Rate cut hopes cheer markets

The Indian stock markets started of the day on a positive note in anticipation of a favourable monetary policy from the Reserve Bank of India (RBI) on Monday. Positive news from Europe and the upcoming Greek elections also added to the buoyancy. The indices opened well above the dotted line and were trading well in the positive for the entire session of trade. In the final hour of trade markets surged and ultimately closed near the daily high. While the BSE-Sensex closed higher by around 272 points (up 1.6%), the NSE-Nifty closed higher by around 84 points (up 1.7%). The smaller indices had a relatively poorer day on the bourses.

The BSE Mid Cap index and the BSE Small Cap closed 0.6% and 0.5% higher respectively. All sectoral indices closed the day in the positive. Auto stocks saw strong gains on the back of Tata Motor's robust global vehicle sales for the month of May, thanks to a strong performance from its subsidiary Jaguar Land Rover (JLR). Banking stocks and realty also saw strong gains in anticipation of a rate cut from the central bank early next week.

As regards global markets, most Asian indices had a positive outing today on strong global cues. European indices also opened the day in the green. The rupee was trading at Rs 55.68 to the dollar at the time of writing.

Ultratech Cement part of the Aditya Birla Group and France's Lafarge are separate in talks to buy Jaiprakash Associates' cement units in two states. This deal is potentially worth up to about US$ 1.6 bn, according to a leading business daily. Preliminary talks have been concluded and final bids are expected shortly. Jaiprakash had earlier has spun off its cement units in Gujarat and Andhra Pradesh into a separate company, Jaypee Cement, which has a combined capacity of 9.8 million tonnes. The business could be worth about Rs 90 bn, based on an estimated cost of US$ 160 a tonne for a greenfield plant. Swiss cement maker Holcim, which has stakes in two large Indian cement companies ACC Ltd and Ambuja Cements is also believed to be in the race.

The country's largest private power producer, Tata Power has plans to build more projects based on imported coal. However, this is subject to the government formulating the proper policy framework for sourcing coal from overseas mines. The company is still looking for clarity on imported coal from the government. It has recently commissioned a 4,000 mega-watt (MW) ultra mega power project at Mundra. The coal for this project is currently being sourced from Indonesia. However, Indonesia had decided in September 2011 to adjust its pricing policy to bring the prices of its coal at par with international prices. This move made sourcing coal from Indonesia an expensive proposition. The company has another project at Dherand which is also based on imported coal.

Auto drives markets higher
01:30 pm

The Indian equity markets continued to rise steadily during the post noon trading session as buying activity was seen in stocks across the board. Stocks from the auto and banking spaces lead the pack of gainers while those from the power and Oil and gas spaces were amongst the top underperformers.

The Sensex today is trading higher by about 160 points (up 1%), while the NSE-Nifty is trading higher by about 60 points (up 1.13%). The BSE Mid Cap and BSE Small Cap indices are trading higher by about 0.5% and 0.3% respectively. The rupee is trading at 55.76 to the US dollar.

Auto stocks are currently trading firm led by Tata Motors, Hero Motocorp and M&M. The stock of Tata Motors is trading firm on the back of news of strong growth in global sales. It is reported that global sales grew by 12% YoY during the month of May 2012. Total volumes stood at 96,089 units. Sales of Jaguar Land Rover, the company's luxury brands stood at 30,094 units during the month. This figure is higher by 35% YoY. If we further dive into the numbers, the growth was largely led by higher sales of Land Rover, up 42% YoY while sales from the Jaguar stable rose by 3% YoY only. Within the breakup of commercial and passenger vehicles, the latter grew by 6 YoY, while commercial vehicles sales grew by 3 % YoY to 45,025 units. It may be noted that apart from JLR, Tata Motors Group's global sales comprise of Tata, Tata Daewoo and Hispano Carrocera range of commercial vehicles.

FMCG stocks are currently trading firm led by Dabur, Godrej Consumer and Hindustan Unilever. As per a leading financial daily, Anglo-Dutch consumer goods major Unilever has put forward plans to close three plants and an office in UK. The changes are likely to take effect by the end of 2013 and will translate into 500 direct job losses and 300 contractor and third party job cuts. Some jobs are likely to be outsourced to Unilever's IT centre in Bangalore, India. As per Unilever UK, the job cuts have been announced in the face of very tough economic conditions faced by the company in Europe.

Indian markets continue in the green
11:30 am

Indian equity markets were trading in the green during the last two hours of trade on the back of sustained buying in index heavyweights. All sectoral indices were trading firm led by consumer durables and banking stocks.

The BSE-Sensex is trading higher by 94 points and NSE-Nifty is trading up by 26 points. BSE Mid Cap and BSE Small Cap indices are trading firm by 0.5% and 0.4% respectively. The rupee is trading at 55.66 to the US dollar.

