Late selling mars Indian indices

Indian equity markets had a rather volatile trading session today. The indices began the day's proceedings on a cautious note. Thereby, alternate bouts of buying and selling led them to hover around the dotted line for most of the day. However, the later hours saw selling activity intensify as a result of which the indices were pushed into the red and remained there in the final trading hour as well. While the BSE Sensex closed lower by 37 points, the NSE-Nifty closed lower by 3 points. Both the BSE Mid Cap and the BSE Small Cap bucked the trend and closed marginally higher. Losses were largely seen in IT, metals and oil & gas stocks.

As regards global markets, Asian indices closed mixed today while European indices have opened in the red. The rupee was trading at Rs 54.43 to the dollar at the time of writing.

As per a leading business daily, the labour strike at Bosch Ltd's Bangalore plant has been called off. It must be noted that more than 2,500 employees affiliated to MICO Employees Association (MEA), the official trade union, had gone on 'tool down' strike from March 7, 2013. This was to protest the suspension of one of their workers. This was the second such strike at Bosch's Bangalore plant in the last 18 months. Strikes at plants of auto companies have become rampant in recent times. The most severe example was the labour strike at Maruti Suzuki's plant at Manesar. It became very ugly in 2012 when there was violence at the plant as a result of which the management imposed a lockout. Hero Motocorp has also been having issues with its trade union, which has demanded higher pay packages and benefits. The stock of Bosch closed higher by 1% today.

Banking stocks closed mixed today. While ICICI Bank and HDFC Bank were out of favour, Bank of Baroda and State Bank of India (SBI) closed firm. As per a leading business daily, slowdown in growth and high interest rates has resulted in a 42.6% rise in bad assets in the banking system. Firm interest rates have impacted the debt repayment capacity of corporates leading to deterioration in the quality of assets. As a result, the quantum of restructured assets across the banking sector has also increased. The slowdown in the economy has also played a role as it has dented the performance of corporates and thereby their ability to generate sufficient cash flows to pay off the debt. The gross NPA ratio of the system increased to 3.5% in December 2012, as against the 2.9% in December 2011. PSU banks suffered the worst with a 48% jump in NPAs, while the same for private banks stood at a much lower 10%

Mid-cap & small-cap buck trend
01:30 pm

Indian equity markets continued to stagnate around the dotted line in the post-noon trading session. Sectoral indices are trading mixed with consumer durables, IT and banking stocks being the biggest losers. Realty, pharma and FMCG stocks are among the leading gainers.

BSE-Sensex is down 1.3 points and NSE-Nifty is trading down marginally. Both BSE Mid Cap and BSE Small Cap indices are trading up by 0.3%. The rupee is trading at 54.2 to the US dollar.

Most of the automobile stocks are trading in red, with Hero Motocorp and Ashok Leyland being among the leading losers. As per a leading financial daily, car sales have fallen most during Feb 2013 in the last 12 years. The sales have declined by 25.7% YoY. This was the 4th consecutive month, which has witnessed decline in the sales volume. According to data from the Society of Indian Automobile Manufacturers (SIAM), automakers sold 158,513 cars in India in the month of Jan 2013. Car sales were down by 4.6% during the first 11 months of the fiscal year ending in March. Reportedly, car sales in March were unlikely to see major improvement and thus this fiscal is expected to end up in the "negative territory" for the first time since FY03. The country's largest auto makers are facing pressures. Tata Motors is sharply trimming down its production due to fall in sales and pile-up of inventory. Since the past few months, the company has witnessed fall in its market share as competition intensified in the compact car segment. Similar trend is seen in Maruti Suzuki.The company has recently declared that it will suspend petrol car production at its Gurgaon plant. Gurgaon plant is the biggest and the oldest plant for Maruti Suzuki and manufacturers around 1500 to 1800 cars every day, including its largest selling car Alto, M800 and WagonR. The company's diesel cars are also facing slowdown in demand. Its dealers have 1-1.5 month of unsold inventory, an all-time high.

Most of the FMCG stocks are trading in red with Dabur and Emami among the major losers. However, Gillete India and Godrej Consumer are trading in green. As per a leading financial daily, Hindustan Unilever (HUL) has signaled its counter-attack on arch-rival Reckitt Benckiser by launching a print-advertisement. The print advertisement (ad) claims Lifebuoy liquid soap to be better than Dettol antiseptic formulation. Reckitt Benckiser had earlier aired a commercial that showed Dettol kitchen liquid gel to be better than HUL's Vim liquid dishwash. HUL had also filed a petition after which the Calcutta High Court had directed Reckitt to remove controversial portion from its Dettol dishwashing gel ad. According to the Advertising Standards Council of India (ASCI), FMCG companies are adopting all sorts of gimmicks to target consumers. As per Technopak, this round of ad-wars is likely to create buzz in this need-based category where brands have to find ways to gain attraction. HUL stock is up 1.3%.

Indian equity markets remain flat
11:30 am

Indian equity markets remained flat during the previous two hours of trade. The most noticeable upward movements were witnessed in the healthcare and realty sectors while capital goods and metals faced the maximum selling pressures.

At the time of writing, the BSE-Sensex was up by 10 points and NSE-Nifty was up by 6 points. BSE Mid Cap index and BSE Small Cap index were trading higher by 0.37% and 0.19%. The rupee was trading at 54.48 to the US dollar.

