L&T, RIL make it seven in a row

After spending most of the morning session crawling around the break even line, markets, with some great help from heavyweights like Reliance and L&T surged ahead in full steam during the second half and managed to close the day strongly in the positive. This is now the seventh consecutive trading session where the markets have closed in the positive. The BSE Sensex closed higher by around 150 points (up 0.8%), whereas NSE Nifty surged in the region of around 40 points (up 0.8%). BSE Midcap and Small cap indices were also in the thick of action, gaining 0.4% and 0.6% respectively.

While Asian stocks have closed mixed today, Europe is trading in the positive currently. The Indian currency was pegged at 46.4 to the dollar at the time of writing.

With today's gains, the Sensex is now just a couple of good sessions away from breaching the highs of the current bull run, a level of around 18,000. And who knows, with the global sentiment as it is right now, FIIs could keep pumping in money and we would be there. But will we go significantly higher than that? We have our doubts. The problems plaguing the developed world are far too big to go away in a hurry. Thus, every spate of good news is likely to be followed by bad ones and it will all lead to markets going nowhere for a considerable period of time. What is more, the risk of a significant correction should things take a turn for the worse does remain and this would affect Indian markets as well. But as we have been maintaining, in the case of India, every such correction should be seized as an opportunity to buy into the country's long term growth story.

A few years back, a new security had come into vogue. Called FCCBs, it promised the features of both, equity as well as debt. Companies happily bought into this promise, barely realizing that there is no such thing as free lunch in finance. And now, the hidden risks in FCCBs are slowly coming to light. As per a leading daily, around 90 of the BSE 500 listed companies had outstanding FCCBs aggregating Rs 546 bn as on March 15, 2010. And the probability of the same getting converted into equity is very low for around 50 of those companies. The end result? They may either have to refinance their FCCB debt or settle for a much lower conversion price or a mixture of both. All said and done, the entire episode could lead to some serious pressure on the fundamentals of the companies involved, if not for the long term then at least for the near to medium term. Some of the prominent companies that are likely to face the FCCB problem are Reliance Communications and Suzlon.

Wipro, the IT bellwether closed in the positive today, optimism perhaps stemming from the fact that the company has won a significant outsourcing deal from one of the world's largest IT companies, Microsoft. However, it is not the company's software division that has anything to do with it. The deal has been won by Wipro's BPO arm and it involves providing legal process outsourcing (LPO) to Microsoft's IP and licensing group worldwide. While the size of the deal is not known, it does mark an important step in Wipro's journey towards cementing its place in the fast growing space of legal process outsourcing.

A volatile post noon session
01:30 pm

The Indian markets saw a volatile trading session with the benchmark index witnessing alternate bouts of selling and buying during the post noon trading session. At present, the market breadth is neutral as there are equal number of advances and declines on the overall BSE. Most of the sectoral indices are trading weak led by IT, FMCG and metals. However, stocks from the capital goods, oil & gas and pharmaceuticals sectors have managed to find some gains.

The BSE-Sensex is trading higher by around 5 points, while the NSE-Nifty is down by about 9 points. While the BSE-Midcap Index is trading flat, the BSE-Smallcap Index is trading 0.4%. The rupee is trading at 46.54 to the US dollar.

Auto stocks are currently trading weak led by Hero Honda, Ashok Leyland and Maruti Suzuki. A leading business daily has reported that Mahindra and Mahindra (M&M) has been entangled in a law suit with its very own distributor in the US. M&M and Global Vehicles, the distributor in the US, had signed an agreement way back in September 2006. As part of the agreement, Global Vehicles would be the sole distributor for M&M's vehicles in the US. It has sued the Indian auto major due to the delay in launching its products in the US. Global Vehicles has allegedly spent US$ 35 m in preparation of the launch. It also has signed nearly 360 dealers across the country. The company further claimed that US dealers have spent more than US$ 60 m in franchisee fees for the right to sell M&M's vehicles. While M&M has responded by stating that it will contest the claims, it would definitely create tensions between the two firms, considering that M&M is going ahead with the launch by the end of this year. It would be launching its compact diesel pick-up truck at first. Also, the fact that M&M is the first Indian auto company to foray into the US is a big deal. As per the management, the reason for the delay in launch has been due to changes required to conform with US regulations.

Telecom stocks are trading mixed with MTNL and Tata Communication trading firm, while Bharti Airtel is trading weak. As per a leading daily, Reliance Communication (RCom) is evaluating the option of selling a 26% stake in its wholly owned subsidiary Reliance Globalcom. Globalcom is RCom's undersea optical fiber network and US network business. The value of the stake is estimated at Rs 22 bn. This move is believed to be part of the company's plan to increase the cash on hand and reduce overall debt so as to secure better market valuations for the 26% stake on the block. It may be noted that RCom had recently demerged its tower unit, Reliance Infratel which is expected to generate roughly Rs 150 bn for the company. As per a company official, this stake sale along with the cash inflow from the demerger of Reliance Infratel is expected to strengthen the company's balance sheet and give it more negotiating power.

Oil & Gas stocks push up markets
11:30 am

Markets are traded marginally in the positive during the previous two hours of trade after a volatile session in the morning. Key Asian markets are trading mixed. Stocks from the oil & gas and healthcare space are witnessing buying interest while stocks from the IT and realty space are trading in the red.

The BSE-Sensex is trading higher by around 6 points, while the NSE-Nifty is down by about 6 points. Some buying interest is being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.2% and 0.6% respectively. The rupee is trading at 46.54 to the US dollar.

