Late buying propels indices

After trading above the dotted line in the post noon trading session, Indian equity markets ended the day on a strong note. While the BSE-Sensex today closed higher by 319 points, the NSE-Nifty closed higher by 91 points. Even Smallcaps and Midcaps were in much demand today with both the BSE Mid Cap and BSE Small Cap indices closing higher by 1.8% and 1.9% respectively. Barring stocks from Consumer durables and FMCG, all the sectoral indices closed in green.

As regards global markets, Asian indices closed on a strong note today. The rupee was trading at Rs 58.42 to the dollar at the time of writing.

Failing to check the price rise was the primary reason why the UPA received a drubbing from the voters in this election. But is the new government ready to tackle the problem of food inflation on which people have shown so much hope? And if yes, what steps it needs to take? An article in economic times highlights critical issues that need to be addressed in order to curb food inflation. For the one the excessive stock lying in Food Corporation of India (FCI) must be immediately released into the market. Second plan of action could be to reduce import duties on food articles. And lastly, steps should be taken to avoid leakages that take place in food and fertilizer subsidy allocation. If these three steps are taken on a priority basis by the new government we may well see food inflation coming down drastically over the future.

PSU banking stocks have closed firm today, with State bank of India (SBI) and Andhara bank being among the leading gainers. SBI has declared results for fourth quarter and full year FY14. Net interest income rose to 16.5% YoY for the quarter and the total income increased by 13.1% YoY. However the net profits were down by 7.8% YoY for the quarter. On the positive side, SBI has shown solid improvement in its asset quality. The gross non-performing assets (NPAs) declined by 78 bps on QoQ to 4.95% and the net NPAs were down by 67 bps QoQ to 2.57% during the quarter. Capital adequacy ratio (CAR) too improved to 12.44% in the quarter versus 11.59% on sequential basis. The bank has declared a dividend of Rs 30 per share for FY14. SBI closed up by 8.5%.

Power & engineering, strong gainers
01:30 pm

Indian share markets pared gains but continued to trade strong in the post-noon trading session. Barring banking and consumer durable, all the sectoral indices are trading in the green led by power and capital goods stocks.

BSE-Sensex is up 143 points and NSE-Nifty is trading 40 points up. BSE Mid Cap is trading 1% up and BSE Small Cap index is trading up by 1.5%. The rupee is trading at 58.4 to the US dollar.

Most of the FMCG stocks are trading in the green with Lakshmi Energy and Bata being the major gainers whereas Godrej Consumer Products and Dabur are trading in the red. As per a leading financial daily, Hindustan Unilever's (HUL's) deodorant 'Axe' has slipped to the third position after Raymond's Park Avenue deodorant displaced it from the second position. Vini Cosmetics 'Fogg' continues to be the number one deodorant brand with a market share of around 17%. Park Avenue and Axe have market shares of around 8% and 6%, respectively. Axe has been consistently losing its market share from 10% in March 2013 quarter. Fogg jumped up to the top position after its selling proposition based on the functionality (no of sprays in a bottle) struck a chord with the consumer in an inflationary environment. The deodorant market is largely youth centric and given its moderate penetration, it has been registering strong growth. HUL stock is currently trading down marginally.

Majority of the auto stocks are trading in the green led by Force Motors and TVS Motors. Only Bajaj Auto and Escorts are trading in the red. As per a leading financial daily, Hero MotoCorp will be increasing production of some of the variants of the 'Splendor' range of motorcycles by more than two times with an aim to meet the high domestic and export demand. With this move, the company also wants to grab back the position of the top-selling model that it lost to its former partner Honda's Activa scooter a few months ago. The company is doubling the production of Splendor iSmart to 20,000 units per month. The production of the other brands in Spendor will be ramped from June onwards when the company's Neemrana plant with 7.5 lakh units capacity goes onstream. It has three other plants in Gurgaon, Dhrauhera and Haridwar. While Bajaj Auto has been struggling to grow volumes, Hero MotoCorp has been witnessing strong demand. Hero Motocorp is trading up by 1.1%.

Indian markets remain buoyant
11:30 am

After opening in the green, the Indian indices have continued their upward trend in the last two hours of the trading session. The buying interest is the highest engineering, software and energy stocks.

The BSE-Sensex is trading up 225 points and the NSE-Nifty is trading up 65 points. The BSE Mid Cap index is trading up 1.2%, while the BSE Small Cap index is trading up 1.7% today. The rupee is trading at 58.48 to the US dollar.

