Indian markets buck the trend

In a stark contrast to its peers in Asia, the Indian stock market indices managed to sustain a strong momentum till the closing hour. While the BSE-Sensex closed 282 points higher (a 1.6% rise), the NSE-Nifty closed higher by 86 points (up 1.6%). The BSE Midcap and the BSE Small cap indices also saw some buying interest, with gains of 0.5% and 0.3% respectively. All sectoral indices were in the positive, with the metal and oil and gas indices leading the gainers. However the auto and healthcare stocks did not see much buying interest.

As regards major global stock markets, most other Asian indices ended flat to negative with Japan (down 6%) leading the pack of losers. India was among the top gainers in Asia along with Hong Kong and Indonesia. Most European indices opened in the red. The rupee was trading at Rs 45.03 to the dollar at the time of writing.

Inflation continues to rear its ugly head and threaten to hurt Indiaís industrial and investment growth. India's wholesale price index (WPI) rose an annual 8.3% in February 2011 on higher fuel and other commodity prices. While the IIP data was not enthusing, the interest rate revisions expected from the RBI later this month may also hurt investment sentiments.

Meanwhile, the country's largest bank SBI has outlined its capital raising plans for the next fiscal. The bank plans to come out with Rs 200 bn rights issue in 1QFY12. The government is expected to maintain its stake holding in the bank above 51%. The bank had last raised Rs 167 bn through a rights issue in 2008, which saw its capital adequacy ratio rise above 14%. The Parliament had passed a Bill that would enable SBI to have a rights issue while allowing the government to reduce its stake to 51%. This is a departure from the previous requirement wherein the government had to retain at least 55% stake in the PSU.

Meanwhile, SBI has been raising funds from both the international and domestic markets to fund its expansion plan. Last month, it issued Rs 20 bn worth of retail bonds, which were oversubscribed 8.5 times. We believe that the long term funds will help the bank sustain higher NIMs in the medium term.

As per a business daily, PSU steel major SAIL is continuing a joint feasibility study with Japan's Kobe Steel for a steel plant and a 1,000 megawatt gas-based power plant in north India. The steel plant at Jagdishpur in Uttar Pradesh will involve investment of about Rs 100 bn. The two companies plan to set up a steel plant based on gas-based direct reduced iron-making (DRI) technology for making value added products. SAIL acquired the Jagdishpur assets in 2009 and is currently setting up a warehouse and corrugation unit as well as a mill to make TMT bars, which are used in construction.

India's growing status as a small-car hub is drawing global steel makers, especially Japanese firms, to the country. SAIL is also finalising plans to set up joint steel plants with South Korea's POSCO.

Heavy-weights lead from front
01:30 pm

Indian stock markets continued to trade in the positive on buying interest in heavy weights from oil & gas and metals. Despite the weak sentiments of the global stock markets, the Indian stock markets continue to trade strong. All stock indices except auto are trading in the positive territory. Stocks from the oil & gas, metals and consumer durables lead the pack of gainers.

The BSE-Sensex is up by 150 points while NSE-Nifty is trading 45 points above the dotted line. Both BSE Midcap and BSE Small cap indices are up by 0.3% and 0.2% respectively. The rupee is trading at 45.17 to the US dollar.

Oil & Gas stocks are trading strong with GAIL and HPCL leading the gains. However, Indraprastha Gas and Chennai Petro are trading weak. GAIL plans to raise about US$225 m (Rs 10 bn) via the External Commercial Borrowing (ECB) route to fund its expansion plans. The company plans to raise the amount by early next fiscal. Raising money via ECB will help the company reduce its borrowing cost as the cost of funds in overseas markets is lower than domestic markets. The company expects to raise the ECB funds at a marginal rate of 7.30% pa at a time when the average cost of debt prevailing in the Indian markets is anywhere between 9-12%. It may be noted that GAIL has a gas transmission network of around 7,847 km across the country and has plans to double the same over the next 4-5 years. It has also outlined capex plans worth Rs 350 bn over the next few years so as to meet its expansion plans.

