Indian equity markets close flat

The Indian equity markets had a flattish outing on the bourses today, having started the day well in the green. After opening in the green, markets converged towards the dotted line in the morning session. They moved slightly higher post noon and were trading well in the green for a large part of today's session. However, in the final hour of trade, the indices shed gains and moved towards dotted line, reaching the day's low. There was some volatility seen towards the final hours; however the indices managed to close near the dotted line. While the BSE-Sensex closed higher by around 22 points (up 0.1%), the NSE-Nifty closed higher by around 4 points (up 0.1%). The smaller indices also had a lackluster day on the bourses. BSE Mid cap index closed 0.1% lower. The BSE Small cap, however closed the day 0.2% higher. IT stocks were the top gainers by a fair margin, followed by realty. FMCG and consumer durables stocks however closed in the negative.

As regards global markets, all Asian indices had a positive outing today. European indices opened the day on a mixed note. The rupee was trading at Rs 55.76 to the dollar at the time of writing.

Post the steep hike in petrol prices, there was speculation in the market that other fuels would also be hiked. The central government however declared that there will be no immediate hike in the prices of diesel, cooking gas (LPG) and kerosene. This will help ease the minds and pockets of consumers. However in the recently unveiled Delhi Budget, the value added tax (VAT) on petrol was slashed. But, the same was increased for the transport fuel CNG, thus bus, taxi and auto fares may see a hike soon.

Biscuit maker, Britannia posted a robust 17.2% growth in revenues for the quarter ended March 2012. However, the company has barely been able to maintain its profitability through controlled operating spends. During 4QFY12, cost of goods sold and employee costs (both as a percentage of sales) declined by 2.6% and 0.5% respectively. This offsets the over 0.5% jump in each of the advertisement outgo, conversion charges and other expenses (all as a percentage of sales). Britannia's operating margin stood at 6% during the quarter. At the net level, profitability marginally improved to 4% backed by 8.6% reduction in depreciation outgo and a 2.3% fall in tax expense. During the quarter, the company's tax incidence fell to 22.6% from 26.9% in the year-ago quarter.

For the full year FY12, Britannia's turnover was up by 17.8%. But operating margin remained stagnant at 5.6% as rationalisation in input costs were offset by higher advertisement and conversion charges. The earnings for FY12 surged by 28.5% backed by slower rise in depreciation and interest expenses. The stock closed around 1.8% lower.

Ranbaxy Laboratories recently received approval from the US Food and Drug Administration to launch Absorica, one of its best selling brands in the US after being banned for nearly four years. Absorica is a patented brand formulation of the acne medication isotretinoin, developed by Cipher, for treatment of severe recalcitrant nodular acne. As per the agreement signed, Ranbaxy will pay royalties to Cipher on its net sales. This brand is expected to be launched in the US in the fourth quarter of 2012. The drug generates nearly US$ 500 m in the US markets. On the back of this news the stock was trading over 2% higher.

IT, realty stocks take markets higher
01:30 pm

The Indian equity markets continued to rise steadily during the previous hour of trade as buying activity was seen in stocks across the board. Stocks from the information technology, realty and metal spaces are amongst the top gainers, while those from the FMCG and consumer durables sectors did not manage to find the interest of market participants.

The Sensex today is trading higher by about 100 points, while the NSE-Nifty is trading higher by about 28 points. The BSE Mid cap and BSE Small cap indices are trading higher by 0.3% and 0.5% respectively. The rupee is trading at 55.47 to the US dollar.

Stocks of two-wheeler manufacturers are trading firm with Hero Motocorp and Bajaj Auto trading firm. The dynamics of the two-wheeler industry have changed drastically to what they were a few years ago. In the past, the focus was on gaining market share by selling more units. At present, it is all about profitability and thus more focus on the executive (priced between Rs 40,000 to Rs 50,000) and premium (Rs 50,000 plus) segments of the industry. A leading business daily has reported that the volume growth of the entry-level bike segments (priced below Rs 40,000) is expected to grow at a slower pace as compared to the overall two-wheeler industry's growth. The key reason for the same is lesser focus on part of the original equipment manufacturers (OEMs) considering that there is limited scope of margin expansion. Also factors such as consumer susceptibility to higher interest rates play their part for this rationale. The premium segment is expected to be the fastest growing segment over the medium term given that macro factors - such as higher disposable income and favorable demographics - will play a major role in the demand for such vehicles. As you would have noticed, the major OEMs have been launching powerful vehicles at regular intervals.

The BSE-Consumer Durables Index is trading weak led by Bajaj Electricals, Blue Star and Titan Industries. Bajaj Electricals announced its results for the quarter and year ended March 2012 yesterday. During the quarter the company's revenues grew by 8% YoY. Growth was led by a 23% increase in the company's in lighting segment. The company's operating profits, however declined by 12.6% YoY as operating margins contracted by 2% YoY on the back of higher other expenses. A poor operating performance, coupled with lower other income and higher interest costs led profits to decline by 15% YoY. As for the full year FY12 performance, the company's revenues grew by 13% YoY while profits declined by 18% YoY.

