Markets end flat on weak cues

Weak economic cues from global markets coupled with mixed set of results from India Inc. led to index heavyweights soliciting very little investor interest today. The indices in Indian equity markets remained range bound throughout the session today despite selective buying interest in auto, pharma and banking heavyweights. While the BSE-Sensex closed higher by a marginal 10 points, the NSE-Nifty closed higher by 3 points. While the BSE Mid Cap index lost 0.4%, the BSE Small Cap ended marginally higher.

As regards global markets, Asian indices closed flat to negative today while European indices have opened in the green. The rupee was trading at Rs 54.34 to the dollar at the time of writing.

HDFC Bank declared the results for the fourth quarter of financial year 2012-13 (4QFY13) today. The bank has reported a 21% YoY and 30% YoY growth in net interest income and net profits respectively in 4QFY13. The growth in net interest income was on the back of 23% YoY growth in advances. NIMs came in higher at 4.5% at the end of 4QFY13 as against 4.3% in the previous quarter (CASA at 46% of total deposits). The other income grew by 30% YoY, with fees and commissions growing in excess of 24% YoY. The cost to income ratio, however, went up to 51.4% in 4QFY13. Net NPA to advances remained stable at 0.2% of advances in FY13. HDFC Bank's provision coverage ratio was at 80% at the end of March 2013. Capital adequacy ratio (CAR) too was comfortable at 16.8%, Tier I CAR at 11.1% at the end of 4QFY13.

Telecom stocks closed mixed today. While Idea cellular and AGC networks were in favour, ITI Ltd and Reliance communications were among the leading losers. As per the financial daily, Bharti Airtel (BTVL) has entered into agreement to buy rival Warid Telecom in Uganda, this move will increase its customer base in the country by approx 60%. Reportedly, Warid is the third largest player in telecom market in Uganda. The deal will add around 2.8 m customers and take Airtel's total user base to 7.4 m customers in the country. The financial deals of the terms remain undisclosed. Bharti is ranked second in Uganda.

Small cap stocks buck trend
01:30 pm

With continued selling pressures, Indian share markets slipped deeper in the red in the post-noon trading session. Barring IT and pharma, all the sectoral indices are trading negative. Realty, banking and capital goods stocks are the major losers.

BSE-Sensex is down 93 points and NSE-Nifty is trading down 30 points. While BSE Mid Cap is down 0.5%, BSE Small Cap index is trading up by 0.2%. The rupee is trading at 54.3 to the US dollar.

Power stocks are trading mixed with Jaiprakash Power and JSW Energy being the major gainers and Indiabulls Power and PTC India being the biggest losers. As per a leading financial daily, the government has shelved the coal price pooling for power projects after a consensus on the likely impact of tariff could not be reached. Reportedly, the Cabinet Committee of Economic Affairs (CCEA) has decided that the power plants with capacity of 60,000 MW and commissioned before 2009 will continue to receive coal from Coal India (CIL) as before. However, the plants commissioned after 2009 can source imported coal from CIL on a cost-plus basis or import on their own. This development is likely to adversely impact private power producers that are developing projects awarded on a tariff-based bidding. However in a recent move, the Central Electricity Regulatory Commission (CERC) has allowed two power producers Adani Power and Tata Power to hike tariffs for power generated on imported coal from their Mundra power plants. Tata Power stock is down 0.8% whereas Adani Power stock is marginally up.

Automobile stocks are trading mixed with Bajaj Auto and Escorts leading among the pack of gainers while Tata Motors and Eicher Motors are the top losers. As per a leading financial daily, Maruti Suzuki (MARUTI) will be soon introducing a new version WagonR Stingray in its small car segment. Reportedly, this car will be complementing the WagonR series, which is one of the successful cars of Maruti Suzuki. Few years back WagonR was the second-largest selling car in the domestic market, but it slipped to fourth position in FY13. The new Stingray variant is expected to retain the position. This version was launched in Japanese market last year with several improvements which would also be updated in the Indian variant. The launch is expected in next few months.

Indian Equity markets remain in red
11:30 am

Indian equity markets have remained firm in the previous two hours of trade. Maximum buying interest have been witnessed in the metal and IT sectors while capital goods and banks have faced the maximum selling pressures.

The BSE-Sensex is down by 53 points and NSE-Nifty is up down by 22 points. BSE Mid Cap index is trading down by 0.24% while BSE Small Cap index is trading up by 0.39%. The rupee is trading at 54.34 to the US dollar.

All except one mining share, Ashapura Minechem are trading in the green. According to a leading financial news daily, Coal India (CIL), the country's largest coal miner, is on the verge of a massive restructuring exercise involving its work-force. Nearly 100,000 of its 345,000 workers will retire in the next 3-4 years, thereby cutting costs of production to a large extent and making the monopoly's operations significantly more efficient and productive. The retirement of more than a quarter of its workers will help the coal giant increase mechanisation and outsourcing of production and cut the average age of employees from 50 years to less than 45 years. Apart from workmen, the company has nearly 20,000 executives on its rolls. As a result of the drastic decline in the number of workmen, the share of salary and wages in the cost of production is expected to decline from 46% to anything between 35% and 40%.Considering a reasonable rate of inflation, total cost of coal production, as a result, is also expected to decline by at least 10% and per person productivity per shift is expected to improve from the current 4.5 tonne to at least 9 tonne. CIL's share is trading up by 0.74%.

