Indian stock markets close in the red

The Indian stock markets continued to trade below the dotted line throughout the day and have ended the day in the red. Stocks from sectors such as IT and oil and gas and capital goods have been a drag. However, the BSE Mid Cap and the BSE Small Cap indices continued to trade firm and were up 1.8% and 1.9% respectively. The BSE Sensex closed lower by 53 points. The NSE-Nifty too was seen down by 14 points.

On the global front, barring Japan and Korea, most of the Asian indices have closed the day on a weak note. The European indices have been witnessing weak performance. The rupee was trading at Rs 59.28 to the dollar at the time of writing.

Indian Pharma stocks closed the day on a mixed note with Wockhardt Ltd and Orchid Chemicals Ltd leading the losses. However, Dishman Pharma and Panacea Biotech were witnessing gains. As per a leading financial daily, US Food and Drug Administration (USFDA) has found as many as 12 procedural lapses in Wockhardt Ltd's US facility in Illinois. The US regulator has identified deficiencies in quality, hygiene and personnel training standards at the company's Morton Grove manufacturing unit at Illinois in the US. Similar concerns have been raised by USFDA at the company's Indian facilities in the past. It is important to note here that the Mount Grove unit is Wockhardt's sole manufacturing site in the US and production from here accounts for around 50% of the company's revenues. For FY14, sales in the US market contributed to 45% of the company's overall turnover. The stock price has fallen by around 4% on account of this negative development.

Power stocks have closed the day mainly in the green with JSW Energy and Torrent Power Ltd leading the gains. However, Power Grid Ltd and National Thermal Power Corporation (NTPC) Ltd were witnessing losses. Tata Power Ltd is in news for receiving approval from the Environmental Ministry for its Trombay unit-6 upgrade plan. The Trombay unit upgrade is likely to cost around Rs 11.8 bn. Recently, the company through its subsidiary Tata Power Renewable Energy (TPREL) successfully commissioned its project on May 31, 2014. While the project was ready during last week of March, it could not be connected to state grid due to non-availability of shutdown in existing lines and substations.

Mid, small caps buck the trend
01:30 pm

Indian stock markets continued to trade below the dotted line during the previous two hours of trade led by selling pressure among the Index heavy weights. Selling activity is led by stocks from IT and energy sectors. However, BSE Mid Cap and BSE Small Cap indices are trading higher by over 1.5% each today. The BSE-Sensex is currently trading lower by about 5 points while the NSE-Nifty is trading flat. The rupee is trading at 59.33 to the US dollar.

Most of the retail stocks are trading firm today led by Provogue India and Titan Industries. As per a leading business daily, watches and jewellery maker Titan plans to focus and expand its scope of operations into the premium and smart watches categories. For this, the company plans to launch 10 to 12 smart watches during the holiday season this December. The tech savvy watches will feature varied designs, colour and multi functionalities across target market. It will also offer connectivity to mobile phones for messaging, alerts and other functionalities. The company's watches currently dominate in the price range of Rs 800 to Rs 3,000 category. It is looking to strengthen its position in the premium market price range of Rs 5,000 to Rs 25,000. The company plans to add 120 watch stores to its existing pan-India network of 550 stores.

Mining stocks are trading mixed today. While Gujarat NRE Coke and NMDC are trading higher, Coal India is trading weak. As per a leading business daily, Coal India has reported its provisional coal production for the month of May 2014. The company has produced 36.27 m tonnes coal in May, which is 6% lower than the target of 38.56 m tonnes. The company's combined production for two months of April and May this year witnessed a shortfall of 3% at the provisional number of 73.79 m tonnes as compared to the target of 76.17 m tonnes. It may be noted that India's largest coal producer has been missing its production targets in recent times. With respect to coal offtake agreement for May, it stood lower by 7% than targeted, while for the April-May period, off take stood 81.25 m tonnes against target of 88.94 m tonnes, which was lower by 9%. These shortfalls are quite higher than the company's 3QFY14 shortfall of offtake by 4.7% and production by 3.9% to its target.

Indian markets drift lower
11:30 am

After opening in the red; the Indian indices have drifted lower in the morning session of trade. IT and energy stocks are leading the losers.

The BSE-Sensex is trading down 50 points and the NSE-Nifty is trading down 15 points. The BSE Mid cap index is trading up 1.1%, while the BSE Small cap index is trading up 1.3% today. The rupee is trading at 59.38 to the US dollar.

As per a leading financial daily, India's services sector has seen an expansion in business activity for the first time in nearly one year. The HSBC Services Purchasing Managers Index (Services PMI) has registered an expansion in the month of May 2014 at 50.2. This is up from 48.5 last month. A number above 50 indicates expansion. This has been largely driven by new business activity indicating optimism among corporates that the economy will rebound since the new government has taken charge. However it would be too early to say at this time if there will be a genuine turnaround in the service sector.

