Directionless Sensex ends up

What seemed like a bad day, then a good day, and then a bad day for the markets, ended with a whimper today. The broader markets were directionless since start of trade. And the story continued till the close. Buying in power and realty stocks brought some respite to the markets, which were otherwise hurt by selling in IT and auto stocks.

The BSE Sensex closed with a marginal gain of around 5 points, while the NSE Nifty ended down by around 5 points. On the broader BSE, one stock gained for every one that closed in the red. The rupee was trading at 44.45 to a US dollar at the time of writing.

Engineering stocks closed mixed today. While gains were seen in BHEL and Suzlon, selling pressure marked trading in Havells and Siemens. Gains in BHEL were seemingly on the back of decent provisional results announced by the company for FY10. During the year, while its sales grew by 21% YoY, net profits were up 37% YoY. Order inflows during the year remained almost flat at about Rs 590 bn. However, the company's order backlog at the end of the year stood at 1,438 bn (a growth of 23% YoY). This is 4.2 times its FY10 sales.

Software stocks continued their weak run on the bourses on the back of an appreciating rupee. Stocks that lost the most from the sector today were HCL Tech, TCS, and Infosys. With the rupee’s appreciation against the US dollar and other key currencies like Euro and Pound showing no signs of abating, Indian IT companies are staring at some weakness in their margins going forward. An appreciating rupee is painful for these companies. This is because they can now convert every dollar of earnings into fewer rupees. And this is when their rupee-based costs (like employee costs) are on a rise. So there’s a double whammy!

India's largest auto company Maruti Suzuki expects the car market to more than double in a matter of just five years. Maruti expects the market, which is just 2 m cars a year currently, to reach sales of about 4.6 m cars by 2015. It may be noted that the domestic car industry has grown by 13% annually over the last five years, and will have to clock in an average annual growth of 18% till 2015 to attain the 4.6 m cars per year level. It expects this growth to come in due to India's advantageous demographics and rising household income levels.

However, with car majors including Toyota, Volkswagen, Nissan and Renault along with their domestic counterparts upping investments in the country, competition levels in the industry are set to heat up like never before. Therefore, the fortunes of companies in the industry will be reliantnot only on industry growth but also on how they are able to maintain their market share over time.

Mid, smallcaps are in demand
01:30 pm

The Indian markets continued to hover around the dotted line during the previous two hours of trade. However, market sentiments seem to remain optimistic as the overall advance to decline ratio is poised at 1.5 to 1 on the BSE. Stocks from the real estate space are leading the pack of gainers. They are followed by power and capital goods stocks. IT and auto stocks are seeing the most pressure at present, while FMCG and metal stocks are amongst the lowest gainers.

While the BSE-Sensex is trading marginally higher by 10 points, the NSE-Nifty is trading lower by about 5 points. However, stocks from the midcap and smallcap space continue to see interest as the BSE-Midcap and BSE-Smallcap indices are trading higher by about 0.7% each. The rupee is trading at 44.36 to the US dollar.

Steel stocks are trading mixed with Tata Steel trading firm and JSW Steel and SAIL trading in the red. A leading business daily has reported that steel consumption grew by nearly 8% YoY during FY10. This is slightly higher than the forecasted GDP growth rate for the year. As per the steel ministry, demand was largely led by the fast growing automobile, infrastructure and real estate sector. It may be noted that during the previous financial year i.e. FY09, steel consumption had shrunk by about 0.5% YoY. Consumption for the year stood at about 56.3 MT against 52.3 MT last year. At the same time production expanded at a slower pace of 4.2% YoY and currently stands at 60 MT. While exports declined by nearly one-third as compared to last year, steel imports grew by 23% YoY.

It may be noted that the growth in steel production is likely to remain strong going forward. This is on the back of new capacities being built up to meet the growing demand. However at the same time, prices of key raw materials have also moved up in recent times. This had led the steel industry to hike price across products this year. In fact, the industry has raised steel prices three times in the year till date. While these price hikes are not likely to make a substantial impact on demand, the extent of the same, however, remains to be seen considering that the effect of the hikes will take place in the coming future.

Engineering stocks are currently trading firm led by BHEL, Suzlon, Cummins India and Punj Lloyd. The stock of wind energy major Suzlon Energy is amongst the top gaining engineering stocks at present. This is on the back of the company winning a repeat order from Gujarat State Fertilisers & Chemicals. The scope of this order includes setting up, operating and maintaining an 18 MW (megawatt) wind energy project at Adodar site in the Porbandar district of Gujarat. The project will comprise of 12 units of Suzlon's S82 - 1.5 MW wind turbines.

It must be noted that this order is not really a big ticket order for the company. But the fact that this is the third repeat order from its client is possibly the reason for the stock to move higher. It may be noted that in the past, a few of Suzlon's clients have questioned the quality of Suzlon's products such as wind turbines. For the same the company had to bear heavy losses. However, receiving a third order from a single client does imply that some of the company's clients are content with its products and offerings.

Mkts recoup their initial losses
11:30 am

With an increase in buying activity at lower levels, the markets have managed to recoup some lost ground in the last two hours of trading. Currently, stocks from the auto, software and energy sectors are dragging the indices lower, while stocks from the FMCG, realty and power sectors are trading higher.

The BSE-Sensex is trading higher by 11 points while the NSE-Nifty is trading marginally lower by 6 points. The BSE-Midcap and BSE-Smallcap indices are trading higher by 0.5% and 0.57% respectively. The rupee is trading at 44.49 to the dollar.

