Volatility mars Indian Indices

Indian equity markets started the day on a positive note. After hitting record highs for the sixth straight session on Monday, the key benchmark indices were trading flat at mid-day, ahead of the Reserve Bank of India (RBI) policy announcement on Tuesday. The markets finally closed the day in the green. Realty and Metal stocks were the biggest gainers. While the BSE Sensex closed higher by 46 points, the NSE-Nifty closed higher by 8 points. BSE Mid Cap and the BSE Small Cap closed on a positive note.

As regards global markets, Asian indices closed in the green. European indices have opened in the green. The rupee was trading at Rs 59.98 to the dollar at the time of writing.

BHEL has secured Rs 12.5 bn contract for setting up a 120 MW Hydro Electric Project in Uttarakhand. Located in Dehradun district, the Vyasi power project is a run-of-the-river scheme on the Yamuna. The contract envisages design, manufacture, supply, installation and commissioning of hydro generating sets and associated electro mechanical works. While the hydro generating sets will be supplied by BHEL's Bhopal unit, the transformers and control and monitoring system will be supplied by the Jhansi unit and Electronics Division, Bangalore respectively.

The Supreme Court has appointed former Australian Supreme court judge James Jacob Spigelman as the third neutral arbitrator in a dispute over gas price between the government and Reliance Industries (RIL). The apex court said there was a need for a foreign arbitrator in the RIL-government case to avoid biases. The entire case has to do with the fact that when Reliance Industries' production had fallen, the government had slapped penalty notice amounting today to US $1.8 bn against the company for foreign gas production not meeting the target for hiving ideal infrastructure. Meanwhile, today is also the last day for fertiliser companies and RIL to renew their gas supply agreement. RIL will stop supplying gas at 6 AM tomorrow if the agreement is not signed. Oil ministry has indicated that RIL wants higher gas price from fertilizer companies retrospectively and has also sought the difference between new price and US $4.20 per mmBtu from April 1.

Indian markets pare gains
01:30 pm

The Indian stock markets pared most of their gains during the previous two hours of trade on account of gradual selling among the index heavy weights. Power and FMCG stocks are leading the pack of losers, while stocks from consumer durable space are trading firm.

The BSE Sensex is trading higher by 24 points and the NSE-Nifty is trading higher by 4 points. The BSE Mid Cap index is trading up by 0.7% and the BSE Small Cap index is trading up 1%. The rupee is trading at 60.09 to the US dollar.

Software stocks are trading mixed today. HCL Technologies and Infosys are leading the pack of gainers, while Tech Mahindra and Wipro are trading weak. As per a leading business daily, TCS is expected to invest more in developing automation based software platforms. It is looking for setting up automation platforms for up to 40% to 50% of tasks. It also plans to eliminate the age old business processes that are no longer relevant at current times. As per the company management, it would first eliminate processes that are redundant and then from the balance processes it would opt for opportunity to automate routine and customized tasks by up to 40%-50% levels. The development would lead to improvement in the company's revenue earned per employee. For instance, TCS has already started investing and creating intellectual property across the board for robotic automation. The automation based model would perform tasks at costs of one-fourth the billing rates and at a fraction of time than it would take for a human engineer.

Majority of the FMCG stocks are trading higher. Godrej Consumer and P&G are trading higher, whereas Emami Ltd. is trading weak. The personal and home care product maker Godrej Consumer Products Ltd (GCPL) plans to restructure its business operations. On the back drop of turbulent times the company management aims to save costs by up to Rs 2.5 bn during FY15. It would put more emphasis on profitability first and then the sales growth, that has already been affected on account of economic downturn. For instance, it has decentralized decision making in its domestic operations to state level focus. On international front, the management has dissolved the position of global head of operations. For international business which accounts for half of GCPL consolidated sales, the company has created 3 international clusters, Rest of Asia, the UK & Latin America and Africa. These clusters and the state level regional clusters would be responsible for maintaining of Profit and Loss account within their regions.

Auto & metal stocks lead the gains
11:30 am

After opening firm, the Indian Indices are trading flat in the morning session. Apart from software and FMCG stocks, all sectoral indices are trading in the green. The buying interest is highest metal and auto stocks.

The BSE Sensex is trading up 30 points and the NSE-Nifty is trading up 5 points. The BSE Mid Cap index is trading up 0.8% and the BSE Small Cap index is trading up 1%. The rupee is trading at 59.91 to the US dollar.

Most software stocks are trading lower today. Tech Mahindra and Wipro are among the stocks leading the losses. India's second largest software firm, Infosys, has announced the dissolution of its top decision making body, the executive council. In January, the company had said that it would wind up the executive council on April 1st. In a filing to the securities exchange commission (SEC), the company has now confirmed this. Post this; the company will have only nine executive officers, which include the two co-presidents, the CEO and the Executive Chairman, Narayana Murthy. Infosys is trading down 0.6% today.

