Sustained buying fuels indices

Shrugging off a weak opening, Indian stock markets gained momentum thereafter led by buying activity across index heavyweights. Subsequent hours saw the indices inching upwards and this buoyancy was sustained in the final trading hour as well ensuring that the markets closed well above the dotted line. While the BSE-Sensex closed higher by around 434 points (up 2%), the NSE-Nifty closed higher by around 126 points (up 2%). The BSE Midcap and BSE Small cap also closed higher by 1% each. Gains were largely seen in FMCG, banking and auto stocks.

As regards global markets, Asian indices closed firm today while European indices have also opened on a strong note. The rupee was trading at Rs 44.45 to the dollar at the time of writing.

Auto stocks closed firm today and the key gainers were Hero Honda, M&M, Maruti and Tata Motors. As per a leading business daily, auto major Tata Motors is looking to add fresh capacity for its small car Nano as it expects the Sanand plant in Gujarat to run at full capacity within a few months. At present, the company is producing 12,000 units a month and this is expected to reach full capacity at 20,000 units per month in the near term. This means that Tata Motors will have to consider fresh capacity to meet demand. The company has yet to decide whether this new capacity will be at the Sanand plant itself or at its Pantnagar plant where it used to produce Nano in limited quantities. Meanwhile, demand for the Nano appears to have gathered steam. The company expects an increase in the number of first time buyers purchasing the Nano.

That said, Tata Motors is likely to face pressure on the margin front as it is reluctant to hike the prices of Nano against a backdrop of rising input costs. Infact, besides high raw material costs, rising interest rates and fuel costs means that, overall, Tata Motors is not looking at any more price hikes to maintain its volumes growth.

As per a leading business daily, concerns of low gas supply has compelled Tata Chemicals to put on hold its plans of domestic expansion. While the company is ready with the engineering work, gas supply has been an issue and hence the decision to delay its expansion plans in the country. But overseas investments have not been dampened. And in this regard, Tata Chemicals will be investing US$ 170 m in phase II of its investment in Gabon. Earlier, the company had announced that it had acquired a 25.1% stake in the ammonia-urea fertiliser complex in Gabon for US$ 290 m (nearly Rs 13 bn). The complex is being set up through a joint venture with Olam and the Gabon Government at an investment of US$ 1.3 bn and it will have a production capacity of 1.3 million tonnes per annum (MTPA) in the beginning. As far as the funding is concerned, Tata Motors will raise US$ 82 m through preferential allotment of shares, US$ 68 m through sale of investments over next three years and the balance through debt funding of US$ 140 m all of which totals to US$ 290 m. The stock closed higher today.

All sectoral indices in green
01:30 pm

The benchmark indices in the Indian stock market have extended their gains in the last two hours of the trade. All sectoral indices are trading in the green. Stocks from the auto and capital goods space are the largest gainers, while those from the metals and healthcare space gained the least.

The BSE-Sensex is up by 265 points while NSE-Nifty is trading 76 points above the dotted line. BSE Midcap and BSE Small cap indices are up by 1.0% and 1.1% respectively. The rupee is trading at 44.44 to the US dollar.

Steel stocks are trading mixed. Tayo Rolls, Bhushan Steel and Tata Sponge are leading the pack of gainers. The stocks of Hindustan Zinc and Maharashtra Seamless are trading in the red. As per a reputed website, Sesa Goa has disclosed its unaudited production plans for 4QFY11 and full year FY11. The company has produced 5.5 m tonnes of iron ore in the last quarter of FY11, down 21% YoY. The company has cited state wide export ban in Karnataka (since end July 2010) and termination of the third party mining agreement in Orissa (in November 2010) as the main reasons for decline in production. However, at 6.7 m tonnes, the company witnessed a marginal increase in sales volume of iron versus last year. For FY11, the production came at 18.8 m tonnes, marginally lower than the last year. Sales volumes for full year came at 18.1 m tonnes versus 18.4 m tonnes last year. The company reported that its iron ore capacity expansion program is expected to complete by end of FY 2012-13.