Telecom stocks are trading mixed with MTNL, Reliance Communication and Idea Cellular trading firm, whereas Bharti Airtel is trading weak. Bharti Airtel, the countryís largest mobile service operator by subscribers, withdrew its bid to buy out governmentís 30% stake in its subsidiary Bharti Hexacom. Bharti Hexacom offers mobile services to over 14 m customers in 6 north-eastern states (excluding Assam) and Rajasthan. The government owns 30% stake in Hexacom through public sector company Telecom Consultants of India. The government had demanded a substantial premium over the Rs 18 bn base price fixed by consultant Deloitte and also sought an additional 6-month extension to conclude the sale process.

Bharti Airtel had said that its financial bid would be valid only till Mar 13, 2011 and also demanded the bank guarantees for its bid to be returned after this date. Bharti Airtelís exit may force the telecom department to list Hexacom to get the best price. According to DoT records, Hexacom had revenues of Rs 1,346 crore and a profit of Rs 331 crore in FY08 and a net worth of Rs 918 crore. These numbers are estimated to have gone up substantially during FY09 and FY10; and this seems to be the premise on which the government seems to be demanding a substantial premium over the consultantís base price.

Oil & Gas cheers the markets
11:30 am

Indian stock markets continued to trade in the positive on buying interest in heavy weights over the last two hours of trade. Stocks from the oil & gas and metals space are trading firm while stocks from the auto and IT space are trading weak.

The BSE-Sensex is up by 150 points while NSE-Nifty is trading 45 points above the dotted line. Both BSE Midcap and BSE Small capindices are up by 0.3% and 0.4% respectively. The rupee is trading at 45.17 to the US dollar.

Auto stocks are trading weak led by Maruti Suzuki and Bajaj Auto. Maruti Suzuki is down by nearly 1.5% on fears that the earthquake in Japan and the consequent Tsunami may hurt the carmaker's imports. It may be recollected that, the company imports its luxury sedan Kizashi from Japan. Kizashi has received 400 bookings in the first month of its launch. On the back of such a favourable response, the auto company has placed another shipment order of 350 cars. Also, as per a financial daily, Maruti Suzuki is likely to cross the 1 crore production mark next week. This comes 27 years after it rolled out its first Maruti 800 model from Gurgaon. Going forward, the company is aiming at producing another one crore cars in the next 6-7 years. Maruti took 22 years to produce the first 50 lakh units and the remaining units were produced within less than 6 years.

Maruti has set up two new plants at Manesar near Gurgaon at an investment of Rs 36 bn. The existing annual production capacity at Gurgaon is 8.5 lakh units. The company had recently ramped up its production by about 10% to over 1.1 lakh units every month. Suzuki Motor Corporation which owns a 54.2% stake in Maruti Suzuki India has invested Rs 90 bn in new facilities during 2005-10. It is also investing Rs 25 bn for its K-Series engine plant and establishing an R&D centre at Rohtak, Haryana.

Banking stocks are trading firm led by Union Bank and Yes Bank. As per a leading financial daily, State Bank of India (SBI) is expected to come out with a Rs 200 bn rights issue in 1QFY12. However, this issue is still to get the government's approval. It may be noted that the government is currently holding 59% stake in the bank. If the rights issue is cleared, then the government would also subscribe to the issue to maintain its stake holding at the current levels. However, last August, the Parliament had passed a Bill which would enable SBI to sell shares to boost its capital and allowed the government to reduce its stake to 51%.

SBI has recently been on a drive to raise capital to fund its growth. Last month the bank had issued Rs 20 bn retail bonds. The bank also plans to increase its manpower. As per the bank's spokesperson, SBI plans to recruit 5,000 youths in FY12.

Indian stocks buck weak Asian trend
09:30 am

Asian stock markets have opened the day on a weak note with Japan trading lower by 5% on account of the devastating impact of a massive earthquake and tsunami. Besides the mounting death toll, three nuclear reactors were at risk of overheating, raising fears of an uncontrolled radiation leak. However, Indian stock markets have managed to buck the trend and are trading firm on the back of buying across index heavyweights. Barring IT and auto stocks, buying is being seen across sectors.