Oil & Gas stocks are currently trading in the green. As per a leading news daily, RIL plans to bid for three Ultra Mega Power Projects (UMPPs) in Chhattisgarh, Orissa and Tamil Nadu. This will mark RILís entry into the power sector. However, its power foray is likely to be coal or renewable energy based. Further, RIL is also looking out for solar energy and renewable energy sources like wind and biomass as a major investment area in future. The company is not only planning to bid for UMPPs but is also on a look out for acquisition of power plants. It should be noted that RIL missed out on the power bonanza up till now because of the non-compete agreement signed with the ADAG group. However, with the barrier of non- compete agreement now being detached RIL is free to venture out in the power space.

RIL is in the process for purchasing the request for quotation (RFQ) documents for these UMPPs. The government has invited bids for the 4,000 MW UMPP in Chhattisgarh by July 05 and a similar project at Bedabahal in Orissa by July 30. The RFQ for the Tamil Nadu UMPP may be issued soon. With the government setting a target of adding over 200,000 MW of additional power generation before the end of the 12th Five-Year Plan in 2017, power generation is likely to be a lucrative destination for new as well as existing players.

Banking stocks are mainly trading in the negative with Federal Bank and Andhra Bank leading the declines. Indian Overseas Bank is however one of the top gainers in the sector. SBI announced that it will launch its wealth management initiatives in the current fiscal. The bank has so far already launched financial planning and advisory services. The bank also plans on setting up private equity funds as one of the new initiatives. This is part of the bankís push into new businesses and in its effort to increase its fee based income.

The bank has also been seeing potential in Indiaís increased usage of credit and debit cards and plans to install 0.6 m point of sales terminals in the country over the next five years. These terminals will also be present in rural areas and increase sales of merchant establishments across the country. Mobile banking services are also expected to roll out soon.

Markets start on a negative note
09:30 am

The Indian markets have started today's session on a negative note. The benchmark indices opened above the breakeven mark but soon fell into the negative territory. They have managed to inch back towards the dotted line since then. Other key Asian markets are in the red with Japan (down 0.4%) leading the pack of losers. The US markets closed higher by 0.1% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading weak with banking and metal majors facing the brunt of selling activity. The BSE-Sensex is trading lower by around 4 points, while the NSE-Nifty is down by about 9 points. However, buying interest is being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.2% and 0.3% respectively. The rupee is trading at 46.46 to the US dollar.

Energy stocks have opened the day on a positive note. Gainers here include Indraprastha Gas and Gujarat Gas. As per a leading business daily, Indraprastha Gas has hiked the price of CNG price in Delhi by over 25%. The price will go up by Rs 5.6 per kg to Rs 27.5 per kg in Delhi. It will cost Rs 30.6 per kg in Noida, Greater Noida and Ghaziabad. This move comes on the back of the government's decision to more than double the price of APM gas to US$ 4.2 per m British thermal unit. APM gas forms bulk of Indraprastha Gas' supply basket. Prior to the price hike, CNG gave about 40% more savings than diesel and 67% more than petrol in the national capital. After the hike, CNG would be 28% cheaper than diesel and 59% cheaper than petrol. Hence, even after the hike, CNG in Delhi remains among the cheapest auto fuels in India. It may be noted that the company has not increased the price of gas that it pipes to households for the purpose of cooking. Piped natural gas will continue to be priced at Rs 15.9 per cubic meter.

Power stocks have opened the day on a negative note. Losers here include NTPC and Reliance Power. As per a leading business daily, Tata Power's 1,600 mega watt (MW) project in Raigad, Maharashtra has been cleared for launch. After five years of opposition and negotiations, the company has concluded the official formalities for joint survey of the affected land by the district collectorate and the concerned farmers. It has also received the approval for its compensation package to the owners of 1,200 acres of land, from the state government's high-powered committee. The land will be soon transferred to the Maharashtra Industrial Development Corporation, which will then transfer the land on lease to Tata Power. The company has a power generation capacity of 1,877 MW in the state. It plans to begin construction for the imported coal based Raigad project by October this year. The plant is set be operational by 2014.

Recession next year is inevitable

Text book economics doesn't have all the answers. And people and governments are becoming increasingly aware of that fact. However, authorities in developed countries continue to loath admitting one very simple reality - that they just don't know what to do solve the crisis anymore. All attempts so far - like the US$1 trillion European bailout package announced recently - reek of desperation. They're only part of a long list of moves by clueless governments in the US and Europe praying 'we hope this works!'

With the grave problems facing these economies and no concrete solutions in sight, it is not surprising that one of the most erudite investors thinks that recession next year is almost inevitable. George Soros expressed this view recently at a conference, saying that this is the only fate that awaits Europe with the policies that are currently being followed.

In fact, he has gone as far to condemn what looked like even the most sound solution - that of cutting fiscal deficits. He's said that by imposing fiscal discipline at a time of insufficient demand and a weak banking system, and by wanting to have a balanced budget one would be actually setting in motion a downward spiral. Evidently, there are no easy solutions. Further, the lack of provisions for countries to leave the Euro zone in light of all this could turn out to be a fatal weakness. Many European banks also hold large amounts of the sovereign bonds of weaker euro zone countries. Losses on these bonds due to a default could also put the region's banking system in jeopardy. The destruction of the concept of the European Union could be one fallout of this crisis.

Whichever way one sees it, another deep recession seems to be fast becoming the only consequence in sight. The effect of such an eventuality on Indian business will surely be felt. Its extent and timing will depend on how much an individual company is reliant on this region for business. However, the global economy has now become more intertwined than it has ever been before. Thus the business environment in not just Europe but also the rest of the world may be adversely affected.

How stocks prices will get affected by all this in the short term is more difficult to tell. One can only surmise about this. However, it is best to avoid making investing decisions on the basis of such surmising. 'Buy when cheap, and sell when expensive' remains an ever green formula though. And stocks in general in India are anything but cheap at this point of time.