In another development, the Supreme Court has issued a ruling that Karnataka ban should be lifted from 20th April 2011. The final hearing on the same is expected in first week of May 2011. The stock of Sesa Goa is trading in the green.

Engineering stocks are trading mixed with Bharat Bijlee and Siemens leading the gains. However, Jyoti Structures and Engineers India are trading weak. As per a leading financial daily, Alstom stated that its intention to go for local partners for refurbishment or new loco projects. There are chances that the local partner could be BHEL, though Alstom has not confirmed this yet. It has already signed an agreement with BHEL and the Nuclear Power Corporation of India (NPCIL) for setting up nuclear power projects in India. If this locomotive joint venture goes through, it will be second JV between the two. Alstom also wants to set up a wind power equipment manufacturing facility in India. However, it did not disclose the companies it was in talks with for the wind power manufacturing unit. The stock of BHEL is trading in the green.

Auto stocks drive up markets
11:30 am

After opening in the red, the Indian stock markets have made a sharp recovery on the back buying interest in heavy weights over the last two hours of trade. Stocks from the auto and IT space are the largest gainers while stocks from the metals and pharma space have gained the least.

The BSE-Sensex is up by 213 points while NSE-Nifty is trading 56 points above the dotted line. BSE Midcap index is up by 0.9% while BSE Small cap index is trading 1.3% below Monday's closing. The rupee is trading at 44.45 to the US dollar.

Steel companies are trading firm led by Bhushan Steel and Ispat Industries. As per a leading financial daily, Steel Authority of India Ltd (SAIL) has finally obtained environmental clearance for the McLellan Iron Ore Mining Project. McLellan is part of the Chiria group of mines. These mines were a legacy of IISCO and had merged with SAIL in April 2005. However, since then this group of mines has remained largely untapped. With reserves of over 2 bn tonnes, these mines are considered the largest single hill iron deposit in Asia. McLellan mine is considered to have the largest reserve at 1.1 bn tones.

According to SAIL the capital cost of the project is Rs 12.4 bn while the environmental protection cost is estimated at Rs 413 m. The annual recurring expenditure for environment protection stands at Rs 49.1 m. The Union Ministry of Environment and Forests had issued the clearance of this project based on a revised proposal by SAIL for an open cast mechanized iron ore mine. The target capacity would be 4.2 m tonnes a year as per the revised proposal. It may be noted that this project is crucial for SAIL's long-term raw material security as the reserves are expected to last at least 150 years.

Hotel stocks are trading mixed with Taj GVK and Hotel Leelaventure leading the gains. However, Country Club and Oriental Hotels are on the losing end. As per a leading financial daily, EIH is looking to expand in Europe as well as in India. The Oberoi group company operates luxury hotels under the brands Oberoi and Trident. It has recently opened a new five-star at Gurgaon. The new 202-room luxury hotel is under a management contract with Orbit Resorts. In future, EIH plans to open hotels through management contracts as well as through a mix of equity investments. It is expected to open a hotel each in Hyderabad and Dubai in the next year. In 2013, another hotel is expected in Hyderabad followed by a resort in Morocco in 2014. The hotel company plans to open a hotel in Oman as well. It may be recollected that EIH has just raised Rs 11.78 bn through a rights issue. The company intends to use this for mainly retiring debt and for expanding flight kitchen business.

Markets down on Asian cues
09:30 am

Asian stock markets have opened the day on a negative note as Japan has upgraded the nuclear crisis level in the country. Markets in China (down 0.2%), Hong Kong (down 0.2%) and Taiwan (down 0.2%) are leading the losses. However, markets in Singapore (up 0.5%) and Indonesia (up 0.1%) are witnessing some gains. The Indian stock markets have opened the day on a weak note as well. All major sectoral indices have opened in the red, except for the FMCG index. Stocks in realty and metal spaces are leading the losers' pack.

