Heavyweights drag indices lower

With no reform measures announced in today's Railway Budget, investors seem to be sitting on the sidelines ahead of the Union Budget to be announced on 28th February. As a result profit booking was seen across index heavyweights since the start of the trading session today. Major sector indices across the board except IT closed lower today. While the BSE Sensex closed lower by around 317 points, the NSE-Niftyclosed lower by 93 points. The BSE Mid Cap and the BSE Small Cap lost almost 2% each in today's trade.

As regards global markets, most Asian indices closed lower today while European indices have also in the negative. The rupee was placed at Rs 54.14 to the dollar at the time of writing.

As per a business daily, National Thermal Power Corporation (NTPC's) 1,980 MW super-thermal power plant in Jharkhand, has received the Prime Minister's Cabinet Committee on Investment's (CCI) nod, to resume operations. This power project's proposal has been pending for more than a decade, as in 2003, Coal India had raised the issue that NTPC's power plant would be sitting on an area with nearly six billion tonnes of reserves. But now it has investigated that, this thermal power plant in Jharkhand will not impact mining activity at Coal India's Karanpura mines, located close by. Hence both Coal India and NTPC have agreed to work on their respective projects. The power plant will be operational for 35 years. After that, the land will be available for mining. NTPC has invested Rs 2.5 bn in the project and obtained various clearances. The project, in fact, has received support from the Ministry of Environment & Forests as well.

Tobacco major, ITC's Agri Business Division - ILTD, which works with the tobacco farmers in Mysore and Hassan districts, has developed affordable farm mechanization solution for small tobacco farmers. In order to develop farm solutions, ILTD imported the technology from a manufacturer in Italy. With the help of this solution, the company can save 50% of the labor requirement in tobacco cultivation. This solution is likely to benefit 60,000 farm families and laborers, as labor shortage always hinders operations timeline, impacts crop quality and the export potential.

While regulatory headwinds have led to a moderation in ITC's cigarette business, the impact has been partially offset by the brisk growth in its FMCG business. Despite a structural rise in taxation, ITC has been able to expand margins in its core cigarette business, thanks to the huge pricing power enjoyed by it. Even cigarettes launched in the new filter segment (cigarette length not exceeding 65 mm) have met with reasonable success and the company is rolling out the products across the country. The company has been consistently reducing losses in the FMCG segment. All these factors have enabled ITC to grow its topline as well as earnings at a robust pace.

Indian share markets widen losses
01:30 pm

As selling pressure intensified, Indian share markets nosedived further in the post-afternoon trading session. Majority of the sectoral indices are trading negative with oil and gas, auto and capital goods stocks being the biggest losers. Only FMCG and IT stocks are trading in green.

BSE-Sensex is down 194 points and NSE-Nifty is trading down by 59 points. While BSE Mid Cap is down 1.4%, BSE Small Cap index is down by 1.8%. The rupee is trading at 54.1 to the US dollar.

Majority of the FMCG stocks are trading in red with Archies and Bata India being the major losers. However, Hindustan Unilever and Dabur are trading strongly. As per a leading financial daily with consumer demand showing signs of moderation, FMCG companies have been raising ad-spends to boost consumption and gain market share. Recently FMCG behemoth Hindustan Unilever (HUL) filed a case against the Indian subsidiary of Reckitt Benckiser for denigrating its Vim product in a comparative advertisement of the latter's Dettol Kitchen dishwashing liquid. Even Colgate-Palmolive started an aggressive advertisement campaign of its gum toothpaste after Glaxo SmithKline Consumer Healthcare launched global brand Parodontax in the Indian market. As per Advertisement Standards Council of India (ASCI), the best way for an entrant to capture market share is to claim superiority and if the claims are based on facts then it is legitimate as it provides consumers with more information about the products they are using. Advertisement agencies see an escalation in ad-spends among consumer companies going forward.

Most of the domestic pharma stocks are trading are in red with Panacea Biotech and Dishman Pharma being among the top losers. Mylan, a US based generic company has announced launch of Antara generics. This drug is equivalent to Lupin's brand Antara, which generates annual revenues of around $60 m in US as per the report. Lupin was in litigation with Mylan and other generic companies over this drug. Mylan had received USFDA approval on this drug some time back. It is still not clear whether, Mylan's launch is "at risk" or not. Antara is part of Lupin's branded portfolio and is among the important contributor to the company's top line. Lupin was trading down by 2.0%.

Indian equity markets continue in red
11:30 am

Indian equity markets have continued in red during the previous two hours of trade. The most noticeable upward movements have been witnessed in the IT and FMCG sectors while auto and capital goods have faced the maximum selling pressures.

The BSE Sensex is down by 139 points and NSE-Nifty is down by 43 points. BSE Mid Cap index and BSE Small Cap index are trading lower by 1.2% and 1.3% respectively. The rupee is trading at 54.04 to the US dollar.

Retail stocks are trading on a mixed note with Titan Industries and Zodiac Cloth leading the gains while Trent and Koutons Retail are leading the losses. According to a leading financial daily, Titan Industries will delay its entry into the Chinese market. The Company's management has said that they will prefer to have a wait and see approach given Titan's unsuccessful experience in the 1990's when the Company made a foray into Western-European markets. In spite of employing European designers and a London based advertising agency, desired results were not obtained. The management further stated that Titan will continue with its policy of entering one new country at a time and gradually increase market share in it keeping a long term horizon in mind. The organised Chinese watch market is pegged at around US$ 2 bn and has been growing at a CAGR of 11% over the last five years. While the Swiss watch makers dominate the luxury segment and there are numerous unbranded players catering to the low-end segment, there are opportunities in the branded mid-market segment.

