Indian stock markets end firm

The Indian stock markets had a positive outing on the bourses on the last trading day of the month of April and ahead of the market holiday tomorrow. After opening in the green, markets remained in the positive zone for the entire session today. The indices recovered from the day's lows towards the end of trade, but still closed well in the positive. While the BSE-Sensex closed higher by around 131 points (up 0.8%), the NSE-Nifty closed higher by around 39 points. The BSE Mid cap and BSE Small cap, also had a good day. The smaller indices closed higher by 0.7% and 0.6% respectively. IT and Oil and gas were the top gainers. Consumer durables and FMCG were the only indices to close in the red.

As regards global markets, major Asian indices had a positive today with major markets Japan and China shut. European indices opened the day on a mixed note. The rupee was trading at Rs 52.62 to the dollar at the time of writing.

Oriental Bank of Commerce announced its results for the quarter and full year ended March 2012. Interest income grew by 31% YoY in FY12 on the back of 17% YoY growth in advances. However net of interest expenses, net interest income (NII) was flat on a YoY basis. The bottom-line fell by 24% YoY in FY12, and by 20% in 4QFY12, on the back of a moderate increase in NII, higher operating costs and provisioning expenses. On the asset quality front, the results were extremely disappointing. Net non-performing assets (NPA) increased to 2.2% of advances in FY12 from 1% in FY11. Capital adequacy ratio stood at 12.69% (as per Basel II) at the end of FY12, unlike its peers the bank has not gone for any capital infusion so far this year. The board recommended a dividend of Rs 7.9 per share for FY12, working out to a dividend yield of 3%. On account of a disappointing financial performance during the quarter, the stock slumped over 4% in trade today.

After a weak performance in 2011, India's steel consumption is expected to resume growth in 2012. Domestic steel consumption this year is predicted to grow in line with GDP growth, i.e. by 6.9% to reach 72.5 million tonne (MT). The growth rate may even accelerate further to 9.4% in 2013, on account of increased urbanisation and an increase in infrastructure investment, according to the World Steel Association's projections for 2012 and 2013. Some players in the field including Tata Steel, JSW Steel, SAIL etc have increased their capacities over the past few years. Thus these players may reap the benefits of increased demand. Global demand is also expected to take off in the second half of 2012. Global steel consumption is predicted to grow by 3.6% to 1,422 MT in 2012, on the back of a 5.6% hike in consumption in 2011. Demand is expected to remain firm in 2013 as well, with world steel consumption expected to increase by 4.5% to 1,486 MT.

Indian stock markets remain flat
01:30 pm

After a positive opening, Indian stock markets remained range-bound but continued to trade well above the dotted line in the last two trading hours. Majority of the sectoral indices are trading positive with IT, realty and banking stocks leading the gains. Pharma and FMCG stocks are the only losers.

The BSE-Sensex is trading up 122 points and NSE-Nifty is trading up 34 points. Both BSE Mid cap index and BSE Small cap indices are trading up by 0.4% and 0.5%, respectively. The rupee is trading at 52.6 to the US dollar.

Majority of the food stocks are trading negative with GSK Consumer and Nestle India down by more than 1%. Agro Tech Foods and Lakshmi Energy are the biggest gainers. As per a leading financial daily, industry body Assocham has projected the market size of the packaged food industry to double to US$ 30 m by 2015 on the back of rising demand for healthy & functional foods and beverages. Assocham has forecast the industry to grow at a compounded annual growth rate of 15%-20%. The packaged food industry comprises of products such as bakery products, canned/dried processed foods, processed dairy products, frozen ready-to-eat foods, diet snacks, processed meat and probiotic drinks. The main players in the processed food industry include Hindustan Unilever (HUL), Nestle, Pepsico and Haldiram.

According to a leading financial daily, travel service provider Cox & Kings has secured licence from Reserve Bank Of India (RBI) for operating Nostro account. Thomas Cook is the only travel company in India that has an authorized Nostro licence. A Nostro account will enable Cox & Kings to efficiently manage exchange rate fluctuations through better currency rates. Initially, the company will create accounts in the four most traded currencies namely US dollar, euro, pound and yen. The company is expecting to clock Rs 60-70 m of incremental profits from the new licence in FY13. The stock is up 3%.

Tech stocks lead the gains
11:30 am

Indian stock markets have been trading strong over last two hours of trade on buying in index heavyweights. Among sectoral indices, all except Auto and healthcare stocks are trading positively.

The BSE-Sensex is trading higher by 136 points and NSE-Nifty is trading strong by 40 points. BSE Mid cap and BSE Small cap indices are up by 0.5% and 0.7% respectively. The rupee is trading at 52.46 to the US dollar.

Metal stocks are trading in the green led by Jindal South-West Steel (JSW Steel) and Sesa Goa Ltd. Tata Steel is testing a new technology to produce coal with low ash content. This is in order to bring down the coal imports significantly. The plant which will be using this technology will be set up in Jamshedpur. The company plans to commission the commercial production of the low ash coal in next 6-8 years by 2018-20. The pilot project for the same is being set in Vizag with a capacity of 500 kg of coal cleaned per hour. This technology of Tata Steel will bring down the ash content in Coal to just 8%. Once the testing phase is done, the company intends to scale the same by 20 times. The company said that reduction in ash content will help improve margins as the company can bring down the imports of Coal and can be increasingly dependent on coal from its own mines in West Bokaro and Jharia.

