Realty, pharma not in favour today

The Indian stocks ended the day on a firm note, but after witnessing some profit booking activity during the final hour and a half of trade. The BSE-Sensex closed with gains of about 40 points or 0.2%. The NSE-Nifty closed higher by about 5 points or 0.1%. Barring stocks from the realty, healthcare and information technology space, gains were seen across the board. oil and gas and metal stocks were amongst the most preferred today. The BSE Mid Cap and BSE Small Cap indices ended the day on a weak note, with the indices closing lower by about 0.1% and 0.5% respectively.

Stock markets in other parts of Asia ended the day on a weak note with Japan and Hong Kong closing lower by about 0.2% and 1.3% respectively. The rupee was trading at Rs 60.05 to the dollar at the time of writing.

Cement stocks ended the day on a weak note with Heidelberg Cement, Prism Cement and Ultratech Cement leading the pack of losers. As per a leading business daily, the is facing issues related to cost pressures. As cement prices have not risen in line with the increase in capital and production costs, cement companies are facing cost pressure. Given the rising prices, the costs to set up a green field plant are believed to have increased to as much as Rs 7,200 per tonne as compared to Rs 4,200 a tonne in 2009. The key factors that have led to this are higher power and fuel costs, gypsum costs, logistics costs and distribution costs. Not to mention the fact that wages have increased as well. As per the daily, what are also adding to the pressure are the high taxes on cement as well as the no imposition of duties on imported cement.

During the month of April 2014, foreign institutional investors (FIIs) invested a sum of Rs 96 bn or US$ 1.6 bn in Indian stocks. This made April the eight consecutive month of net inflows. In the month of August 2013, FIIs has sold Rs 59.2 bn. In the year till date, FIIs have invested Rs 323.7 bn or US$ 5.3bn in Indian stocks. The bullishness seems to be on account of the ongoing Lok Sabha elections with high expectations of a particular party coming into power. With the election results to be announced in less than two weeks from now, market participants can expect a significant amount of volatility as investors who feel the positive are all priced in may be looking to exit the markets. As such, we recommend investors to take a cautious approach in the short term.

Energy & metal, strong gainers
01:30 pm

Indian share markets climbed higher in the post-noon trading session. Majority of the sectoral indices are trading in the green with oil and gas, metal and capital goods stocks being the biggest gainers. Only IT, pharma and consumer durables stocks are trading in the red.

BSE-Sensex is up 154 points and NSE-Nifty is trading 23 points up. BSE Mid Cap is trading 0.3% up and BSE Small Cap index is trading down marginally. The rupee is trading at 60.0 to the US dollar.

Majority of the FMCG stocks are trading in the green with Marico and Jyothy Consumer being the major gainers whereas P&G Hygiene and Godrej Consumer are trading in the red. As per a leading financial daily, Marico will be focusing on savoury oats segment as the growth driver in the foods category. The company will not be making further investments in muesli segment that is available only in modern trade. Presently packaged foods contribute Rs 600 m, accounting for less than 2% in overall sales. The company will aggressively scale up its savoury oats offerings with at least one or two innovations. In cosmetics, Marico has entered the deodorant segment and extended its hair gel brand Livon into hair colour. The cosmetics portfolio has a sales turnover of Rs 2 bn constituting 4% of total sales. The company has been reducing its dependence on the flagship brand Parachute that is commodity driven by diversifying into packaged foods and cosmetics. Marico stock is trading up 3%.

Majority of software stocks are trading weak today led by selling pressure witnessed in HCL Tech and Wipro. As per a leading business daily, Infosys is looking out to make acquisitions in the Nordic countries. The Nordic countries comprise of five countries namely Denmark, Finland, Iceland, Norway and Sweden which lie in the geographic region of Northern Europe and the North Atlantic. The company's president who used to head European continent is bullish about the Nordic countries, while he aims revenue contribution from entire Europe to increase from 25% to 30% going forward. It may be noted that Infosys's European revenues have increased nearly 10 fold to US$ 2 bn in less than a decade. The growth in Europe was far better than the other regions. As such, Infosys plans for an acquisition in the region in a similar line of Lodestone, a Zurich based consulting firm that it acquired in 2012 for US$ 350 m. The company's European revenues for the March 2014 quarter were flat on a sequential basis. And a possible way to grow in the region is by expanding in the non-English speaking market through acquisitions. The stock of Infosys is trading down by over 1% today.

Indian markets shed some gains
11:30 am

After opening in the green, the Indian Indices have shed some gains in the last two hours of trading. Selling is witnessed in Realty and Power stocks; while Engineering and Banking stocks are leading the gainers.

The BSE Sensex is trading up 53 points and the NSE-Nifty is trading up 8 points. The BSE Mid Cap is trading up 0.2% and the BSE Small Cap index is trading flat today. The rupee is trading at 61.10 to the US dollar.

Mining stocks are trading mixed today. Ashapura Minechem and MOIL Ltd are leading the gainers. NMDC Ltd and Gujarat NRE Coke are leading the losers. According to a leading business daily; the inter-ministerial panel which was set up to look into the issues pertaining to supply of fuel to certain end-use plants linked to coal blocks is likely to meet next week. The panel had earlier recommended that the quantum of fuel to those end-use plants which already had coal linkages and were subsequently converted into tapering linkage on allocation of coal blocks, which were later de-allocated, may be continued after taking the opinion of Central Electricity Authority (CEA) and Coal India Ltd (CIL). Tapering Linkage is a short-term linkage provided to those consumers who have been allocated captive coal blocks but the mines could not be developed on time. However, during the last meeting, CIL had said that it has already made substantial commitment to the power sector and all its subsidiaries were running a negative balance of fuel supplies. Coal India is trading flat today.