The BSE-Sensex is trading higher by around 89 points (up 0.5%), while the NSE-Nifty is up by around 34 points (0.6%). Mid and small cap stocks are also trading in the positive, with the BSE Midcap index and BSE Small cap index up by 0.4% and 0.5% respectively. The rupee is trading at 45.2 to the US dollar.

After a dismal FY09, when the number of US FDA approvals was quite low, Glenmark has much to cheer about in FY11 so far. As per a leading business daily, in the first eleven months of the fiscal, Glenmark secured nods to sell as many as 21 new generic medicines in the US. Close on its heels are Aurobindo Pharma and Sun Pharma with 16 and 12 approvals respectively. Given the intensity of the competition in the US generics market, this is a huge positive for the company. That said, the company does not have any first-to-file opportunities (which would have given it a 180-day exclusivity) so far this year as compared to some of its larger peers who are focusing on such products to garner more revenues and profits. At the same time, Glenmark is targeting drugs having an annual market size of around US$ 50-300 m. This means that larger players may not be too interested in these drugs and this could possibly lead to lesser competition. At the end of the day, to have s sustainable generics business in the US is to keep up the flow of new product launches and also focus on products which have lesser competition and thereby lower price erosion. The stock is trading higher currently.

Auto stocks are trading mixed currently. While Ashok Leyland and TVS Motor are finding favour, Hero Honda and Bajaj Auto are in the red. As per a leading business daily, two-wheeler company TVS Motor is looking re-enter the Indian electric scooter market with some existing and new models in the next fiscal. The company is currently carrying out test runs of about 50 electric scooters across various towns in the country. It must be noted that in early 2008, TVS had launched electric scooterette 'Scooty Teenz Electric' and had envisaged selling around 40,000 units per year. However, it stopped the production in May 2009 as the response from the market was lukewarm. That said, the company expects the demand to revive once again. Part of the reason why it believes so is the aim of the government to encourage the use of alternative fuel-based vehicles given the rising prices of oil. In the Budget for 2011-12, the Finance Minister proposed to set up a National Mission for Hybrid and Electric Vehicles to encourage manufacturing and selling such vehicles. However, it remains to be seen whether demand indeed does pick up.

It must be noted that in the December quarter, motorcycles sales volumes for TVS formed nearly 41% of the total volumes and grew by 40% YoY. Sales of scooters on the other hand, grew at a faster pace of 63% YoY and contributed to nearly 24% of total sales volumes during the quarter.

India's industrial health weakens

The government of India announced the latest IIP (Index of Industrial Production) numbers. It is good to see that industrial growth for the country was 3.7% in January. This was much better than the 2.5% seen during the previous month.

While 3.7% is more than 2.5%, but it still indicates that the country's industrial growth is slowing down. Gone are the double digit numbers that we saw during the same period last year. Just for reference the industrial growth for January last year was a whopping 16.8%.

Some have cited the base effect as a reason for such slower numbers. According to them, growth has not really slowed down but in reference to the higher numbers seen last year, the growth appears to be sluggish. However, slowing industrial growth is a matter of concern for the Finance Minister.

To control inflation, the RBI has been raising interest rates. But a direct side effect of higher interest rates is slower industrial activity. And ironically, this industrial activity is what would help in eliminating the supply side bottlenecks which can control the inflation. It appears like a vicious circle. And the more disturbing part is that the RBI plans to raise interest rates further. This would further impact the industrial activity of the country.

A country's industrial health is important for its economic growth. The part that showed the dismal performance was the mining and the manufacturing sectors. Only electricity generation showed improvement. The country's mining sector has also witnessed a slowdown due to strict environmental laws that have resulted in huge delays in getting projects approved. Higher interest rates coupled with higher input prices have resulted in slowdown for the manufacturing sector.

We just hope that the government is able to streamline its processes and procedures soon. And find ways to boost industrial activity. Otherwise the ambitious targets that the Finance Minister has set for the GDP growth may just remain a dream and not get converted to reality.