Steel shares are trading on a mixed note with Jindal Saw Ltd. and Tayo Rolls leading the gains while Tata Sponge and Jindal Steel are facing the maximum selling pressures. According to a leading business daily, Tata Steel is looking to raise about 250 m Singapore Dollars in its first foreign currency bond issue this fiscal to repay some of its existing foreign loans. Tata Steel will raise the money through its fully owned subsidiary, ABJA Investment Co and will be the guarantor to the bonds. Standard Chartered Bank, SBI Caps, ANZ, RBS and Nomura Securities are some of the bankers to the issue. Though nothing about the tenure has been finalised, it is expected to be a long-term bond, anywhere between 7 and 10 years. Tata Steels consolidated debt rose to US$11.7 bn in June 2012 from US$10.7 b in March and is rated BB- by Standard & Poors and BB+ by Fitch Ratings. Tata Steel's share is trading up by 0.7%.

Indian share markets open weak
09:30 am

Major Asian stock markets have opened the day on a weak note with stock markets in China (down 2.1%) and Hong Kong (down 1.2%) leading the losses. The Indian share markets indices have also opened the day on a weak note. Stocks in the banking and capital goods space are leading the losses. However, information technology and metal stocks are trading firm.

The Sensex today is down by around 64 points (0.3%), while the NSE-Nifty is down by around 21 points (0.4%). However, mid and small cap stocks are trading in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.1% and 0.3% respectively. The rupee is trading at Rs 53.94 to the US dollar.

Cement stocks have opened the day on a weak note with JK Lakshmi Cement, Ambuja Cements and Birla Corporation leading the losses. Leading Indian cement maker UltraTech Cement has announced its financial results for the quarter and financial year ended March 2013. During the quarter (4QFY13) the company reported standalone net sales of Rs 53,892 m, marginally higher by 1% over the corresponding quarter of the previous financial year. The muted growth has been on account of almost flat growth in cement volume sales. Operating profits stood at Rs 11,993 m, lower by 5.5% year-on-year (YoY). The drop in operating profits is attributable to higher input and logistics costs. The effective tax rate was also higher by 730 basis points (7.3%) YoY during the quarter. As a result, net profits dropped by 16.3% YoY to Rs 7,262 m. Net profit margins declined from 16.3% in 4QFY12 to 13.5% in 4QFY13. During the full financial year 2012-13 (FY13), the company reported consolidated sales of Rs 211,561 m and net profits of Rs 26,777 m, both higher by 10.9% YoY and 11.4% YoY respectively.

Oil & gas stocks have also opened the day on a weak note with Hindustan Petroleum Corporation Ltd (HPCL), Cairn India and Bharat Petroleum Corporation Ltd (BPCL) leading the losses. Several major infrastructure projects had hit major roadblocks on account policy bottlenecks. In a bid to fast-track mega infrastructure projects, the government had set up a Cabinet Committee on Investment (CCI). As per a leading financial daily, the CCI gave the green signal to several infrastructure projects in the power and the oil & gas sector on Monday. Put together, the projects entail investments of about Rs 580 bn. In the oil & gas sector, work had halted on 31 exploration and production blocks due to security restrictions enforced by the Ministry of Defence. Of the 31 blocks, the CCI has cleared 25 blocks. While 9 blocks have been fully cleared, 16 blocks have been cleared with specific conditions. This has freed up about investments of about US$ 4.61 bn (approximately Rs 250 bn). The CCI has also cleared 13 power projects that were stalled due to various reasons. These 13 projects together entail investments of about Rs 330 bn.

Are policies helping the world economy?

The world economy is in complete disarray. The US and Eurozone are buried under debt. Emerging market economies like India and China too are losing steam. While China posted its lowest ever growth in 2012 since the last 12-13 years, India is mired by the demon of inflation. So, what exactly is needed to bring the world economy out from the mess that it is in currently?

Prudent policy making is the need of the hour. But since the last 2-3 years, policy to keep interest rates near zero in order to boost the economy in the West has hardly had any results. The West has witnessed various bond buying programs by their respective central banks which pumped trillions of dollars of cheap money into the system. However, it has hardly had any impact. In fact, since the consumer confidence is low, the velocity of money is very low. As such, cheap liquidity is unable to bring the economy back on tracks.

If the near zero interest rate policy is not working, central bankers should look out for other policies that can help revive the economy. For instance, India has eased its foreign investment restrictions in certain sectors to attract capital for growth. But it may be noted that in India's case capital is chasing growth. And considering that growth rate in the developed world is below par the theory of cheap money created by their central banks to uplift their growth will not bear fruit.

For effective policy making, first one needs to understand the problem that is hurting growth. For instance, one problem that is hindering growth in the developed world is unemployment. Hence, effectively there should be policies that help eradicate unemployment and create jobs for the youth.

Another problem facing the developed world is low consumer confidence. And that can build only when the consumer has faith in the economy and its long term prospects. Only then will consumer spending increase and improve the growth rates. Strengthening the risk management systems will also ensure that the banking crisis which led to the recession does not repeat in future.

In a nutshell, it is clear that cheap monetary policies have not had the desired results so far. But the problem is developed world has no other means at hand to pull out the economy from the current crisis either. It cannot increase government spending to boost growth as these economies are already under huge fiscal burdens. In fact, some are considering automatic budget cuts to rein in their huge deficits. Implementing tax cuts to increase disposable income in the hands of consumer is also out of question.

Overall, it seems that cheap liquidity is the only solution to bring the developed economies back on track. And the problem is that this solution has not brought any desired results up till now and can lead to further problems like excessive inflation and depreciating currency values.