BSE Sensex remains flat for the week

In what was a volatile trading session, the benchmark indices in Indian equity markets closed marginally below the dotted line. In fact the BSE-Sensex closed without any change for the week. While major markets in Asia closed mixed today, the Sensex closed lower by around 4 points. Losses on the NSE-Nifty came in at around 1 point. The BSE Mid cap and BSE Small cap indices however bucked the trend and closed in the positive. Select auto and commodity heavyweights led the pack of losers.

Most other Asian indices closed lower today with European indices too trading lower currently. The rupee was placed Rs 55.40 to the dollar at the time of writing.

As per a business daily, the Telecom Commission has recommended putting a minimum of 10 mhz of spectrum on auction in eight slots, reserving four slots for new entrants. The Telecom Regulatory Authority of India (TRAI) had suggested auction of only five mhz in the 2G auctions that are to be completed by August as per a Supreme Court order. Trai had last month suggested an auction starting price that is nearly 10 times what the operators had paid in 2008. It had also proposed auction of a limited number of slots. The auction will be the last chance for international companies, including Norway's Telenor and Russia's Sistema, as well as the fourth biggest Indian operator, Idea Cellular, to win back licences that they are going to lose as a result of the court order.

Opto Circuits has announced its March quarter results. The company has reported a topline growth of 21% YoY and a bottomline growth of 89% YoY for the quarter ended March 2012. The consolidated topline witnessed 21% YoY growth during the quarter driven predominantly by the company's medical equipment and consumables segment which registered a growth of 24% YoY. Its invasive segment on the other hand witnessed a slightly lower growth of 19% YoY. Topline for the full year grew by 47% YoY, driven again by the medical equipment segment as the same grew by a strong 62% YoY. It should be noted that the company has acquired 11 companies since 2002 and this strategy is helping it grow its topline in a healthy manner year after year. For FY13, the company expects a topline growth of 20% YoY. Operating margins contracted marginally by 0.5%, leading to 18% growth in operating profits during the quarter. The bottomline witnessed a strong growth of 89% YoY on the back of decent operating performance and recognition of deferred tax asset on its books Profits for the full year jumped 56% YoY on the back of a 47% growth in topline.

FMCG, energy stocks out of favour
01:30 pm

After paring the losses of the morning session, the Indian equity markets traded in the neutral zone during the previous hour of trade. Stocks from the metal, capital goods and realty spaces are amongst the top performers at present while stocks forming part of the FMCG and Oil and gas indices are out of favour.

The Sensex today is trading lower by 15 points, while the NSE-Nifty is trading down by about 5 points. The BSE Mid cap and BSE Small cap indices are however trading higher by 0.5% and 0.6% respectively. The rupee is trading at 55.46 to the US dollar.

Stocks of most of the cement companies are trading firm led by India Cements, Ambuja Cement and Ultratech Cement. Madras Cements announced its results for the quarter and year ended March 2012 yesterday. The company reported a revenue growth of 33% YoY during 4QFY12 on the back of the strong demand from the south India. However, as the company was not able to full pass on prices to its customers, operating margins declined owing largely due to higher logistics and other expenses. Operating profits for the quarter increased at a slower pace (as compared to the sales growth) of 17% YoY. However, the company's net profits grew by 55% YoY on the back of higher other income coupled with lower interest costs. As for the full year FY12, sales and net profits increased by 24% YoY and 83% YoY respectively. The company's operating profits grew by 49% YoY as margins expanded to 28.4% as against 23.7% in FY11. Higher other income coupled with a strong operating performance led to a strong growth in profits for the full year.

Retailing stocks are currently trading mixed with Zodiac Clothing and Trent trading firm while Titan Industries and Shoppers Stop are trading weak. As per a leading financial daily, Titan Industries' jewellery arm Tanishq has revised downwards its sales growth forecasts for FY13 to 30% from 40% last year. The reason for the scale-down has been attributed to sluggish demand as people are holding back gold purchases in view of high prices of the yellow metal. However despite the slowdown, the company plans to expand organically. The company has plans to open 40 new stores in FY13 at an investment of Rs 30-50 m per store, with half of them in C and D class towns. Of the total new stores, one-third are expected to be company-owned and the remaining through franchise. The lion's share of 70% of the total revenue of Titan is contributed by the jewellery business with the Tanishq brand accounting for 95% of that. The other jewelley brands owned by Titan include Zoya and GoldPlus.

Mid and smallcaps buck the trend
11:30 am

Indian equity markets have been trading in the red after a weak opening. All sectoral indices are trading weak except capital goods, metal and realty stocks.

The Sensex today is trading lower by 75 points and NSE-Nifty is trading down by 27 points. However, BSE Mid Cap and BSE Small Cap indices are trading higher by 0.2% and 0.4% respectively. The rupee is trading at 55.76 to the US dollar.

Indian pharma stocks are trading weak led by Orchid Chemicals and IPCA Labs. As per a leading financial daily, Indian pharmaceutical company Glenmark Pharmaceuticals will soon be in the final stage of the clinical trial of its drug Revamilast. The drug which is being tested across countries is a cure for treatment of inflammatory disorders like asthma and rheumatoid arthritis. The pharma company may soon seek approval for Phase-III trials in the US, UK and India. Glenmark is looking at filing an Investigational New Drug (IND) application in the US by the end of this financial year. We may note here that the current market for rheumatoid arthritis is estimated at around US$26 billion and for asthma at a little over US$30 bn.