The BSE-Sensex is trading lower by around 83 points (0.4%), while the NSE-Nifty is down by around 29 points (0.5%). Midcap and small cap stocks are trading in the negative as well, with the BSE Midcap and BSE Small cap indices down by about 0.1% and 0.2% respectively. The rupee is trading at 44.58 to the US dollar.

FMCG stocks have opened the day on a positive note. Colgate Palmolive and Hindustan Unilever are trading in the green. However, Godrej Consumer Products and ITC are currently trading in the red. Intense competition has forced the revival of seven year old joint venture (JV). FMCG major, Hindustan Unilever (HUL) has revived its seven year old JV with PepsiCo. The JV would be selling ready-to-drink teas and tea beverages and would be re-launching the Lipton ice tea. The JV would be competing with the recently launched Nestea iced tea that is launched by rival Nestle and Coca Cola. The move into this segment is to expand the company's existing portfolio into the rapidly growing functional beverage segment. This segment includes fortified juices, teas, vitamin drinks and milk-based drinks. The segment has been witnessing phenomenal growth as consumers shift focus towards healthy beverages over the aerated drinks. The PepsiCo-HUL JV had first launched the Lipton ice tea in 2004. However, due to the lack of demand, the product had been withdrawn within a year of its launch. With increasing consumer readiness for such products, HUL is now more confident of garnering better revenues through the product.

Telecom stocks have opened the day on a weak note with Bharti Airtel, Reliance Communications and MNTL being the biggest losers. Idea Cellular is aiming to make significant gains from mobile number portability (MNP), especially because this is expected to create a churn in 3G subscribers following a stiff price war among the telecom players. The company now plans to build tie-ups in areas where it does not hold a 3G license. This will enable its subscribers to avail 3G services across the entire country.

Idea, India's third largest telecom operator (GSM only, by subscribers), has been the leading gainer from MNP. It has achieved a net addition of 4 lakh subscribers. This has taken its total subscriber base to 89 m users. The company has been facing margin pressures due to a decline in average revenue per user (ARPU), which currently ranges from Rs 172 to Rs 200. However, the 3G services are expected to curb any further decline in ARPU.

The vanishing act of IPO funds

The evolution of capital markets in India has had its share of hits and misses. On one hand investors have got access to one of the most technologically advanced platforms for investing. On the other they have been the victims of scams and misleading investment advice. In fact not every company coming to the market for raising money has kept investor interests in mind. Initial public offerings (IPOs) have particularly been notorious in this regard. Including some of the most high profile offerings.

As per the regulators more than 750 companies have vanished in the past decade after raising capital either by way of capital or debt. Even for the seemingly well planned offerings, it often turns out that the promoters change the mandate for using the capital post issue. The same either gets diverted to less remunerative segments of the business or helps the promoters channelize a larger pie of earnings to their own kitty. The latter is done by investing in group companies that are more privately owned.

The government has now taken note of this and asked for better reporting of the end use of IPO funds. The diversion of IPO money to other accounts in particular will be under close scrutiny. Given the quantum of money raised through public issues alone in recent times, the matter needs its due importance. The funds raised through IPOs tripled to Rs 593 bn in 2010 from Rs 200 bn in 2009. The figure is estimated at Rs 900 bn for the current year (2011). Any misuse of funds of such order can therefore not just deal a blow to investor returns but also impact appetite for primary market issuances severely.

The Registrar of Companies (ROC) is the body mandated to keep a closer watch on the execution of IPO plans. However, it is for the SEBI to ensure that companies remain answerable to shareholders for subpar returns from new projects or change in business mandates. Many issues come into the market purely to offer exit routes to anchor investors or to repay debt. Such cases rarely turn out to be value accretive to the IPO investor. Hence, the IPO funds that do not have the backing of a business plan other than these need to be kept under vigilance. All said the vanishing acts of the IPO funds need to be averted at all costs to ensure investor confidence in the primary markets.