PSU Bank stocks are all trading in red with Syndicate Bank and Oriental Bank leading the losses. According to a leading business daily, State Bank of India (SBI) has fixed the issue price with regard to preferential allotment to the Government of India. The issue price stands at Rs 2,312.78 per share and SBI hopes to raise approximately Rs 30 bn from the Government. The preferential allotment is a part of SBI's capital infusion plan for the current financial year. The infusion will enable the Bank to support national and international banking operations through its subsidiaries and associates. The Government infused Rs 79 bn in SBI last financial year to boost SBI's Tier 1 capital base, following which Government's share-holding increased to 61.6% from 59.4%. SBI's stock is trading down by 1.1%.

Indian share markets open in the red
09:30 am

Barring China (down 0.4%), the major Asian stock markets have opened the day in the red with stock markets in Japan (down 1.6%) and Hong Kong (down 0.7%) leading the losses. The Indian share market indices have opened the day on a weak note as well. Barring software and FMCG, the sectoral indices have opened in the negative with stocks in the metal and auto sector leading the losses.

The Sensex today is down by around 83 points (0.4%), while the NSE-Nifty is down by around 29 points (0.5%). The mid cap and small cap stocks have also opened in the red with the BSE Mid Cap and BSE Small Cap indices down by around by around 0.5% and 0.2% respectively. The rupee is trading at Rs 54.04 to the US dollar.

The stocks in the auto have opened the day mainly in the red with Tata Motors Ltd and Maruti Suzuki Ltd leading the losses. As per a leading financial daily, the workers at Hero MotoCorp Ltd's Gurgaon unit will go on a hunger strike from Thursday to demand a hike in the wages. Only the union members of Hero MotoCorp Workers' Union (HMCWU, Gurgaon unit) will go on the hunger strike so that production at the factory does not get affected. The workers at the Gurgaon unit have been demanding higher wages for the past two months now. The average salary of a permanent worker at Gurgaon currently is around Rs 32,000 (up to Rs 38,000 for more experienced employee).The employees have demanded a hike of Rs 15,000 in the monthly salary. However, the management is reluctant to increase wages beyond Rs 7,500-9,000 in monthly settlement. In the last month, the workers at the unit had reportedly slowed production operations over this issue. In response, the company had issued showcause notices against six members of the union for disrupting production operations on January 23 and January 24. In their latest round of talks, the company management has refused to budge from their stance. A notice regarding hunger strike has already been sent to the company. As of now, no date has been finalized for the next round of talks.

The stocks in the engineering sector have opened the day on a mixed note with Shanthi Gears Ltd and Opto Circuits Ltd leading the losses. However, Welspun Corporation and Bharat Earthmovers Ltd have opened in the green. As per a leading financial daily, Railways have joined hands with Bharat Heavy Electricals Ltd (BHEL) for setting up a modern Mainline Electric Multiple Unit (MEMU) coach factory. This would be worth Rs 10 bn and will be set up at Bhilwara, Rajasthan. The project aims to cater to the growing demand for faster local and suburban trains. The MEMU trains that are equipped with higher acceleration capacity are expected to move faster on electrified tracks and would benefit daily commuters. The Railway Minister has said that the state of Rajasthan will be offering 200 acres of land in Bhilwara for setting up the MEMU coach factory.

Are India's power woes hyped?

The glaring gap between India's power demand and supply is known to all. But there is no doubt that this gap has been narrowing over time. Going by media reports one cannot be blamed for presuming that Indian power sector is one of the most inefficient, but this is not the entire truth.

Former Union Power Secretary Dr. E.A.S. Sarma, has in an interesting article in business daily, dispelled some of the myths related to paucity of power supply. To begin with, Dr. Sarma, believes that the current method of estimation of power demand is incorrect. That in turn tends to inflate power demand supply gap. Also, he is of the opinion that one should factor in the effects of shifts in fuel and improvements in efficiencies. These trends display the 'per capita useful energy use', something the 'gross per capita energy use' does not take into account.

Further, Dr. Sarma discussed the importance of maintaining a balance between thermal and hydel power. Considering that end power usage is different and varies from users to users, it tends to be more expensive on an overall basis as thermal power generation is more suited for steady requirements. On the other hand, hydro power is mainly used to meet peak demands. As such, he believes that investments in hydro generation have not kept pace. And that this has caused an imbalance.

Moreover, Dr. Sarma believes that setting up new and more efficient generation projects should be considered to reduce wastages and meet geographical requirements. Also given that setting up new plants is not considered as the cheapest option, power prices tend to be high. Eventually, the poor find it difficult to afford. Not to mention that energy security concerns rise on the back of usage of non-renewable resources.

This is where the aspect - that we at Equitymaster have been discussing for a long time - comes into play. We are talking about investments in transmission and distribution (T&D). These have not kept pace with generation investments, therefore leading to huge T&D losses. According to Dr. Sarma, about one-third of the generated electricity is lost in T&D. While investment in generation is necessary - we believe that this aspect has been getting a lot of attention - by the government as well as private players. The media focus in the recent past has been mainly on how generation capacities have not kept pace. We have also seen blame game between the generation and coal supply companies. But the fact of the matter is that a lot of this can be curbed with better and efficient usage of the current infrastructure as well as more efficient consumption by end users.