Profit booking takes toll

Indian stock markets had a weak outing today as persistent selling activity across index heavyweights caused the indices to languish in the red for a larger part of the day. Although the afternoon session saw buying gain pace and the indices move into the positive, this proved to be short lived as profit booking once again pushed the indices into the red. While the BSE-Sensex closed lower by around 39 points (down 0.2%), the NSE-Nifty closed lower by around 10 points (down 0.2%). The BSE Midcap and BSE Small cap cap were not spared either as both closed flat. Barring healthcare and metals stocks, selling was seen across indices.

As regards global markets, Asian indices closed in the red today while European indices have opened in the green. The rupee was trading at Rs 44.52 to the dollar at the time of writing.

Reliance Industries announced its results for the fourth quarter ended March 2011. Topline grew by 26.2% YoY during 4QFY11 mainly driven by 22% YoY growth (on a gross basis) in revenues from the Refining segment (74% of the gross sales). The gross refining margins (GRMs) stood at US$ 9.2 per barrel during the quarter (US$ 7.5 per barrel during 4Q2010). The revenues from Petrochemicals segment (21% of gross sales) were up by 18% YoY. However, Oil and Gas segment (5% of the gross sales) revenues declined by 5% YoY. The company registered 8% YoY increase in operating profits that translated into a margin of 14% for the quarter (16% in 4QFY10). While Petrochemicals and Refining segment margins remained the same as that of 4QFY10, the operating profits for Oil and Gas segment were down by 8% YoY leading to margin decline of 1.2% for the segment. While the improvement in gross margins and investment in shale gas ventures is positive for the company, supply issues from its oil and gas fields remain an overhang. The performance of the Petrochemicals division is expected to remain robust on account of increase in the demand. The stock closed lower today.

Software stocks closed mixed today. While NIIT and Mahindra Satyam found favour, TCS and Infosys were at the receiving end. Markets continue in red
01:30 pm
The benchmark indices in the
Indian stock market continued in the red in the last two hours of trade. Stocks from the FMCG and Capital Goods space are the biggest losers while stocks from the Technology and Realty space have lost the least.

The BSE-Sensex is down by 208 points while NSE-Nifty is trading 61 points below the dotted line. BSE Midcap and BSE Small cap indices are trading 0.5% each below yesterday's closing. The rupee is trading at 44.55 to the US dollar.

Energy stocks are trading mixed with BPCL and Indian Oil Corporation leading the pack of gainers. The stocks of Indraprastha Gas, ONGC and ESSAR Oil are trading in the red. As per a leading financial daily, Reliance Industries (RIL) plans to build a Rs 50 bn-60 bn port project at Rewas, Maharashtra and a liquefied natural gas (LNG) import facility have been currently put on hold. The Rewas project is on hold since it has not yet received the regulatory clearances for land acquisition. It is a part of Maha Mumbai SEZ project. Reliance Logistics and Ports, a unit of RIL holds a 55% stake in Rewas ports and the Maharashtra Maritime Board owns 11%. The Maharashtra Government had ended its land acquisition process for the proposed Maha Mumbai Special Economic Zone in February this year, blocking the development of one of India's biggest SEZ plans. All land acquired by the government in the past for the SEZ was to be returned as well. Also, the company is yet to take a final decision on its plans to build a US$ 1.2 bn LNG import terminal. The terminal was planned on either the East or West Coast to meet the demands of its refineries and petrochemical plant. The stock of RIL is trading in the red.

Aluminium stocks are trading mixed as well with Hindalco leading the pack of gainers. However, NALCO is trading weak. As per a leading financial daily, National Aluminium Company Limited (NALCO) may set up its refinery in Visakhapatnam district. The investment for 1.4 m metric tonne refinery is estimated to be more than Rs 40 bn. It is expected to be commissioned in next three years. The authorities are expected to finalise the site for the refinery very soon. The company had got approval from Central Government to mine bauxite for its proposed alumina refinery in Visakhapatnam 20 months ago. With the approval, Nalco would be able to mine estimated deposits of 85 m tonnes of bauxite reserves in Visakha Agency and in East Godavari district. The stock of NALCO is trading in the red.

FMCG, capital goods weigh on markets
11:30 am

Indian stock markets continued to flounder in the red on the back of profit booking in heavy weights over the last two hours of trade. Stocks from the FMCG and capital goods space are the biggest losers while stocks from the realty and IT space have lost the least.

The BSE-Sensex is down by 212 points while NSE-Nifty is trading 66 points below the dotted line. BSE Midcap index is trading down by 0.4% while BSE Small cap index is trading 0.5% below yesterday's closing. The rupee is trading at 44.58 to the US dollar.

Auto stocks are trading in the red with M&M and Maruti Suzuki leading the losses. As per a leading financial daily, Mahindra & Mahindra is planning to set up production facilities in Africa. The company wants to establish plants in Tunisia, Morocco, South Africa, Kenya, Ethiopia and Zambia. It may be noted that Mahindra already has plants in Gambia, Tchad, Mali, Ghana and Nigeria. In fact, the tractor company is present in 24 out of the 53 countries of the continent. It gets 15% of its exports from Africa and aims to double it in a year's time.

