IIP data fails to enthuse markets

Despite some signs of recovery in industrial output seen in IIP numbers, investors in Indian stock markets chose to remain cautious about the sticky consumer price inflation (CPI) number. This is in anticipation of a hawkish stance from the Reserve Bank of India (RBI) in upcoming Monetary Policy review. Profit booking was seen amongst banking, telecom, engineering and power heavyweights. Weak cues across Asian markets also affected sentiments. While the BSE-Sensex closed lower by around 81 points, the NSE-Nifty closed lower by 28 points. The BSE Mid Cap and the BSE Small Cap lost almost 0.5% each in today's trade.

As regards global markets, most other Asian indices closed lower today while European indices have opened in the positive. The rupee was placed at Rs 54.18 to the dollar at the time of writing.

The government today released the revised guidelines on corporate social responsibility (CSR) for PSUs that would come into effect from April 2013. As per the guidelines, the CSR spend will be based on the profitability of the company and shall be determined by the profit after tax (PAT) of the company in the previous year. If the net profit of the PSU in the previous financial year is less than Rs 1 bn, the range of allocation for CSR would be 3-5% and if the profit is between Rs 1 bn and Rs 5 bn, it will be 2-3%.Those with Rs 5 bn and above in profits would allocate 1-2%. At the same time, loss making companies are not mandated to earmark specific funding for CSR activities. PSUs in select sectors that operate on thin profit margins see this as an additional burden on profitability. PSU stocks including Bharat Heavy Electricals Limited (BHEL), Coal India, National Thermal Power Coorporation (NTPC), Oil and Natural Gas Corporation (ONGC) and Container Corporation of India Ltd. (Concor) closed lower today.

The Great Eastern Shipping Company (GE Shipping) has signed a contract to sell 'Jag Arnav', a Panamax dry bulk carrier. The company's current fleet stands at 33 vessels, comprising 23 tankers (9 crude carriers, 13 product tankers, 1 LPG carrier) and 10 dry bulk carriers with an average age of 10.0 years aggregating 2.60 mn dwt. The company's revenue days were up by 5% during the December quarter. However, there was a significant fall in time charter yields in both the crude carriers and the dry bulk segment and this affected its topline growth (0.4% YoY).

Inflation data disappoints markets
01:30 pm

Inspite of better IIP data at 2.4% Indian share market have witnessed a sharp fall and are trading in red. This seems to be largely attributable to disappointing consumer price inflation (CPI) number which was up at 10.9% from 10.8% in Feb 2013. Most sectors are trading in red barring the stocks from FMCG space.

BSE-Sensex is down by 97 points and NSE-Nifty is trading up by 35 points. While BSE Mid Cap is trading down by 0.66%, BSE Small Cap index is trading down by 0.50%. The rupee is trading at 54.31 to the US dollar.

Pharma stocks are trading in mixed, with Ranbaxy Pharma and Dishman Pharma are top gainers and Glenmark and Piramal enterprise leading among losers. As per the financial daily, the cost of imported insulin is expected to go up as the department of pharmaceuticals (DoP) has asked the National Pharmaceutical Pricing Authority (NPPA) to review Eli Lilly's imported insulin prices. The order states that NPPA must regulate prices within the scope of the Drugs Prices Control Order (DPCO), unless it is amended. The department has asked NPPA to revisit the prices fixed for Eli Lilly's five imported insulin products and bring these at par with other imported products. Reportedly, the order by DPCO was on the back of fresh guidelines issued by NPPA, for lowering the margin of pharma companies on imported drugs. While the DPCO provides for maximum allowable post manufacturing expenses (MAPE) not exceeding 50%, NPPA guidelines issued in 2011, changed the margin to 35%. The regulator has been particularly strict with insulin prices in India, this is because of the huge gap that exists between prices of indigenously manufactured insulin and imported ones.

The current insulin market in India is around Rs 11.4 bn. Major players includes various MNC companies likes of Novo Nordisk, Eli Lilly and Sanofi. These companies hold almost 86% of the total market. Among the domestic companies, Biocon takes approx 10%. The other companies viz Wockhardt, Lupin, Torrent and other companies take the remaining 4%

FMCG stocks are trading mixed with Hindustan Unilever and Gillette India trading the strongest. However, Dabur and Godrej Consumer are among the major losers. As per a leading financial daily, Hindustan Unilever (HUL) has plans to enter into agreements with the states of Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh in order to build a franchise for its largest selling soap brand - Lifebuoy. The company recently completed a pilot project in hand washing in Madhya Pradesh after signing a Memorandum of Understanding (MOU) with the state government. As per the company, bar soaps are growing faster in the rural markets and therefore it has chosen its leading brand - Lifebuoy, positioned on family hygiene, to generate majority sales from villages. HUL wants to avoid taking too many brands as it would confuse the rural consumer. By promoting through free samples and films, the company expects rural consumers to buy soap bar replenishments for Lifebuoy mostly in the lower SKU's of Rs 5 and Rs 10.

Energy stocks lead the gains
11:30 am

Indian equity markets traded in the green during the last two hours of trade. Sectoral indices traded mixed with energy and metal stocks being top gainers while IT and consumer durables stocks were top losers.

The BSE-Sensex is trading higher by 25 points and NSE-Nifty is trading flat at the moment. BSE Mid Cap and BSE Small Cap indices are trading higher by 0.1% and 0.2% respectively. The rupee is trading at 54.26 to the US dollar.

