decline on the NSE-Nifty came in at around 100 points. BSE Mid cap and BSE Small cap indices weren't spared either as they both lost more than 3% today. More than five stocks declined for every one that closed the day in the positive.

While most Asian indices closed mixed today, Europe is trading mostly in the red currently. The rupee was trading at Rs 49.3 to the dollar at the time of writing.

After a solid start to 2012, the investors seem to be getting a feeling of too much, too soon. Besides, a multi-month high achieved in the previous session has perhaps given investors the excuse they needed to sell and take some profits off the table. But given the liquidity that is sloshing around the world right now, a major pull back does not seem to be on the cards. Besides, there does not seem to be too many reasons floating around to not participate in the long term India growth story. Thus, any pullback should be used to load up on good quality stocks at attractive valuations.

State Bank Of India (SBI), the PSU banking major was the biggest loser on the bourses today, down more than 8%. The decline had largely to do with the declining investor confidence in the company post the announcement of its support to the beleaguered Kingfisher Airlines. As per reports, the bank has thrown a lifeline to Kingfisher worth Rs 15 bn. Post this, the total exposure of the bank to Kingfisher has now gone up to Rs 31 bn. Out of the new relief package, first tranche of Rs 7 bn will come as short term working capital and another Rs 5 bn will be paid as bank guarantees. Another Rs 3.5 bn will come in some form or the other. Investors are understandably nervous over this move as it sees a government hand in this and are worried that this amounts to throwing good money after bad. ICICI Bank also closed lower to the tune of 3% today.

Although we are still in the fiscal year FY12, economic projections for the year FY13 are out and they do not look quite that rosy. The Prime Minister's Economic Advisory Council has projected India's FY13 GDP growth to come in the region of 7.5% to 8%. However, there is a big caveat to this in the form of the global environment turning favourable. If it doesn't then may be growth will have to be revised downwards. As usual, the fiscal deficit remains a big area of concern as it drains funds available for development expenditure. Besides, the council is also of the opinion that the Government should express itself most powerfully in the infrastructure sector in FY13.

Basket selling mars indices
01:30 pm

As volatility continued to pervade Indian stock markets, the indices lost further ground in the last two trading hours. Most of the sectoral indices, barring IT are trading negative. Metals, realty and consumer durables stocks are the biggest losers.

The BSE-Sensex is trading down 248 points and NSE-Nifty is trading down 94 points. The BSE Mid cap and BSE Small cap indices are down by 2.8% and 2.5% respectively. The rupee is trading at 49.22 to the US dollar.

Majority of the automobile stocks are trading in red. Only Hero MotoCorp (up 0.76%), Maruti Suzuki (up 0.32%) and Tata Motors (Telco) (up 0.46%) are trading in green. Tata Motors wants to double its annual investment in Jaguar Land Rover (JLR) brands to 1.5 bn pounds starting from FY12. In December 2011 quarter, JLR business, global wholesale volumes witnessed a growth of 37% YoY and the overall business was up 41% YoY in GBP terms. Tata Motors' consolidated operating profits grew by 52% YoY, as operating margins expanded to 15.1% in 3QFY12 as compared to 14.3% during 3QFY11. The improvement in margins was largely on account of healthy performance by the JLR business. The company has selected a joint venture partner for manufacturing JLR cars in China and is awaiting government regulatory approvals.

Majority of the telecom stocks are trading in red. Only Tata Comm (up 5.6%), Mahanagar Telephone Nigam Limited (MTNL)(up 1.6%) and Reliance Communications (up 0.37%) are in the green.As per a leading financial daily, Idea Cellular has sought clarification of the recent ruling by Supreme Court as per which 13 of its 22 telecommunications licenses were cancelled. This ruling was part of a broader cancellation of 122 mobile telecom licenses that were allotted without auctions in India since January 2008. As per the company, its license applications were made in June 2006 that were unjustly delayed until 2008.Ideally, the applications should have been processed in 30 days time. Hence, if the approval had come in time, they would have been in the category of applications applied in 2004 and 2006, and not subjected to cancellation. The Supreme Court order regarding cancellation was issued early in February and will be effective after four months.

Indian stock markets off day's highs
11:30 am

Indian stock markets shed their early morning gains and traded in the red over last two hours of trade. All sectoral indices were trading low except IT, healthcare and energy stocks.

The BSE-Sensex is trading down by 77 points and NSE-Nifty is trading down by 32 points. BSE Mid cap and BSE Small cap indices too are trading down by 1.1% and 0.8% respectively. The rupee is trading at 49.25 to the US dollar.

Private banking stocks are trading weak led by Development Credit Bank and ICICI Bank. As per a leading daily, the Reserve Bank Of India (RBI) has instructed private banks to hike their priority sector lending (PSL) to 40%. This means a hike of 8% from the previous recommendation. This is being done to bring the private banks at par with the PSU banks. It also proposed a hike in education loan ceiling to Rs 5 lakh. A few other recommendations were made by PSL re-examining committee. These include doing away with the difference between direct and indirect lending to the farm sector. Foreign lenders will now have to lend 15% each to exporters and to medium and small scale enterprises (MSE). As per the committee chairman, the recommendations cannot be termed as anti-free trade. The recommendations are open for public comments till March 31, 2012.