Capital goods stocks are trading strong led by Larsen & Toubro (L&T) and Punj Lloyd., Bharat Heavy Electricals (BHEL), the state run power equipment giant is trading lower by 1% currently. The weakness is perhaps a result of orders worth Rs 120 bn, which were bagged by the company more than a year ago, getting scrapped. The entity that has scrapped the orders is the Government of Rajasthan's RVUN (Rajasthan Rajya Vidyut Utpadan Nigam). The orders concern EPC tenders for upcoming new super critical units of Suratgarh and Chhabra thermal power stations. This is despite both projects having tied up coal supplies. The development has happened at a time when BHEL is already struggling with a slowdown in its order book. It should be noted that BHEL had emerged as the lowest bidder with BGR Energy coming a close second in the international competitive bids for the two projects.

Indian stock markets open firm
09:30 am

Asian stock markets have opened the day on a mixed note with stock markets in Indonesia (down 0.4%) and Singapore (down 0.1%) leading the losses. However, markets in Hong Kong (up 1.1%) and Malaysia (up 0.3%) are trading firm. The Indian stock markets have also opened the day on a firm note. Stocks in the realty and IT space are leading the gains.

The BSE-Sensex is up by 119 points (0.7%), while the NSE-Nifty is up by around 35 points (0.7%). Mid cap and small cap stocks are also trading in the green, with the BSE Mid cap and BSE Small cap indices up by 0.4% and 0.6% respectively. The rupee is trading at Rs 52.53 to the US dollar.

Telecom stocks have opened the day on a firm note with Reliance Communications and Tata Teleservices leading the gains. Idea Cellular has declared its fourth quarter (4QFY12) and full year (FY12) results for financial year 2011-2012. The company saw its net sales increase by 26% YoY during the quarter. The growth was driven by the growth in total minutes of usage (MOU) on an absolute basis. Total minutes on the network increased by 21.9% YoY during the quarter. The realized rate per minute stood at 42.2 paise per minute. This was higher than the 40.6 paise realized during the same period last year but lower than the 43.3 paise realized during the previous quarter (3QFY12). Operating margins improved marginally to 21.8% during the quarter as compared to 21.4% during the same period last year. This was on account of lower network operating expenses which offset the increase in license and WPC charges as well as higher roaming and access charges during the quarter (all as a percentage of sales). Net profits for the quarter declined by 25.8% YoY. This was on account of higher tax expenses as well as higher interest costs during the quarter. For FY12, net sales grew by 25.6% YoY while net profits declined by 31.7% YoY.

Auto stocks have opened the day on a weak note with Maruti Suzuki, Mahindra & Mahindra Ltd. (M&M) and Ashok Leyland leading the losses. Maruti Suzuki has announced its financial results for the quarter ended March 2012 (4QFY12). Net sales for the quarter rose by 17.5% year-on-year (YoY) to Rs 114.9 bn. The growth was led by 5% YoY rise in number of cars sold, while realisations were higher by 12% YoY. However, operating margins dropped by 2.8% YoY to 7.5% in 4QFY12. Other income was higher by 46.4% YoY at close to Rs 3 bn. At the bottomline level, net profits dropped by 3% YoY to Rs 6.4 bn.

Shortcut to Dalal Street

Listing a company on the bourses is a cumbersome process. Host of guidelines/regulations, past track record and unfavourable primary market conditions can act as a hindrance. However, promoters of many unlisted companies have found a way out to get themselves listed by evading the current clumsy process. And that is by acquiring listed shell companies. For the uninitiated, a shell company is an organisation which does not have any business or assets in place. Acquiring such companies gives a ready platform to promoters of the unlisted entity, to subsequently merge their business with the shell company. This gives them a backdoor entry to Dalal Street.

Reverse merger transactions (merging the listed company with the unlisted one) are especially favourable during weak market conditions. This is because during such times listed shell companies generally trade at a discount. And thus, the promoter of the unlisted entity does not have to pay a huge premium to the current market price. In fact, there have been a quite a few shell acquisitions in the recent past due to weak market conditions.

But one must remember that such acquisitions can also backfire as shell companies are fraught with accounting irregularities and weak corporate governance practices. Take the case of US shell companies for example. Off late, many Chinese companies had gotten themselves listed in the US through reverse merger transactions. However, as accounting scandals in these shell companies started coming on to the fore (resulting from intense scrutiny), many traders indulged in short selling in order to make a quick buck. This not only resulted in huge price erosion but few of them also got delisted in the said process.

Another issue with shell companies is that since they having no business of their own, the intrinsic value and the acquisition premium paid, is always under question. There is no way an unlisted promoter can come to a fair value of a non-existent business. Also, the acquisition premium he is willing to pay is dependent on his willingness/need to get himself listed. Thus, we believe that gaining a backdoor entry through shell acquisition is a dangerous way to go public. If the business has strong fundamentals, the traditional Initial Public Offer (IPO) route is much safer.