The company management stated that the company is following a bottom of the pyramid strategy in the opportunistic market of Africa. The demand they feel will arise out of the growing disposable incomes of the people residing there. The company will be focusing on three-wheelers, light commercial vehicles and utility vehicle Bolero for this market. It is also in the process of appointing a country manager along with a team of 7-8 people to handle this expansion plan.

FMCG stocks are trading weak led by Gillette India and Hindustan Unilever. Procter and Gamble Hygiene and Health Care Limited (PGHHCL) released its 3QFY11 results. The company's top line grew by 14.3% YoY. This performance came on the back of a 21% YoY volume growth partially offset by price cuts and increase in excise duty. The company's Feminine Hygiene segment posted a 23% YoY growth for the quarter driven by strong demand for Whisper Choice and Whisper Ultra. Health Care business of PGHHCL also performed well with a growth of 11% YoY on the back of 28% YoY growth in Vicks Cough drops and 24% YoY growth in Vicks Inhalers. Operating income of the company grew by 6% YoY. While advertisement and staff costs fell by 14% YoY and 5% YoY respectively, other expenditure grew by a tepid 11% YoY. However, sharp increase in cost of goods sold by 50% YoY on the back of increase in commodity costs resulted in operating income growing slower than sales. Net profit of PGHHCL fell by 10.8% YoY on the back of lower operating income, fall in other income and rise in depreciation costs. Net profits would have been lower but for a fall in effective tax rate.

Markets down on Asian cue
09:30 am

All Asian stock markets have opened the day in the red. Stock markets in Japan (down 1.4%), China (down 0.9%) and Hong Kong (down 1.1%) are leading the pack of losers.
Indian stock markets have also started the day in the red. Stocks from the capital goods, FMCG and metal space are leading the losses. However, realty stocks are trading flat.

The BSE-Sensex is trading lower by around 163 points (0.8%), while the NSE-Nifty is down by around 46 points (0.8%). Mid and small cap stocks are also trading weak with both the BSE Midcap index and BSE Small cap index down by 0.2% each. The rupee is trading at 44.60 to the US dollar.

Oil and gas stocks have opened the day on a mixed note with RIL and GAIL trading weak, while IOC, HPCL and BPCL are trading firm. State-owned oil marketing companies (OMCs) are planning to raise petrol prices soon after the state polls ends. Petrol prices could be raised by Rs 3 per litre some time around mid-May 2011.

After petrol prices were deregulated last year, the OMCs have the freedom to revise prices in accordance with international crude oil prices. However, the government which holds the majority stake in these firms had informally asked not to revise prices until the state polls. Rising inflation has already been pinching the common man. So, to not intensify the public ire further, the prices have been held back so far.

Bank stocks have opened the day on a weak note with Axis Bank, HDFC Bank and Yes Bank facing selling pressure. Axis Bank has declared its fourth quarter results for the financial year 2010-2011 (4QFY11). The bank has reported 17% YoY growth in net interest income. The growth in net interest income was led by a 36% YoY growth in advances. The growth in deposits for the bank was primarily through term deposits. While Axis Bank's fee income registered a growth of 30% YoY during FY11, the proportion of fee to total income improved from 32% in FY10 to 33% in FY11. Axis Bank's net NPAs as a percentage of advances remained stable at 0.3% with a marginal improvement in the past quarter. Despite lower growth in other income, net profits grew by 33% YoY during the quarter. During FY11, the bank added 278 branches and 1,977 ATMs. It has declared dividend of Rs 14 per share.

What separates India from China

There is one thing that China and India have in common. Both are emerging economies which have been recording strong growth in GDP at a time when the West is reeling under recession. But both countries are different in many ways. For starters, China is an undisputed behemoth in manufacturing while India has a strong services sector. What is more, the events post the global financial crisis also paint a different picture.

For instance, Fitch Ratings has stated that India is better placed compared to China in regulating the flow of bank credit. Readers would do well to note that the RBI's regulations have ensured that flow of credit has been controlled. In fact, that was one of the primary reasons why Indian banks did not meet the same fate as that of their Western counterparts due to strict vigilance by the RBI. China's economy, by contrast, has expanded post the global crisis largely on account of expansion in bank credit. This money especially found its way into the Chinese real estate market, inflated prices and thereby raised fears of a bubble being formed there.

On the other hand, RBI regulated the credit flow to the local corporate sector with prudence. This helped the country's banks in managing their asset quality better during the recent global economic downturn.

Another contrasting feature found in both the economies is that while India's growth has been driven by domestic demand, China's has largely been fuelled by external demand. That is why India has the upper hand for the time being simply because even though the global economy has yet to recover, Indian companies can rely on domestic demand to spur growth. The same cannot be said for China, which has largely depended on the West to fuel its economy. But the crisis has meant that China is gradually looking to bolster domestic demand so that its dependence on exports going forward is reduced.

Both the countries, however, are trying to grapple with the problem of inflation in recent times. In China's case, increasing liquidity and an expansionary bank credit has led to prices rising as more money is chasing fewer goods. In India's case, problems have been on the supply side as food shortages have fueled food prices which in turn has caused inflation to remain at persistently higher levels. Both the central banks are dealing with the problem by raising interest rates to curb excess liquidity. That is why growth in both these economies could slow down a tad bit in the future if inflation is not brought under control. Despite these near term concerns though, both these economies seem poised to grow at a strong pace in the longer term, a feat which the developed world may find hard to replicate in the years to come.