Auto stocks are trading firm led by Tata Motors and Mahindra and Mahindra (M&M). As per a leading daily, Mahindra and Mahindra has been forced to recall around 30,000 units of its sports utility vehicle (SUV), XUV 500. These vehicles manufactured between 2011 and 2012 have some manufacturing defects in 3 parts- the fluid hose, the front power windows, and the left wiper. M&M has decided to personally contact the owners of these vehicles and replace the faulty parts. The replacements will be carried out at the auto company's cost. However, the management stated that presence of these defaults would not have caused any safety related issues but only functional problems.

Steel stocks are trading in the green led by Tayo Rolls and JSW Ispat. As per a leading daily, Steel Authority of India Limited (SAIL) is planning to invest Rs 29.5 bn towards expansion of capacity at its Gua iron ore mine. The capacity will be raised from 2.4 mtpa to 10 mtpa. We may note here that Gua mine started operations in 1919 and was a captive mine for IISCO for its Burnpur plant. Post the merger of IISCO and SAIL in 2006, it is now owned by SAIL. SAIL also plans to use some of this money to set up beneficiation and pellet plants in Jharkhand. The proposals for both capacity expansion and setting up of beneficiation and pellet plants have already been approved by the board of the company. As per the steel minister, Mr Beni Prasad Verma, the tender documents are also in the last lap of finalisation and SAIL is in the process of obtaining necessary clearances for the project.

Indian share markets open in green
09:30 am

Barring Singapore (up 0.6%) and Japan (up 0.1%), major Asian stock markets have opened the day on a weak note with stock markets in China (down 0.8%) and South Korea (down 0.5%) leading the losses. The Indian share market indices have opened the day on a firm note. Stocks in the oil & gas and auto space are leading the gains.

The Sensex today is up by around 18 points (0.1%), while the NSE-Nifty is trading flat. Mid and small cap stocks are also trading in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.2% and 0.4% respectively. The rupee is trading at Rs 54.38 to the US dollar.

Information technology stocks have opened the day on a mixed note with Oracle Financial Services and NIIT Ltd trading in the green. However, HCL Tech and Tata Consultancy Services (TCS) are facing selling pressure. As per a financial daily, Wipro's energy and utilities business is currently the fastest growing business unit for the company. This has been on account of the acquisition of oil & gas practice of US-based Scientific Applications International Corp (SAIC) for about US$ 150 m in April 2011. This segment is turning out to be very lucrative for Wipro and is expected to earn the company about US$ 1 bn (approximately Rs 54 bn) in annual revenue. In the global energy industry the focus is shifting away from crude oil to shale gas and gas hydrates. This structural shift in the industry is opening up new opportunities for Wipro. BP and Royal Dutch Shell, the world's second and third largest oil companies are its clients. Wipro was earlier focussed on providing downstream IT services to oil companies mainly in Europe. The acquisition of SAIC has enabled the company to expand its client base to the US. Moreover, the company has also been able to complement its offerings with upstream services.

Mining stocks have opened the day on a weak note with Minerals and Metals Trading Corporation (India) (MMTC) and Manganese Ore (India) Limited (MOIL) leading the losses. As per a leading financial daily, mining giant Coal India Ltd (CIL) has proposed an ad-hoc provision of Rs 350 bn for acquisition and development of mines abroad by 2017. It is said that of the proposed Rs 350 bn, Rs 250 bn has been earmarked for acquisition and development of coal blocks in countries such as South Africa, Indonesia, Australia, US and Columbia. The balance Rs 100 bn have been allocated for exploration and development of two allotted coal blocks in Mozambique during the 12th five year plan (2012-2017). This will also include the creation of logistics infrastructure there. CIL has also proposed for a capital outlay of Rs 254 bn for the current five year plan. Of this, Rs 113.9 bn would be for ongoing projects, Rs 24.9 bn for new projects and Rs 70.4 bn for non-mining projects.

Can this lower current account deficit?

Widening current account deficit (CAD) has been a matter of grave concern for the Government. It is believed that the deficit could be in the region of 5% for the year ending 31st March 2013. Increasing imports due to rising crude and gold prices is the primary reason for increasing CAD which is well above the comfort level of the government. So, in order to curb the same the government is likely to announce ambitious set of reforms.

It plans to increase or scrap the Foreign Direct Investment (FDI) limit in certain sectors. Scrapping/increasing the limit will attract foreign investments and thus help build exchange reserves. Sectors such as banking and telecom where the permitted FDI limit is 74% are on the hit list at the moment. Plus, insurance and pension bills are already awaiting FDI approval in the parliament. We feel that this is a step in the right direction. Earlier the sectoral caps were levied to offer protection to the domestic industries. But now the Indian corporates are much capable to withstand the foreign competition. Thus, there is no need to offer external protection. Off course, where there is a need the caps would be continued. Thus, the idea of tinkering with the limits makes sense as it does not jeopardize domestic companies.

It may be noted that India's CAD has been increasing persistently. And if innovative steps are not taken to finance the same the Indian currency could weaken. Until now India was reliant heavily on foreign debt flows to finance the deficit. But considering that they have to be repaid in future it does not offer a long term solution. As such, India needed a much stable and long term financing measure to take care of the rising CAD. And increasing FDI limits is a solution to that.

But will it really solve the problem?

Indication to increase the limits does show the intent of the government to welcome foreign capital. However, the business environment at home is not conducive. Red tapism and wide spread corruption is making the matters even worse. So, even if the limits are raised whether the foreign capital will really come in is a matter of debate. If the government really wants to attract long term foreign capital the ease of doing business in India must improve. Or else reforms not matter how innovative they are; will not produce the desired results.