All except two Mining stocks, Coal India and Gujrat NRE Coke were trading in the red. According to a leading financial daily, Coal India was found to abuse its monopoly status by arm twisting its customers. An investigation was launched by the Competition Commission of India (CCI) after state-run utilities, Maharashtra State Power Generation Company (Mahagenco) and the Gujarat State Electricity Corporation (GSEC) alleged that Coal India and its subsidiaries were abusing their monopolistic might to impose unfair terms on buyers. GSEC further alleged that even if it rejected poor-quality coal supplied by Coal India, Coal India would still regard the supply as deemed delivery and expected GSEC to pay. Poor-quality coal increased costs for the state run utilities. The CCI gave Coal India four weeks to respond to the charges after it found out that Coal India violated the Competition Act by acting in an unfair and discriminatory manner. The CCI investigation also found out that the terms and conditions of CIL's fuel supply agreements (FSAs') were drafted unilaterally without consulting any other parties at any stage.

Indian Pharma stocks were trading on a mixed note with Aurobindo Pharma and Ranbaxy Labs leading the gains while Strides Arcolab and Orchid Chemicals ltd the losses. According to a leading business daily, Dr Reddy's Limited (DRL) were re-thinking about their German operations strategy given the fact that the entire German Pharma market has moved towards the tender based system, where margins are very low. DRL participated in the AOK tenders included within the tender based system but again it was not satisfied with the margins. During the quarter ended December 2012, DRL reported revenues of around Euro 19 m or around Rs 1350 m, which dragged down its European revenues by 21% YoY. The Company also faced troubles in the US market as its product approvals got delayed and accordingly, the company also refrained from giving any guidance with respect to product launches in the quarter ended December 2012 for the foreseeable future. DRL's stock was trading down by 0.46%.

Energy boosts Indian share markets
09:30 am

Asian stock markets have opened the day on a mixed note with stock markets in Japan (up 0.9%) and Hong Kong (up 0.4%) trading firm. However, markets in South Korea (down 0.2%) and China (down 0.2%) are facing selling pressure. The Indian share market indices have opened the day on a firm note. Stocks in the energy and realty space are leading the gains.

The Sensex today is up by around 37 points (0.2%), while the NSE-Nifty is up by around 14 point (0.2%). Mid and small cap stocks are also trading in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.5% and 0.4% respectively. The rupee is trading at Rs 54.45 to the US dollar.

Engineering stocks have opened the day on a mixed note with Larsen & Toubro (L&T) and Thermax trading in the red. However, Blue Star and Bharat Earth Movers Ltd (BEML) are leading the gains. As per a financial daily, India's leading engineering and infrastructure firm Larsen & Toubro (L&T) has been barred by the World Bank from doing any business with it or the projects funded by it for a period of 6 months. The 6-month sanction was laid after the international financial institution found that an employee of the Indian firm had committed fraud to win a supply deal five years ago. It is said that a junior executive of the company in the medical equipment business had falsified some customer testimonials and had submitted the same in support of an offer. The debarment will continue till September 6, 2013. During the period of debarment, neither L&T nor any of the entities controlled directly or indirectly by it can be nominated even subcontractor, manufacturer, supplier, consultant, or service provider to an otherwise eligible firm that has been granted a project financed by the World Bank. L&T has said that the 6-month sanction by the World Bank will not have a major impact on its business.

Telecom stocks have opened the day on a firm note with Himachal Futuristic Communications Ltd (HFCL), AGC Networks and Tata Teleservices leading the gains. As per a leading financial daily, the government of Tanzania is expected to start talks with India's leading telecom player Bharti Airtel about buying back stake in state-run telecom firm Tanzania Telecommunications Co. Ltd. (TTCL). Through its Tanzanian subsidiary Bharti Airtel Tanzania Ltd, Bharti holds 35% stake in TTCL while the remaining 65% is held by the Tanzanian government. Following the buyback, TTCL would be fully controlled by the government. However, the reasons for the buyback have not been disclosed yet. It is worth noting that Bharti Airtel Tanzania Ltd is the second-largest mobile phone operator in the east African country after Vodacom Tanzania.

Is capital fleeing away from India?

In an interesting article, Professor Jayanth R Varma of IIM mentioned about how certain developments in India were leading to a possible beginning of capital flight from the country. Capital flight occurs when capital or assets are moved out of a country due to certain reasons varying from economic consequences or political instability. It is also due to higher return on investments offered outside the county.

Professor Varma mentioned three key developments as proof of the same happening in India. These include the craze for gold, which is imported and as such an indirect form of capital flight. He discussed the possibility that some of the current account deficit could be disguised as capital flight by under invoicing exports and over invoicing imports. He believes so as it is difficult to put the blame solely on lower demand from developed regions. This too at a time when other Asian regions are posting large trade surpluses in a similar environment and also when Indian exports have become quite competitive on account of the rupee depreciation!The third key phenomenon is that of companies increasingly looking at investing in projects abroad. This is leading to more cash being deployed in foreign markets. This is an obvious form of capital flight. And why has this been happening? The answer is the difficult business environment in India. A handful of companies have expressed their intentions of looking abroad for business opportunities. A very recent example is of Tata Power's management considering investing abroad citing reasons such as delayed regulatory approvals and the fuel supply challenges.

The government has been trying to lure in investments from abroad in the form of foreign direct investments - by providing incentives to companies and investors - we believe similar actions need to be taken towards the Indian firms as well. While the government seems to have taken some steps towards incentivising very large scale investments in the Union Budget 2013, one can only gauge the outcome of the same over the medium term.