Most of the Energy stocks are trading positive today. Indian Oil Corp (IOC) and Oil and Natural Gas Corporation Ltd. (ONGC) are leading the gainers. The government has ordered several oil and gas companies to provide US$ 11.4 bn subsidy for FY14 to help cover losses of state retailers that sell fuels at cheaper rates. The subsidy amount is about 48% of the US$ 23.8 bn revenue losses of the retailers in FY14. The subsidy will be paid by ONGC, Gas Authority Of India Ltd. (GAIL) and Oil India Ltd. (OIL). As compared to last fiscal; the subsidy amount has increased substantially by 12%. The government shall also provide a cash subsidy of Rs 703 bn for this fiscal. The government regulates retail prices of liquefied petroleum gas, kerosene and diesel to keep the prices under control. This entails revenue losses to retailers like IOC, Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL).

Most of the Software stocks are trading positive today. Wipro and Tech Mahindra are leading the gainers. As per a leading financial daily, India's second largest software firm Infosys has won a US$ 50 m deal from global telecom giant AT&T which is already one of the company's largest clients. With this deal, Infosys will have AT&T as a US$ 100 m client in both US and Europe. Infosys will handle billing and web solutions for the telecom major on a pay-per-use model. The Telecom vertical contributes only 8.6% of the revenues for Infosys currently. This deal will enable the company to build on its domain expertise in this segment as well as improve its revenue profile from Europe. Infosys is trading up 1.3% today.

Indian share markets open in the green
09:30 am

The major Asian stock markets have opened the day on a mixed note with stock markets in Japan (up 1.2%) and Singapore (up 0.2%) leading the gains. However, stock markets in Hong Kong (down 0.1%) and Malaysia (down 0.1%) have opened in the red. The Indian share markets have opened the day on a firm note. All sectoral indices have opened in the green with the stocks in the realty and auto space leading the gains.

The Sensex today is up by around 150 points (0.6%), while the NSE-Nifty is up by about 30 points (0.4%). The midcap and smallcap stocks have also opened in the green with BSE Mid Cap and BSE Small Cap indices up by around 1.2% and 1.5% respectively. The rupee is currently trading at Rs 58.44 to the US dollar.

Auto stocks have opened mainly in the green with TVS Motors Ltd and Maruti Suzuki Ltd leading the gains. However, Tata Motors Ltd and Hero Motocorp Ltd were facing selling pressure. Ashok Leyland and has announced results for the quarter ended March 2014. The company has reported a decline of 17.5% YoY during the quarter in the revenues. As per the management, the company has restructured itself to face the challenges in a tough year and to reduce overall fixed cost. In FY14, the company was able to retain market share in an highly competitive medium and heavy commercial vehicle market that witnessed a decline of over 25% second year in a row. The net profit for the quarter was up 142% YoY, mainly on account of exceptional items, including selling of non-core assets. The debt to equity ratio at the end of March 2014 stood at 1.14:1. The company aims to reduce it to 1:1 by end of March 2014.

MNC Pharma stocks have opened the day mainly in the green with Abbott India Ltd and Sanofi India Ltd leading the gains. Novartis India has reported results for the quarter ended March 2014. The revenues during the quarter declined by 5.7% YoY during the quarter. As per the management, this was mainly due to reduction in selling prices of some key products arising out of the notification of the new Drug Prices Control Order. The company has reported a decline of 2.2% YoY in the net profit during the quarter. Rupee depreciation made things even worse for the company. The company's Board has approved dividend recommendation of Rs.10 per equity share of Rs.5 each for the year ended on 31 March 2014.

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Pick in fund raising activity on strong sentiments

With a downturn in business climate, a number of companies were suddenly caught on the wrong foot. The slowdown in demand hit them hard throwing their cash flows out of gear. In their struggle to service existing debt, they piled on further debt. At that time the capital markets in India were literally closed to these companies. However, the tide seems to be turning in India Inc.'s favor as we have a stable government at the center. The government in power is perceived as pro- reforms which will revive economy and business prospects of Indian companies. Such strong optimism has led to jump in valuations of companies' and therefore a spate of capital raising activities such as Qualified Institutional Placement (QIPs), block deals and offer for sale are expected.

As per a feature in Economic Times, a global investment bank has received mandates from seven Indian companies to raise at least US$2 bn through QIPs. This signals the start of the fund raising activity in the markets. But the markets have run up sharply and may witness a correction or the upside could be limited. However, the long term potential of investing in the Indian markets continues to remain robust. Therefore, a momentum in fresh capital issuance is likely to pick up sooner than later.

However, all said and done, we reiterate investors to perform due diligence before investing in equity issues as the pipeline of companies wanting to raise capital is very huge. This is because in a strong sentiment-based rally, more often than not the fundamentals are often ignored and investors find themselves trapped in poor quality stocks. Although sitting on the fence could be the last thing investors can do in such an interesting phase for the capital markets. Having said that the scenario is still not as aggressive as post-2009 when almost every investment bank had more than 5 mandates for raising money. In fact, the activity is moving at a slow pace and is largely towards reform dependent sectors such as power and infrastructure. Investors should still trade cautiously rather than investing blindly. This way investors can minimize chance of burning their fingers.

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