Greece comfort buoys markets

Markets decided to take a breather during the closing hours of trade today. However, gains witnessed during the earlier part of the day were enough to enable them to close strongly in the positive today. Thus, while the BSE Sensex edged higher with gains of around 220 points, gains on the NSE Nifty stood at around 60 points. BSE Midcap and Small cap indices also witnessed strong gains today as they edged higher by 1% each. Nearly four stocks gained for every one that declined on the Sensex today.

While most Asian stocks ended in the green today, Europe is also showing a positive momentum currently. The rupee was seen trading Rs 44.3 to the dollar at the time of writing.

Most of the losses that the markets witnessed yesterday were recouped today. And the protagonist behind the movement was not very different either. Yesterday's decline was marked by concerns with respect to Greece defaulting on its loans. However, Jean Claude Trichet, the president of European Central Bank came out in the open and declared that such concerns are overrated and Greece would indeed be able to pay its debts. The announcement cheered investors, who then chose to restart the rally of the last few days. Buying sentiment, especially in emerging markets, also improved because of another news item that said that emerging market equity funds drew the most net inflows in six months. This takes the net inflows for the year to a little below US$ 11 bn. Clearly, the markets look like they are in for a long one way ride.

Thanks to the buoyancy in markets, quite a few companies have retraced their all time highs. However, real estate companies would certainly be in a minority in that list. Quite a few of them have been thrown so far away from their peaks that retracing the same could still take a lot of time. But this state of affairs is doing nothing to deter companies from the sector from tapping the primary markets. Emaar MGF is a case in point. As per a leading daily, the company is planning to launch its IPO in the next 90 days. The company plans to raise Rs 35 bn through the issue. And like most real estate companies, Emaar too is saddled with debt of close to Rs 50 bn and hence, wants to use a majority of the IPO proceeds towards repayment of debt. Given the market environment, raising money from the IPO may not be a difficult task to achieve for the company. However, it remains to be seen whether the company creates long-term wealth for its shareholders.

Full year results season for the IT sector will get underway shortly with the sector behemoth Infosys slated to announce its results early next week. Analysts are also awaiting with bated breath the guidance that the company would provide for the coming financial year. However, Forrester Research, one of the leading knowledge bodies for the industry, has already given its verdict. It believes that the industry has started to recover from the economic downturn and will see worldwide growth this year. Forrester expects the US IT market to grow by 8.4% to US$ 550 bn whereas the worldwide tech market is expected to log in a growth of 7.7% for the current calendar year. Good news for the Indian IT exporters indeed.

Strong buying leads markets higher
01:30 pm

The Indian markets gained further ground during the previous two hours of trade. Buying activity is being witnessed in stocks across sectors with gains being seen in the heavyweights from most sectors. While stocks from the consumer durables, banking, energy sectors are leading the gainers, stocks from the pharma and realty sectors are seeing the least gains currently.

The BSE-Sensex is trading higher by 235 points while the NSE-Nifty is trading higher by 65 points. The BSE-Midcap and BSE-Smallcap indices are trading higher by 0.9% and 1.4% respectively. The rupee is trading at 44.34 to the US dollar.

According to a leading business daily, Indian government has banned FDI (Foreign Direct Investment) in cigarette manufacturing. This implies that foreign companies will be prohibited from investing in manufacturing of cigarettes, both for domestic consumption as well as for exports. The government’s decision augurs well for cigarette manufacturing companies like ITC and Godfrey Phillips as foreign players like Japan Tabacco, BAT and the Altria Group will no longer be able pose a threat to Indian firms in the industry. It may be noted that recently Japan Tabacco hinted at plans to raise its stake in its Indian arm to 74% from current 50%. BAT (British American Tobacco) which holds 32% stake in ITC has also been trying to increase its stake. However, it did not succeed. The ban on FDI in the industry bodes well for the Indian cigarette manufacturers like ITC and Godfrey Philips, which can benefit from the vast Indian market with relatively lesser competition. This will also bring more clarity to the FDI norms pertaining to the sector. However, the new rule technically still allows FDI in other tobacco segments like beedis and gutkha.

As per a leading business daily, auctions for 3G spectrum are slated to begin today and may last for 15-20 days.  Bidding for broadband spectrum is expected to begin 2 days after the completion of 3G auction. However, the design of auction is something which is really interesting. In order to prevent collusive bidding, it will be the auctioneer who will drive the process and not the bidders. The auctioneer will present bids received in ascending order to the bidders and they have to either accept or reject the proposal. This is unlike traditional auctions, where it is generally the bidder who drives the auction process. During the auction the base price will be revised at each round. It should be noted that the base price for pan India 3G license is pegged at Rs 35 bn, while for broadband wireless auction it is at Rs 17.5 bn.  The launch of 3G is expected to leverage the balance sheet of most telecom companies (due to aggressive bidding). Many expect the launch of 3G services to change the face of telecom in India. But we worry about the level of penetration that this service can see in the coming years. Infact, if one were to go by the global experience too, the usage of 3G has been much lower than expected.

Auto & banking stocks find favour
11:30 am

The Indian markets continued to trade in the positive territory during the previous two hours of trade. Buying activity is being witnessed in stocks across sectors with gains seen in the heavyweights from various sectors. While stocks from the auto, banking, power and software sectors are leading the pack of gainers, select stocks from the power and telecom sectors are losing ground.

The BSE-Sensex is trading higher by 200 points while the NSE-Nifty is trading higher by 55 points. The BSE-Midcap and BSE-Smallcap indices are trading higher by 0.8% and 1.5% respectively. The rupee is trading at 44.39 to the US dollar.