Power stocks are trading positive today. Torrent Power Ltd and NHPC Ltd. are leading the gainers. According to a leading business daily; the government is mulling over imposition of dumping duty on imported solar cells. Currently, more than 70% of projects across the country use imported solar cells/panels and around 4,000 MW was tendered recently. The imposition of duty could make the solar cells very expensive due to which several projects can get stuck. The cost is expected to increase by 100% and it is to be noted that solar panel costs constitute half of the total solar project cost. Also, states such as Tamil Nadu have written to the government that they may scrap solar programmes if the cost escalates. Also Karnataka has postponed bidding of its 130 MW of solar project because of the confusion over price of imported solar cells. Solar power is one of the essential ways for India's power capacity expansion plan. Power shortage, coal availability issues and expensive generators render solar power as an attractive option. India's total grid-connected solar capacity as of March, 2014 stood at 2,632 MW. The increase in panel cost could delay the capacity expansion plan and add to the power woes of the country.

Indian share markets open in the red
09:30 am

The major Asian stock markets have opened the day on a mixed note with stock markets in Japan (up 0.2%) and Taiwan (up 0.2%) leading the gains. However, stock markets in Singapore (down 0.5%) and China (down 0.9%) have opened in the red. The Indian share markets have opened the day on a pessimistic note. The sectoral indices have opened mixed with the stocks in the IT and FMCG sector witnessing losses. However, stocks in the consumer durables and realty sector have opened in the green.

The Sensex today is down by around 37 points (0.15%), while the NSE-Nifty is down by about 7 points (0.1%). That said, midcap and smallcap stocks have opened in the green with BSE Mid Cap and BSE Small Cap indices up by around 0.7% and 0.8% respectively. The rupee is currently trading at Rs 59.37 to the US dollar.

Barring few such as Canara Bank, Punjab and Sind Bank and United Bank of India many PSU bank stocks have opened the day on a firm note with IDBI Bank and Syndicate Bank leading the gains. A leading business daily states that a consortium of five nationalized banks, including Bank of Baroda and Bank of India, has sanctioned Rs 11.6 bn for a Gujarat project. The project entails an expenditure of Rs 18.2 bn over the next three years. The project aims to create a financial hub that will compete that of London, Singapore, Dubai and Hong Kong. The lent money will be utilized to build core infrastructure in the city. The project is being executed by Gujarat International Finance Tec-City Company Ltd, a joint venture between state-owned Gujarat Urban Development Company Ltd and Infrastructure Leasing & Financial Services (IL&FS). The project is Mr. Modi's vision of a financial services hub and he has aggressively pitched this idea to bankers, insurance companies and financial services arms over the last year or so. Although it is just the beginning, a pick-up in infrastructure activity and thereby a boost to the credit off-take bodes well for the Indian economy.

Barring few such as Wockhardt Ltd, Orchid Chemicals and Indoco Remedies, many pharma stocks have opened the day on a firm note with Biocon Ltd and Aurobindo Pharma leading the gains. As per a leading financial daily, the drug maker Biocon Ltd has expanded its tie-up with the NYSE listed global pharma major Bristol-Myers and Syngene International, the contract research subsidiary of Biocon itself. While the financial terms are not disclosed, the global major has been working with Biocon to help develop integrated capabilities in medicinal and process chemistry, biology, biotechnology, biomarkers, drug metabolism and pharmacokinetics, analytical research, and pharmaceutical development at the Biocon Bristol-Myers Squibb Research Center (BBRC) in Bangalore. The global counterpart is keen to develop new and innovative medicines in future with the help of such collaborations. In the process, Biocon is expected to largely benefit. However, the R&D expenses of the company might burgeon as Biocon continues to incur trials outside India.

Is tactical allocation a good strategy?

If someone asks you, what is the reason behind making investments? The obvious answer is going to be making good returns, out of it. Now these investments can be made in any asset class say gold, equity, debt or in all of these in some proportion. Whatever may be the class of investment, whether debt oriented or equity oriented, the core idea remains the same of earning best returns.

An article in Economic times mentions that a group of financial advisers are asking investors to make additional investments towards equity owing to current market conditions. The emphasis is made towards tactical asset allocation (TAA) - an active management portfolio strategy which dynamically allocates assets across the asset classes depending upon the economic outlook. As per this group, if an individual had made higher investment in debt a year ago, when the economic outlook was not encouraging, they could have earned better returns. Similarly, as the current market conditions now look promising, so now it is time to make more investment towards equity.

On the face of it, this strategy looks good and encouraging. However like any other investment strategy, investors should also be aware of the risks before investing. The biggest risk in our view is making short term moves depending on the market conditions. This is because; markets are influenced by internal as well as external factors. Thus one never knows which event can impact the current market rally or for how much time the current rally will last. In such situation all the investments can go haywire. However the investors who have adapted prudent investment practices will be better off.

At Equitymaster, we thus always encourage long term investments in fundamentally strong class of assets. And we continue to believe the same. Timing the market and making investments based on economic outlook adds little value to one's portfolio. Further, frequent churning the portfolio can bring in more costs. As higher churning would also increase transaction costs which in turn impacts the wealth of your portfolio. Thus in long run only those investments sustain which are made keeping in mind their intrinsic value, fundamentals and growth prospects. By doing so, one can rest assured of good returns over the period of time.

Among our various editorials, one of our 5-mins wrap up too had highlighted some interesting facts as to how can one earn better returns by not being too active. Click here to know more about it...

How frequently do you churn your portfolio? Do you think that you will generate better returns on your portfolio if the churning is reduced? Share your views on Club Equitymaster.