Mining stocks are trading in the green led by MMTC Limited and Coal India. According to a leading financial daily, Coal India is expected to incur a loss of Rs 60 bn in its revenues. This is on account of the mining company lowering spot sales to fulfill supply commitments to power sector. We may recollect here that Coal India has been asked to sign fuel supply agreements (FSA) with power companies. The company may have to cut its e-auction sales of coal to meet the requirements of the power sector. However, if the company increases production and decides to hike prices, the loss could be curtailed to that extent.

Hotel stocks are trading in the green led by Country Club and Oriental Hotels. According to a leading financial daily, the Indian hotel industry is suffering from slowdown in the economy. However, this time around, the hoteliers do not want to repeat the mistakes they made in 2008. Instead, they have decided to cut their sales and marketing costs. Hotels are trying to reinvent processes and rationalize costs to tide over the current problems. As per the management of Hotel Leelaventure, it is reducing its marketing expenditure by 10-15%. Companies are also lowering their staff-to-room ratios. Energy consumption will also be kept in check by the hotel companies.

Indian market indices open firm
09:30 am

Most Asian equity markets have opened the day on a firm note with stock markets in Hong Kong (up 1.3%) and Taiwan (up 1.1%) leading the gains in the region. The Indian equity market indices have also opened the day on a positive note. Stocks in the realty and banking space are leading the pack of gainers.

The Sensex today is up by around 111 points (0.7%), while the NSE-Nifty is up by around 33 points (0.7%). Mid and small cap stocks are also trading in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.6% and 0.4% respectively. The rupee is trading at Rs 55.67 to the US dollar.

Telecom stocks have opened the day on a firm note with Reliance Communications and Tata Communications trading firm. As per a leading financial daily, telecom major Bharti Airtel has been asked to pay over Rs 7 bn for customs duty evasion under a Customs, Excise and Service Tax Appellate Tribunal (CESTAT) order. The order was issued last week by it Bangalore bench. The allegations include undervaluation of imported goods and non-inclusion of the value of software in the imported goods. The total amount payable by Bharti includes differential duty liability of Rs 2,155.1 m, besides a similar sum of penalty and a redemption fine of Rs 1,890 m for confiscated goods. Further, an interest on the duty liability has also been charged on a per year basis. As per a Government official, if Bharti wants to challenge the charges, it will have to go to the Supreme Court. The stock of Bharti Airtel is trading in the red.

Finance stocks have opened the day on a mixed note with Reliance Capital and Infrastructure Development Finance Company (IDFC). However, Bajaj Finance and LIC Housing Finance are trading in the red. On Thursday, foreign brokerage firm downgraded the stock of India's largest mortgage finance company Housing Development Finance Corporation (HDFC). The reason stated for the downgrade was that the housing lender seemed to have inflated earnings by adopting aggressive accounting practices. As per the brokerage, the earnings for financial year 2010-11 (FY11) and 2011-12 (FY12) were overstated by 38% and 24%, respectively. And as such, the reported return on equity (ROE) for FY11 and FY12 would have been lower by 6% and 4% at 16% and 18%, respectively. However, HDFC has completely rejected the claims made by the brokerage firm. As per HDFC's Vice-Chairman and CEO, the company had been complying with Indian accounting standards and the point raised in the report regarding the reporting of zero coupon bonds has been clarified earlier on several occasions to investors.

Delayed rains may be a dampener

As soon as the scorching summer ends the entire country waits for bated breath for the cool breeze of the monsoon. This is because in India, the monsoons do not just signal the start of a new season, but rather it affects the livelihood of each and every citizen of the country.

India receives one of the highest rainfalls compared to many countries in the world, at 1.18 mm annually. However, the problem is that there is a lot of variation regarding the timing as well as the distribution of rainfall within the country. Thus even if normal rainfall occurs, some states may face drought or others flood. Plus, our irrigation system is highly dependent on rainfall, unlike the US or Canada where rivers are fed by snow melting. Most Indian rivers are fed by rain collecting in the catchment areas.

The MET department has once again predicted the rains incorrectly. The delayed and insufficient monsoon is adding to the mounting worries of the government. As if a mounting fiscal deficit, slowing growth and policy paralysis wasn't enough. Inflation for May rose up to 7.55% from 7.23% in April, and prices will continue to remain high unless the monsoon kicks in quickly. It has been a week into the season, and according to a Reuters report, the monsoons are 36% below normal. This is a serious concern, as most crops need heavy showers at the beginning of the rainy season. In Southern India, where the rain hits first, it has been as much as 58% below normal, according to an article in Firstpost. Only 16% of the country has so far received normal rainfall this month. This could potentially hurt paddy, oilseeds and coarse grain cultivation in the country.

While a poor monsoon may not have a very significant impact on GDP growth numbers, it will indirectly affect the economy. According to the Finance Minister, Mr Pranab Mukherjee, a good monsoon will help ease pressure on inflation. If this is the case, inflation will be in the range of 6.5% to 7.5% in FY13. A poor monsoon on the other hand will deter the Reserve Bank of India (RBI) from cutting rates and stimulating growth in the economy. For the sake of growth and stable prices we sincerely hope that the rain gods shower our country with blessings. And soon!