With a rebound being witnessed in discretionary spending, corporates are unveiling expansion plans. Buoyancy in the economy has led the hospitality major East India Hotels (EIH) to line up aggressive expansion plans. Both the company's brands, Trident and Oberoi, will see ramp up in room capacities. Before that it plans to reopen its Mumbai property on April 24 of this month, which was under renovation post the terrorist attacks. Then eventually, the company plans to roll out one property in the domestic market and 5 properties in the Middle East in the next 3-4 years.

In all, EIH operates 2,200 rooms under the Oberoi brand and will see addition of 700 rooms under the same brand by 2013. The company plans to roll out two new properties under the brand Trident, one in Hyderabad and other in Dehradun by 2012. The company expects the Oberoi brand to witness 35% to 40% growth, while Trident will grow at a lower rate of 15% to 20%. Adding rooms across geographies is expected to help the company boost revenues. However, competition is also intensifying. The addition of more rooms is likely to exert pressure on room rates going forward. The stock of EIH is trading higher currently.

Media companies like Jagran Prakashan, Mid-day Multimedia, HT Media and Deccan Chronicle are trading in the green today. According to a leading business daily, media firm, Jagran Prakashan which publishes Dainik Jagran, the largest read Hindi daily in India, is seeking strategic alliance with Mid-day Multimedia. Though the discussion is in preliminary stage, it is believed to pan out in the form of a possible stake buy or a marketing tie-up.

It may also be noted that very recently a US based private equity firm, Blackstone Group had announced that it will be investing US$ 50 m (or Rs 2.2 bn) in Jagran Media Network Pvt. Ltd which is the parent company for Jagran Prakashan. The company has hinted that these funds would be used for capital expenditure and for a potential acquisition. We believe that Jagran Prakashan's move to strike an alliance with smaller peers like Mid-day is a prudent way to strengthen its foothold in India, the world's second largest print media market. Mid-day, which is currently a loss making entity, might see a turnaround if Jagran Prakashan manages to improve the product and leverage its brand and marketing channel for the same.

Markets begin on a positive note
09:30 am

The Indian markets have started today's session on a positive note. The benchmark indices opened at the breakeven mark and but soon surged into the positive. They have held on to their gains since then. Other key Asian markets are trading in the green with Hong Kong (up 1%) leading the pack of gainers. The US markets closed higher by 0.3% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with auto and construction stocks attracting investors' interest. The BSE-Sensex is trading higher by around 140 points, while the NSE-Nifty is up by about 40 points. Buying interest is also being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.8% and 1.1% respectively. The rupee is trading at 44.38 to the US dollar.

Steel stocks have opened the day on a positive note. Gainers here include Adhunik Metaliks and Ispat Industries. As per a leading business daily, the government has approved disinvestment in SAIL to mop up around Rs 160 bn. The company will raise an additional 10% equity. In addition, the government will off load a 10 % to the public. This will be done in two rounds. Each round will consist of a 5% follow-on public offer and a 5% sale of the government stake. As a result, the government's shareholding in SAIL will come down to 69%, from 85.6% currently. Public shareholding will rise to 31%, from 14.2%. In our view, the additional equity will help SAIL fund its capital expenditure plan. It will spend close to Rs 700 bn to raise its installed production capacity from 13.8 m tonnes per annum (mtpa) to 23.5 mtpa. The divestment of government stake is in line with its plan to raise Rs 400 bn in FY11. Disinvestment in other public-sector undertakings like Coal India, MMTC and Engineers India is also on the cards.

Auto stocks have opened the day on a positive note. Gainers here include Tata Motors and Hero Honda. As per a leading business daily, Maruti Suzuki is facing growing demand for its cars, but is falling short of production capacity. In the last financial year, the company sold 1 m units. It expects a 10% growth this fiscal. However, the capacity utilisation at the current plant is already over 100%. Unfortunately, new capacity is likely to come on stream only by FY12. The company's engineers are trying to get around the situation by putting in manual lines. It may be noted that Maruti's two plants in Gurgaon and Manesar together have an installed capacity of 800,000 cars but produced over 1 m units in FY10.

Fund house, not Investors to pay fees

The Securities and Exchange Board of India (SEBI), India's stock market regulator, has come up with a slew of new rules recently. It has recently tightened disclosure norms. It has also reduced the listing timeline for IPOs. As if that was not enough, it has now asked mutual fund houses to bear the upfront commissions from asset management company (AMC) reserves and not from scheme expenses. As a result, upfront fees are likely to fall from 1% to 2% currently to almost 0.1% to 0.25%.

It may be noted that AMCs can charge up to 2.25 % as scheme expenses. Some of them charge 1.75% to 2% and use the balance for pay upfront commissions to distributors. Now, they would have to pay upfront commissions from AMC reserves. In our view, this move will be lead to lower commissions for distributors. For investors, there will be money in the scheme account as a result of which their net asset values (NAVs) will go up.

Interestingly, SEBI has recently tightened the role of mutual funds in governance of listed companies. It has asked them to disclose the actual exercise of their proxy votes in the general meetings of investee companies with respect to changes in capital structure in the company and stock option plans. Quite clearly, the stock market regulator is looking at all aspects of the Indian investment industry and making it more investor friendly. More plans for highway construction

There seems to be a steady flow of announcements when it comes to construction of highways in India. As per a leading business daily, the government has approved highway construction works worth over Rs 44 bn in various states, including Bihar and Rajasthan. Two sections of the national highway (NH) 14 in Rajasthan will be converted into four lanes at a cost of Rs 24 bn. A stretch of NH 30 in Bihar will also be four-laned at a cost of Rs 6 bn. A Rs 7 bn improvement project will be done in Haryana. Besides, approvals have been given for construction of 28 roads in the North East at a cost of Rs 69 bn. In our view, plans for adding to India's road infrastructure are always welcome. The problem lies in execution which is often mired in red tape and land acquisition issues.