Bluechips lead the final hour surge

Reports of lower inflation and lower commodity prices in global markets seemed to have boosted investor sentiments as the indices in Indian stock market recovered sharply in the closing hours of trade. The BSE-Sensex gained in the region of 72 points whereas NSE-Nifty closed higher by around 24 points (up 0.4%). The smaller indices also registered gains with the BSE Midcap and BSE Small cap indices both ending higher by 0.6% and 0.7% respectively. Power stocks led the declines while auto, banking and realty bluechips led the gains in the benchmark indices.

Major Asian indices also closed the day mixed with Korea seeing some gains. India lagged the pack of gainers in the Asian Region. Europe is currently trading flat to positive. The rupee was seen trading at Rs 44.67 to the dollar at the time of writing.

Power generation major NTPC declared results for the fourth quarter and fiscal year ending March 2011. The company declared 17% and 18% YoY growth respectively for the quarter and full year. The bottom line however, remained flat year on year. The capital expenditure undertaken by the company in FY11 was 22% higher than that in FY10. The approved outlay for FY12 at Rs 264 bn is more than double that of FY11. During FY11, NTPC added 2,490 MW of capacity of which 1,600 MW was declared commercial. Further 14,748 MW of capacity is under construction. Coal Linkages received for 9 new projects with a total capacity of 10,920 MW. The stock of NTPC was amongst the top losers today.

India's third-largest software services exporter, Wipro has bought a majority stake in Brazil's hydraulic cylinder maker RKM Equipamentos Hidraulicos. The acquisition will be a part of Wipro's infrastructure engineering division. The financial terms and conditions of the deal have not yet been disclosed.

Wipro Infrastructure Engineering supplies precision engineered hydraulic cylinders and components to manufacturers of construction, material handling equipment, earth moving machinery, forest equipment and medium, heavy commercial vehicles in Asia and Europe. Buying a majority stake in RKM would give the company a platform to expand and extend its product portfolio in Brazil and rest of Latin America. The stock Wipro closed marginally higher today

Mid and smallcaps outperform
01:30 pm

Indian stock market indices have been trading flat over the last two hours of trade. The sectoral indices are trading mixed with Realty and IT leading the pack of gainers. Oil and Gas and Capital Goods are trading weak.

Both BSE-Sensex and NSE-Nifty are trading flat. However, BSE Midcap and BSE Small cap indices are up by 0.3% and 0.4% respectively. The rupee is trading at 44.70 to the US dollar.

Power stocks are trading mixed. NHPC and PTC India are leading the pack of gainers while Tata Power and NTPC are trading weak. As per a leading financial daily, the private power producers have moved to Central Electricity Regulatory Commission (CERC), accusing NTPC of going on a power purchase agreement (PPA)-signing spree that has an anti-competitive effect on the market resulting in higher power price for consumers. The Association of Power Producers has contended that NTPC has abused its dominant position in the market by entering into agreements with several states between October 1, 2010 and January 5, 2011 for supplying 37, 000 mw as this is done to beat January 5 deadline after which power has to be priced through competitive bidding. The effect of these agreements will be to affect the competition adversely. According to private power players, it is a ploy to escape regulatory oversight and get away with selling costlier power. Such contracts will block the upstream market for coal supply, thus limiting independent power players' access to coal. They have asked CERC to direct NTPC to discontinue this practice.

NTPC has denied the allegations and has justified these agreements by saying that the state is more comfortable with public sector enterprise than private companies for power supply. It said that the agreements to supply 37,000 MW exceed its capacity of 34,194 MW and aim to corner coal mines for captive use.

Paint stocksare trading mixed with Asahi Songwon Colours and Kansai Nerolac trading strong while Jenson and Nicholson and Berger Paints trading weak.

Asian Paints has announced its results for 4QFY11.On a standalone basis, the net sales for the quarter registered an increase of 24% YoY. However, the net profit for the quarter declined 3% YoY on account of rising raw and packing material costs (up 35%). The company has also declared a final dividend of Rs 23.5 per share.

The management expects the rise in raw material prices to continue on account of shortage caused by global capacity constraints. It suggested that the demand conditions for international as well as industrial business were challenging. The stock was trading in the red.

Indian stock markets are trading flat
11:30 am

Indian stock markets have been trading flat over the last two hours of trade. All the sectoral indices are in the green except Oil&Gas and Banking.

The BSE-Sensex is up by 38 points while NSE-Nifty is trading 19 points above the dotted line. However, BSE Midcap and BSE Small cap indices are up by 0.6% each. The rupee is trading at 44.70 to the US dollar.

Auto stocks are trading strong led by Eicher Motors and Hero Honda. As per a leading financial daily, Tata Motors is looking at raising the production from its Pantnagar plant. The auto company aims to increase the production capacity at this plant from 0.1 m units to 0.35 m units. It recently launched two new small commercial vehicles (CVs) "Magic Iris" and "Ace Zip". These four-wheeler vehicles would be targeting the three-wheeler commercial vehicles in this segment including auto rickshaws and cargo vehicles. Tata Motors will also launch a new range of light commercial vehicles (LCVs) i.e. trucks and buses in July. The new LCV will be in the 7-12 tonne category and will roll out of the Pune plant. There are plans to launch a new intercity luxury bus to take on Volvo and Mercedes in the next 2-3 months. The final product is in the testing phase. It may be noted that the currently, luxury bus market in India is around 500 units a year and is dominated by Volvo and Mercedes.