As per a leading business daily, healthcare equipment manufacturer Opto Circuits has acquired Kolkata-based N.S. Remedies Ltd for US$ 1.50 m in an all cash deal. The acquisition will enhance the company's manufacturing capacity and at the same time is also expected to significantly reduce its cost of manufacturing by 23% to 25%. Also, the company's cost of outsourcing will come down as N.S. Remedies has an advanced facility for stent manufacturing and research & development. Earlier Opto Circuits used to outsource the manufacturing to Germany. Thus, the move is in line with the company’s plan to have its own manufacturing base. The stock of Opto Circuits is trading higher currently.

Engineering and construction major L&T has received a large order worth Rs 10.6 bn from Gujarat State Petroleum Corporation (GSPC) to build an offshore oil platform. The order has been awarded to L&T to help accelerate the production of first 'oil/gas' by 2012 from the technically challenging KG Basin. Upon final commissioning, the facilities will add about 6 m standard cubic metres of hydrocarbon gas per day to India's energy production.

L&T will be responsible for the survey, engineering, procurement, fabrication and installation of the wellhead platform. It may be noted that L&T has been providing services to the upstream hydrocarbon sector since the early 90s and has also executed several demanding offshore projects for ONGC and international clients. This contract affirms L&Ts reputation and capabilities as a reliable source to execute critical projects for oil companies. To execute the project L&T will leverage its upcoming manufacturing facilities at Kattupalli near Ennore and L&T Valdel engineering office in Chennai. The stock along with its peers, BHEL and Punj Lloyd, is trading higher currently.

Markets begin on a volatile note
09:30 am

The Indian markets have started today's session on a volatile note. The benchmark indices opened above the breakeven mark but slipped into the red and have struggled to return to the positive since then. Other key Asian markets are trading in the green with Taiwan (up 1%) leading the pack of gainers. The US markets closed higher by 0.4% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading a mixed bag with FMCG and auto stocks attracting investors' interest. However, metal stocks are in the red. The BSE-Sensex is trading lower by around 35 points, while the NSE-Nifty is down by about 14 points. However, buying interest is being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.1% and 0.2% respectively. The rupee is trading at 44.41 to the US dollar.

Energy stocks have opened the day on a positive note. Gainers here include Cairn India and Gujarat Gas. As per a leading business daily, Petronet LNG is in talks with West Asian countries, including Qatar, to secure gas supply for its Kochi terminal. It may be noted that the company has already tied up for 1.5 million tonnes per annum (mtpa) of gas for the terminal from the Gorgon project in Australia. However, the terminal can handle 1 mtpa of additional capacity. Qatar based Ras Gas will supply an additional 4 mtpa of LNG to the company by 2013. Out of this about 2.5 mtpa will be received by the company's Dabhol terminal and the balance by the Kochi terminal. However, the key question is the price. Till December, 2008 Ras Gas used to supply LNG at US$ 2.53 per m British thermal units (mBtu). However, prices are now linked to crude price movements and have reached US$ 7 per mBtu. That makes it hard to compete with domestic sources such as the gas from KG basin, whose landed cost is about US$ 6.7 per mBtu.

Engineering stocks have opened the day on a positive note. Gainers here include Suzlon and BHEL. As per a leading business daily, BHEL is planning to re-enter the wind turbine manufacturing space in the next three months. The company will join hands with a foreign technology partner for the same. BHEL's Ranipet unit will provide the fabrication facility for the manufacturing of towers and nossels. However, it will take another two years to set up a wind blade manufacturing facility near the existing unit. The company will produce 1.5 to 2 MW machines and will invest Rs 500 m for the foray. It may be noted that the company used to manufacture 250 KW wind turbine generators earlier and dropped it due to the lack of demand.

The global economy is still in danger

Has the global economy come out of its slump? Will it witness a W-shaped recovery? When should various governments withdraw the fiscal stimulus? These are some of the important questions that have given everybody across the world food for thought. And while the answers have not been easy, they have certainly been varied. After all, it is difficult to take a call as to when the global economy will once again witness those glory days before the crisis erupted. Infact, many are of the view that we may never see those days again and will have to contend with a new normal.

While many noted economists have expressed opinion on the subject, the IMF chief Dominique Strauss-Kahn has also ventured forth his view. Which is that the global economy is not completely out of the woods yet. Sure, some signs of recovery have been evident. But those have been more a product of government spending and support rather than demand from the private sector. Infact, if one takes a look at the US, the small recovery signals that have been observed have been largely a result of government stimulus measures. Demand there has been quite subdued due to reduced incomes and a high rate of unemployment.

Thus, while there are talks about a double dip recession doing the rounds, the IMF chief also acknowledges that the same cannot be ruled out. At the same time, the IMF has not predicted such a double dip recession over the next two years. Infact, as reported in a leading business daily, the IMF has estimated that the world economy would expand by 3.9% in 2010 and this will ramp up to 4.3% in 2011.

Then many countries have another problem to contend with: a rising fiscal deficit. This is visible not only in a developed country like the US but also an emerging economy like India. The US intends to follow an expansionary monetary policy for an extended period of time. It has argued that inflation is not really a problem for the time being given that demand is depressed. But as and when the US recovers and the Fed does not do much in terms of tightening its purse strings, then higher inflation and the perils that it brings along with it will be another problem that the US will have to deal with.

The emerging economies also have their own set of problems despite the fact that they are touted to grow much faster than their developed peers. China runs the risk of fuelling higher inflation given the huge stimulus measures pumped into its economy and the indiscriminate lending by banks to asset classes such as real estate where a bubble has already begun to form. India has been plagued by a rising fiscal deficit along with higher inflation, which poses many problems for the Indian government.

Thus, it seems increasingly likely that the world economy will not revert to those heady days but will have to settle for a new state of things. Even if some of the pressing concerns get resolved in the near future there could be graver risks lurking around the corner. This means that governments and central banks will have to make some important decisions in the months to come if another crisis of the scale we have witnessed has to be prevented going forward.