Energy Stocks are trading strong led by Oil and Natural Gas Corporation Ltd. (ONGC) and Bharat Petroleum Corporation Ltd. (BPCL). As per a leading daily, Reliance Industries Limited (RIL) will be setting up the country's first butyl rubber facility. RIL is looking at a joint venture (JV) with Sibur - a Russian petrochemical maker for this. RIL will have a 74.9% stake in this JV named Reliance Sibur Elastomers Pvt Ltd. The Indian energy company is aiming to establish the plant by the second half of fiscal 2014. It will require an investment of US$ 450 m and will come up at RIL's Jamnagar unit. It will have a capacity of 1 lakh tonnes a year. The partnership is likely to be the fourth largest supplier of butyl rubber in the world.

Energy boosts Indian stock markets
09:30 am

Asian stock markets have opened the day on a mixed note. Stock markets in Taiwan (up 1.1%), Japan (up 0.6%) and China (up 0.5%) are leading the gains in the region. However, stock markets in Singapore (down 0.5%), Indonesia (down 0.4%) and Hong Kong (down 0.1%) are trading in the red. The Indian stock markets have opened the day on a positive note. Stocks in the energy and realty sectors are leading the pack of gainers.

The BSE-Sensex is up by around 49 points (0.3%), while the NSE-Nifty is up by around 13 points (0.2%). Mid cap and small cap stocks are trading in the positive zone as well, with the BSE Mid cap and the BSE Small cap indices up by about 0.6% each. The rupee is trading at Rs 49.22 to the US dollar.

Auto stocks have opened the day on a positive note with Ashok Leyland, Maruti Suzuki and Tata Motors (Telco) leading the gains. VAT (Value added tax) refunds in Maharashtra have become a concern for utility vehicle manufacturer, Mahindra & Mahindra Ltd. (M&M). The company has threatened to pull out all of its fresh investments in the state if the matter is not resolved quickly. The new investments are to the tune of Rs 40,000 m. The company has repeatedly raised its concerns of VAT refunds to the government but to no avail. It recently stated that these refunds are impacting their annual cash flows. The issue is involving the change in VAT rules by the government of Maharashtra. Earlier, the VAT was set off for all the vehicles sold by the company as an incentive for new investments. The changed rule states that this set off will be allowed only for vehicles sold in the state of Maharashtra. At present only 16% of the total sales of M&M come from Maharashtra. Therefore, the new rule has a negative impact on the company's cash flows.

Energy stocks have opened the day on high note with Oil and Natural Gas Corporation Ltd. (ONGC), Cairn India and Indian Oil Corporation (IOC) leading the gains. Bharat Petroleum Corporation Ltd. (BPCL) has announced the discovery of yet another natural gas discovery block. This latest finding is in offshore Mozambique. As per the company, this block's , Lagosta-3, appraisal has encountered 176 net meters of natural gas pay in multiple zones. The company had earlier stated that the block may hold 15 to 30 trillion cubic feet of gas reserves. BPCL's subsidiary Bharat PetroResources holds a 10% stake in the block. Other parties include Videocon Hydrocarbon Holdings Ltd. (10% stake), Cove Energy Mozambique Rovuma Offshore Ltd (8.5% stake) and Mitsui E & Mozambique (20% stake).The balance stake is held by the national oil company of Mozambique, Empressa Nacional de Hidrocarbonates.

Will this help the PSUs?

Top management is what guides the direction of the entire organization. We have time and again stressed the importance of a good management while evaluating a company. Their vision, their proactive attitude and how they conduct business is what guides the long term valuations of the company. But what happens when there is no top management? Who guides the ship then?

Such is the case with the leading PSUs (Public Sector Undertakings) in the country. As per a leading daily, at present nearly a dozen PSUs do not have a full time Chairman or Managing Director. And the worst part is that some of these posts have been vacant for over a year. This includes companies like Coal India and Metals and Minerals Trading Corporation of India Ltd. (MMTC). So why is this happening? Is it that the country has run out of suitable talent to fill these positions? Or no one wants the job?

The truth is far from this. At present the process for hiring the top level management personnel is cumbersome. As a result, many of these posts remain vacant for a long time. Therefore the CII (Confederation of Indian Industries) has asked the government to streamline the process of appointing key functionaries in the PSUs. In a statement the CII has requested the government to shorten the selection process for appointments at the board levels. At the same time, it has also requested for active participation by the Chief Executive Officer (CEO) in the selection process. It has also suggested that the PSU boards should actively start grooming the next generation of key executives while they still hold their board positions. This way, the next line of command would be ready and groomed for the job before the vacancy comes up.

Succession planning and streamlined selection process is the need of the hour. Time and again the question of succession has popped up with several companies including the prestigious Tata Group and Infosys Ltd. This is not just true for the private companies but for the PSUs as well. But for the PSUs the problem is even worse because their actions are directly controlled by the government. Unless the selection procedure is streamlined and shortened, such vacancies would not get filled up in time. And eventually the absence of the top layer would start reflecting in deteriorating fundamentals for the companies. We hope the government listens to CII.