Auto stocks are trading in the red led by TVS Motors and Force Motors. As per a leading daily, petrol price hike effected from yesterday has induced car makers to offer discounts on their petrol vehicles to woo customers. Maruti Suzuki is giving a discount of Rs 30,000 on its Alto and the discount offers are amounting to as high as Rs 50,000 for Tata Motors. Hyundai Motor is also giving discounts of up to Rs 3,000 on its range of petrol models. We may note here that the sales of entry level vehicles have suffered in recent months due to rising fuel prices. With petrol prices being hiked by Rs 7.5 per litre, auto companies fear further slowdown and thus the need to offer such high discounts.

Indian market indices open weak
09:30 am

Most Asian stock markets have opened the day on a weak note with stock markets in Indonesia (down 0.6%), Taiwan (down 0.5%) and Singapore (down 0.3%) leading the losses in the region. The Indian equity markets indices have also opened the day on a negative note. Stocks in the Oil and gas, IT and banking space are leading the pack of losers. However, FMCG stocks are trading in the green.

The Sensex today is down by around 59 points (0.4%), while the NSE-Nifty is down by around 18 points (0.4%). However, mid and small cap stocks are trading in the green with the BSE Mid cap and BSE Small cap indices up by around 0.1% and 0.3% respectively. The rupee is trading at Rs 55.92 to the US dollar.

Telecom stocks have opened the day on a mixed note with Bharti Airtel and Reliance Communications trading firm. However, Tata Teleservices and Idea Cellular are trading in the red. As per a leading daily, Bharti Airtel has announced that it would acquire stake in Qualcomm Asia Pacific's Indian broadband and wireless access (BWA) entities. Bharti has invested US$ 165 m to acquire 49% stake in Qualcomm. The stake acquisition is a mix of acquiring 26% equity interest held by Global Holding Corporation Private Ltd and Tulip Telcom Limited, and issuance of fresh equity shares. The partnership would roll out 4G services in more locations including Delhi, Mumbai, Haryana and Kerala. Bharti's BWA is already present in Kolkata, Karnataka, Punjab and Maharashtra and the telecom company has 3G licences in 13 regions in India. Qualcomm, which aims to deploy Long Term Evolution Time Division Duplex (LTE TDD) in India, required the support of an Indian player. It will now provide technical assistance to Bharti towards this objective. This will help establish Bharti Airtel as a nationwide broadband leader in combined 4G and 3G services space.

Indian pharma stocks have opened the day on a mixed note with Sun Pharmaceuticals Industries Ltd, IPCA Labs and Torrent Pharma trading firm. However, Aurobindo Pharma and Orchid Chemicals are facing selling pressure. As per a leading financial daily, Sun Pharma has received approval from the US health regulator to sell its generic Azelastine HCL nasal spray, which is therapeutically equivalent to Medpointe Pharm HLC's Astelin nasal spray, in the US market. The company has received approval for its product in the strength of 0.1% (137 mcg/ spray). The company estimates the annual sales of Azelastine HCL nasal spray in the US to be around US$ 144 m. The nasal spray is used for treating symptoms of seasonal allergic rhinitis such as rhinorrhea, sneezing and nasal pruritus. In addition, the spray is also used for treating symptoms of vasomotor rhinitis, such as rhinorrhea, nasal congestion and postnasal drip in adults.

Rupee in a free fall: Who's to Blame?

Just few years back, when global economic crisis hit the world, the country was in self congratulatory mode as it survived the disaster that supposedly much stronger western economies could not. However, things since then have taken an ugly turn as the rupee seems to be in free fall and now trades at Rs 56 versus US dollar, hitting the panic button. The value of a currency is a reflection of its current and future economic image. The country now stands exposed and visibility on near term catalysts to revive the domestic currency remains poor.

The main reason for this fall is twin deficit in the country. And what makes the situation worse is the timing. The current fall in rupee can't be compensated by attracting capital inflows as global appetite to invest in risky assets remains low. And unfortunately, the rupee seems to have fallen victim to a vicious cycle. Here is a simple example of how the cycle works. India to a huge extent depends upon imports of oil thus generating a huge oil import bill. With every fall in rupee, the demand of dollar versus rupee goes up thus mounting the pressure on the latter. And then, the fuel in India is sold at state determined prices leading to huge amount of subsidies. The outlow on subsidies lead to increase fiscal deficits thus feeding the cycle. Not just that, a higher value of imports stretches the current deficit further. While the Government at last has announced a hike in Petrol prices, it looks like a piecemeal solution to mend the gaping fiscal deficit. Unless the Government takes a tough stand on diesel prices, the situation is unlikely to come under control. This was just a simple example to show how lack of energy reforms impacts the rupee. One can guess what damage it does to the currency if you extend the example to other sectors including fertilizer, power, etc.

Now the question worrying most investors is as to how bad can it get? While balancing current deficit by attracting foreign funds could be a solution, it is easier said than done. A slew of corporate scandals and inaction on policy and reform front is keeping foreign investors at bay. Forget inflows of foreign funds, Indian markets are witnessing selling pressure and forex reserves are falling. Unless the Government bites the bullet and goes for economic reforms, hardly any strategy is likely to bear stable results. An action is long due with regards to reforms on subsidies, taxation, state run companies and increasing transparency and accountability. Anything less will amount of piecemeal intervention that might just smooth the fall but not avert it.