Engineering stocks are trading mixed today. Suzlon Energy and Alstom T&D are leading the gainers. Finolex Cables and EMCO Ltd are leading the losers. ABB India has declared its first quarter results of 2014. ABB's sales declined 8% to Rs 18.1 bn as compared to Rs 19.64 bn in the corresponding quarter last year. However, the decline in revenues was restricted by the execution of one large order from renewable energy sector. The company reported 20.9% rise in net profit at Rs 520 m for the current quarter as compared to Rs 430 m in the corresponding period of last year. The profit growth was on account of better execution and continuous cost optimization during the quarter. Order inflow grew by 28.7% YoY to Rs 19.82 bn. During the quarter the company received large orders for transformers, substations as well as medium voltage drives and traction converters. The order book at the quarter end stands at Rs.78.7 bn. ABB is trading flat today.

Indian share markets open in the green
09:30 am

Barring Indonesia (up 0.3%), the major Asian stock markets have opened the day in the red with stock markets in Japan (down 0.2%) and Hong Kong(down 1.5%) leading the losses. However, the Indian share markets have opened the day on a firm note. Barring realty, all sectoral indices have opened in the green with stocks in the energy and FMCG sector leading the gains.

The Sensex today is up by around 100 points (0.5%), while the NSE-Nifty is up by about 30 points (0.4%). The midcap and smallcap stocks have opened in the green as well with BSE Mid Cap and BSE Small Cap indices up by around 0.4% and 0.2% respectively. The rupee is currently trading at Rs 59.99 to the US dollar.

Indian Pharma stocks have opened mixed with Wockhardt Ltd and Panacea Biotech leading the gains. However, Strides Arcolab Ltd and Glenmark Pharma Ltd were facing selling pressure. As per a leading financial daily, Sun Pharmaceuticals Ltd has decided to shut its plant at Detroit and to lay off 123 employees. The facility was owned by the US subsidiary and was under the US Food and Drug Administration (FDA) scanner for violation of manufacturing norms. In 2013, the USFDA had raised concerns about manufacturing lapses at its Detroit plant which as per the management were addressed by the company. The company has given assurance to compensate the employees with more than their regular entitlement under the severance package. As per the company, the manufacturing of the products will be shifted to other facilities to avoid market shortage. The management has further suggested that the move will have negligible impact on consolidated revenues for FY15.

Energy stocks have opened mainly in the green with Hindustan Petroleum Corporation Ltd (HPCL) and Indian Oil Corporation Ltd (IOCL) leading the gains. However, Oil India Ltd (OIL) and Castrol India Ltd were trading in the red. As per a leading financial daily, Kazakhstan has offered ONGC Videsh Ltd (OVL), the overseas exploration arm of Oil and Natural Gas Corporation Ltd (ONGC), a stake in a medium sized Abai oil block in the Caspian Sea. It is important to note here that almost a year back, Kazakhstan had blocked India's deal to take stake in Kashagan oilfield in a US$ 5 bn deal. The Abai block was previously being operated by Statoil of Norway. OVL has been offered 25% interest in the block. As per the to Kazakhstan government estimates, the block has 2.8 billion barrels of oil reserves. However, the Indian firm is slightly skeptical about the estimates of the Kazakhstan government and will do its own study before accepting the offer.

Agro exports up but can it continue?

Since some time, the Indian economy has been facing challenges on various fronts. The declining rupee, slowing GDP growth, rising deficit, etc. have led to concerns about India's growth prospects. But there is some light at the end of the tunnel. And this has been the improvement in the country's agro exports.

As per an article in Economic times - Indian agro products exports have witnessed a sharp increase in over the last few years. The exports have increased to US$ 45 bn in 2013-14 from $25 bn in 2011-12. This increase is on back of various reasons Vis; good harvest on back of good monsoons, government policies, increasing activeness of small and medium term enterprises (SMEs) and also because of depreciating rupee.

However the question now is whether the trend will continue?

Recently, there has been an ongoing debate on the export of mangoes to the European Union (EU). The EU informed India during March 2014 that shipments of the premium Indian Alphonso mangoes would be blocked from May until December 2015. This action came after authorities in Brussels found consignments infested with fruit flies.

According to various sources, UK imports nearly 160 lakh mangoes from India and the market for this fruit is worth nearly 6 million pounds a year. One should note, the EU is one of the important markets for India's mango supplies and the said ban will hit the Indian exports badly. Already, post the ban, the price of Indian mangoes has started falling. These instances can negatively impact overall growth and also the image of the country.

Undoubtedly, there have been attempts by the government Vis; steady investments in technology development, improving irrigation infrastructure, emphasis on modern agricultural practices and provision of agricultural credit and subsidies. These factors have helped in growth of the industry so far. However there are still many areas where the Indian authorities will have to put in more efforts.

In our view, more efforts need to be put into making Indian exports more competitive in foreign markets. Development of a strong infrastructure is critical for the growth of agro industries sector and export of agricultural products. This will help to reduce post harvest losses caused due to spoilage and also ensure quality production of agro products. Better infrastructure will also help in quicker transportation of various perishable goods. Over and above this, better packaging and quality improvements too can help boost exports.