Finance stocks are trading firm led by JN Financial and Power Finance Corporation. HDFC Ltd. released its FY11 (financial year 2010-2011) results yesterday. The company's interest income grew by 12% YoY on the back of 20% YoY growth in advances. Net interest margins for the year were marginally higher at 4.4%. Owing to the gains from sale of investment, other income grew by a sharp 66% YoY. For the year, net profit increased by 25% YoY. This was on the back of increase in other income. For the fourth quarter, net profit was higher by 23.3% YoY. This was aided by an increase of 175% YoY in other income. Capital adequacy ratio stood at 14% while gross NPAs stood at 0.8% for the year.

Indian stock markets open flat
09:30 am

All Asian stock markets have opened the day on a firm note. Stock markets in Singapore (up 0.5%), Japan (up 0.5%), South Korea (up 0.8%) and Malaysia (up 0.9%) are leading the gains. Indian stock markets have opened the day on a flat note. Stocks from the technology and realty space are trading firm. However, FMCG and healthcare stocks are trading in the red.

The BSE-Sensex is trading marginally higher by around 5 points (0.03%), while the NSE-Nifty is up by around 5 points (0.1%). However, mid and small cap stocks are trading firm with both the BSE Midcap index and BSE Small cap index up by 0.1% and 0.2% respectively. The rupee is trading at 44.67 to the US dollar.

Pharma stocks have opened the day on a weak note with Sun Pharma, Divi's Lab and Lupin trading in the red. However, Ranbaxy Labs is trading firm. Indian pharma major Ranbaxy Labs has declared its results for the first quarter ended March 2011 (the company has a December year ending). Consolidated sales registered a decline of 14% YoY from Rs 24.8 bn in 1QCY10 to Rs 21.5 bn in 1QCY11. While sales in emerging markets grew by 12% YoY (Rs 10.6 bn), the developed markets posted a decline of 30% YoY (Rs 9.5 bn). The bottomline dropped by 68% YoY from about Rs 9.6 bn in 1QCY10 to approximately Rs 3 bn in 1QCY11. However, the company has stated that the revenue and profit numbers are not strictly comparable to the previous period as the numbers in the previous quarter included one-time upside of the exclusive marketing opportunities in the US market.

Banking stocks have also opened the day on a weak note with United Bank, Oriental Bank and State Bank of India (SBI) trading in the red. The country's largest bank, SBI has raised its lending rates by 0.75%. The minimum lending rate for SBI now stands at 9.25%. The benchmark prime lending rate now stands at 14%. SBI has also increased the interest rates on its deposits. It has increased the rates by 2.25% for four of its deposit products. The increase in interest rates follows the announcement made by the Reserve Bank of India wherein it had hiked its lending and borrowing rates by 0.5%. The increase in interest rates by SBI would make its housing as well as other loans more expensive for the borrowers. Several other banks including Punjab National Bank and ICICI Bank have increased their interest rates over the past few days.

Who is to blame for doubling EMIs?

A couple of days back the Indian stock markets reacted sharply to the RBI's interest rate policy. The fact that companies will now have to pay more to borrow did not go well with investors. Possibility of higher payments for existing loan was even more worrying. This had the potential to dampen the profit growth for companies over the next few quarters. Their inability to borrow more would also hamper their near term growth prospects.

But little thought was spared for the retail borrowers who had seen their interest payouts shooting up in the recent months. In case of most individual borrowers, the equated monthly installments (EMIs) payable have shot up by 30% to 40%. For ones nearing retirement these may have shot up by as much as 50% to 100%. This is because the latter have no room for lengthening the tenure of the loan. Who better to comment on the status of individual borrowers than ex ICICI chief Mr K.V. Kamath? According to the veteran in retail lending, the risks have soared in this space over the past few months. So much so that banks now need to get wary of higher NPA risks in retail space.

The retail investors blame greedy banks for their plight. The bankers accuse RBI of being too conservative with its monetary policy stance. The RBI finds the US Fed guilty of pumping in hot money into developing economies and fuelling inflation. And so the blame game goes on.

We do agree with the RBI on the fact that the necessity of higher borrowing rates stemmed from the US' callous money printing. However, the responsibility lay on our own banks to ensure that the retail borrowers are not misled by low interest rates.

If one bank chooses to offer dirt cheap rates on home and car loans to utilize its surplus float, others follow suit. This is certainly the very nature of a competitive market. However, if banks compromise margins to gain market share and in the bargain also mislead retail borrowers, the same is best avoided.

We believe that central banks in the US or Europe cannot be blamed if NPA ratios in Indian banks are to rise in coming days. It is for our banks to ensure that individual borrowers keep their EMI obligations well within their comfort limits.