Consumer durable stocks buck the trend
11:30 am

Indian equity markets continued to trade in the green over last two hours of trade. All sectoral indices are trading firm except consumer durables and FMCG stocks.

The BSE-Sensex is trading higher by 60 points and NSE-Nifty is trading up by 14 points. BSE Mid cap and BSE Small cap indices are trading higher by 0.2% and 0.4% respectively. The rupee is trading at 55.59 to the US dollar.

Mining stocks are trading strong led by Ashapura Minechem and Coal India. As per a leading financial daily, Coal India has stated that it can supply barely 65% of the power sector's coal requirements as per the terms of the Fuel Supply Agreements (FSA) decided some time back. Remaining 15% of the power generating companies' requirements will have to be met with the help of imports. As per the FSA, Coal India is supposed to meet at least 80% of the fuel requirement of power plants. Falling short of this would entail a penalty of 0.01% of the shortfall. For the year, Coal India plans to supply 347 m tonne to the power sector, up from 312 m tonne last year. However, this would not be sufficient to fulfil 80% requirement of the power sector.

Auto ancillaries stocks are trading in the red led by Amara Raja Batteries and Mahindra Forgings. As per a leading daily, Bharat Forge is set to liquidate its plant and machinery in America. This is after the company has been facing continuous losses in the region on the assets that it had acquired 7 years ago. We may recollect here that Bharat Forge had acquired the assets and business of Federal Forge for $9.1 million in mid-2005. The auto component maker had acquired these assets through a wholly owned subsidiary. The US subsidiary formed post the buyout named Bharat Forge America has not been faring well because of recession in the US automobile market.

Indian market indices open firm
09:30 am

Most Asian stock markets have opened the day on a firm note with stock markets in Taiwan (up 2.4%), China (up 0.9%) and South Korea (up 0.8%) leading the gains in the region. However, the markets in Indonesia (down 0.4%) and Japan (down 0.1%) are trading in the red. The Indian equity market indices have opened the day on a positive note. Stocks in the auto, capital goods and healthcare space are leading the pack of gainers. However, consumer durables stocks are trading in the red.

The Sensex today is up by around 49 points (0.3%), while the NSE-Nifty is up by around 15 points (0.3%). Mid and small cap stocks are also trading in the green with the BSE Mid cap and BSE Small cap indices up by around 0.2% and 0.3% respectively. The rupee is trading at Rs 55.56 to the US dollar.

Food stocks have opened the day on a firm note with Lakshmi Energy, GSK Consumer Healthcare and Tata Global Beverages trading firm. Food & tobacco company ITC Ltd is planning to set up a second manufacturing unit in Kolkata for Sunfeast Yippee Noodles. It will do so in partnership with city-based Keventer Group. The plant will have an installed capacity to manufacture 50 tonnes of instant noodles per day. The proposed plant is estimated to entail an investment of about Rs 500 m. ITC has sourced technology for the plant, which is capable of packing 450 packets per minute, from Japan and Taiwan.

Steel stocks have opened the day on a firm note with JSW Steel, Tayo Rolls and Jindal Steel trading firm. Public sector steel major Steel Authority of India Ltd. (SAIL) has announced that it has signed a 50:50 joint venture agreement with Burn Standard Company Ltd (BSCL) for setting up a wagon components manufacturing facility at the premises of BSCL at Jellingham, Purba Medinipore district, in West Bengal. The facility will have a capacity to manufacture 10,000 boggies and 10,000 couplers per annum. The project is estimated to entail an investment of about Rs 2 bn. SAIL Chairman C S Verma had previously said that the facility would commence commercial production from 2014. It must be noted that BSCL is a subsidiary of Indian Railways.

How resilient is Indian economy?

The growth forecasts for Indian economy have recently been revised downwards. Reeling under gross mismanagement, the Indian economy seems to be in a state of mess. However, the Finance Minister feels otherwise. He believes that India is in a better position than other economies to deal with it on account of high savings rate and domestic demand along with regulatory mechanisms.

Given the current circumstances, the picture portrayed by Finance Minister is too rosy to be real. He draws support from a huge young population and hence a robust domestic demand, a strong Indian banking system and diversified exports base. However, with disturbances in the global economy, it is only logical to expect that demand of exported goods will slow down.

The role of major Asian economies, especially India and China, in running the global growth engine can't be undermined. These economies have the advantage of a huge chunk of young population that will keep the demand vibrant and add to the productivity. However, while China is making the right moves by shifting focus to tap the domestic demand, India seems to have landed itself in a very precarious situation.

With twin deficits gaping us wide in our face and rupee in a free fall, an optimistic tone for Indian economy looks so out of place. Our regulatory mechanisms might have worked in the past; however, the country seems to be falling too short on action in policy front. This is keeping foreign investors at bay. The absence of domestic funds and lack of foreign investment will lead to infrastructural deficit thus wasting the potential of youngsters. It is said that tough times can teach a lot. Looks like our time to learn has come. Hope the Government stops fiddling while the country is burning and wakes up to the need of reforms before it is too late.