Most telecom stocks are trading higher today. Reliance Communications and Mahanagar Telephone Nigam Ltd (MTNL) are leading the gainers. As per a leading business daily, the country's largest telecom firm Bharti Airtel has announced that one of its promoter group firms, Bharti Telecom, has increased its stake in the company. As on the quarter ended December 2013, Bharti Telecom held 43.57% stake in Bharti Airtel while the total promoter group holding was 65.23%. Through transactions on the BSE and NSE, Bharti Telecom has purchased 5.714 m shares of Bharti Airtel for a consideration of nearly Rs 1.72 bn. Its stake in the company now stands at 43.72%.Bharti Airtel is trading higher by 2.3% today.

Indian share markets open firm
09:30 am

Barring Malaysia (down 0.1%) and South Korea (down 0.1%), the major Asian stock markets have opened the day on a firm note with the stock markets in Indonesia(up 1.0%) and Japan(up 0.6%) leading the gains. The Indian share markets have also opened the day on a firm note. Barring software, all sectoral indices have opened in the green with stocks in the realty and consumer durables space leading the gains.

The Sensex today is up by around 100 points (0.5%), while the NSE-Nifty is up by about 28 points (0.4%). The mid and small cap stocks have opened in the green with the BSE Mid Cap and BSE Small Cap indices up by around 1.0% each. The rupee is currently trading at Rs 59.92 to the US dollar.

Auto stocks have opened the day on a firm note with Ashok Leyland Ltd and Escorts Ltd leading the gains. As per a leading financial daily, the leading auto manufacturer Maruti Suzuki Ltd will be launching three products this year, the first two being the facelift versions of the Swift and the Swift DZire and the third being the Ciaz production version. The move is in wake of increasing competition in the Indian auto industry. The company is under pressure to maintain its market share position. At the peak phase, the company had acquired an overall market share of 70%. However, lately the company stands close to 50% of market share. The three new vehicles to be introduced are likely to help the company regain its lost grounds.

Telecom stocks have opened the day mainly in the green with Reliance Communications Ltd and Idea Cellular Ltd leading the pack of gainers. As per the data released by Cellular Operators' Association of India (COAI), the GSM operators have added a total of 7.61 million subscribers in February 2014. This implies a 1.08 % increase on a month on month basis. The current user base now stands at 711.02 million. The numbers for the month, however, do not include numbers from the country's largest telecom service provider, Bharti Airtel which could not release its subscriber addition numbers due to technical problem. Vodafone India recorded addition of 2.16 million users in February, with its total subscriber base at 164.34 million. Idea Cellular during the month added 3.33 million subscribers, taking its total subscriber base to 133.55 million. In the rural areas, the GSM operators added a total of 3.45 million rural subscribers in February, a 1.24 % growth on a month on month basis, with total user base at 288.89 million. Vodafone India had 88.46 million users as of February end, followed by Idea Cellular (73.20 million), Aircel (24.88 million) and Telewings (10.95 million).

Can inflation concerns be curbed?

The RBI governor has received a lot of criticism for not lowering interest rates. Critics are of the view growth has not been his priority. Dr. Rajan had clearly explained the basis of his stance for not reducing interest rates; which is that interest rates in the country are based on inflation levels. And only by bringing down the latter, the reduction in interest rates will take place in the future. He was of the view that the probability of banks cutting interest rates - despite the RBI cutting rates - was minimal given the high inflation levels prevailing in the country.

Today, the RBI will be issuing its first bi-monthly monetary policy statement for financial year 2015.

In the past two monetary policy announcements, the RBI had taken a pause and hike respectively. In the month of December 2013, the central bank held rates. A month later, the repo rate was increased by 25 basis points to 8%. As pointed out by the Mint recently, during both of these policies, the key area of concerns remained the same - that of slowing growth the risks posed by the external environment.

In recent interviews, Dr. Rajan had mentioned that there is no trade off between the inflation and growth; and that inflation is simply hurting growth. And only when the former is brought down, will the latter expand.

While inflation has shown signs of cooling off in recent times, it still remains above the comfort zone of the central bank. And this has been despite the slowing economy numbers. In essence, the concerns now are more to do with whether inflation will continue to move in the desired direction.

What actions the RBI will take in the coming few months will be watched closely. With a number of factors such as the outcome of the elections , new government's actions and decisions and possible concerns of the El Nino in the current financial year , the outlook is unpredictable; and these concerns cannot be overlooked. In our view, given the circumstances, the possibility of the RBI lowering interest rates seems minimal.

Also as the business daily pointed out, in an environment when global interest rates are rising or are expected to rise, India's lowering of interest rates could possibly take its toll on the seemingly improving macro conditions like CAD and hence, the stable rupee.

We believe, the best strategy for investors would be to stay away from companies with leveraged balance sheets as that would curb all concerns related to interest rates movements. As we have been mentioning, all of such concerns would be mitigated when you stick to companies that have an inbuilt inflation beating mechanism - pricing power. Combine that with return ratios well above the cost of funds and you should do well as businesses with such characteristics do curb all inflation related risks.