Sensex ends 3.3% up for the week

Indian equity markets jumped over 2.75% on Friday on heavy buying by funds and retail investors amid firm global cues. Concerns over China's credit crunch continued to subside with Beijing's central bank pledging to ensure reasonable lending growth and stable markets. Back home, on the back of lower current account deficit (CAD), rupee appreciated today against the dollar and came below the Rs 60 level. While the BSE-Sensex closed higher by 519 points, the NSE-Nifty closed higher by 159 points. Both the BSE Mid Cap and the BSE Small Cap closed on a positive note. Metals and capital goods stocks were the biggest gainers.

As regards global markets, Asian indices closed in the green. European indices have also opened in the red. The rupee was trading at Rs 59.2 to the dollar at the time of writing.

The central government would come up with an executive order soon to set up a coal regulator. The union cabinet had approved the proposal for setting up of an independent coal regulatory authority for the coal sector and also approved the introduction of Coal regulatory Authority Bill, 2013 before the Parliament. Though Coal India Limited would decide the pricing system, coal regulator would decide on the principles and methodology. The authority would specify methods of testing for declaration of grades or quality of coal, monitor and enforce closure of mines, specify principles and methodologies for pricing. Shares of Coal India, which recently fell to lowest levels since listing, surged higher on Friday and closed 5.6% higher.

According to a leading financial daily, Indian Hotel Company Limited's (IHCL) plans to hold on to Taj Mansingh hotel might suffer a jolt as the New Delhi Municipal Council (NDMC) has decided to seek the opinion of the solicitor general and fresh views of the rural development and home ministries on open bid for the property's auction. Till now, NDMC officials had maintained the first right of refusal and had safeguarded IHCL's interest in the property. But now IHCL might lose that right after the home ministry wrote to the civic body to cancel the company's first right of refusal. The 33 year old lease agreement between the two parties ended in October 2011, after which NDMC decided to go for an auction, instead of renewing the lease. Later, the civic body had extended the lease by a year.

Indian share markets zoom higher
01:30 pm

Buoyed by improving current account deficit situation, Indian share markets continued to soar higher in the post-noon trading session. Barring IT and consumer durables, all the sectoral indices are trading in the green with metal, capital goods and power stocks being the biggest gainers.

BSE-Sensex is up 407 points and NSE-Nifty is trading 121 points up. BSE Mid Cap is trading up 1.4% whereas BSE Small Cap index is trading up by 1.1%. The rupee is trading at 59.5 to the US dollar.

All the private bank stocks are trading in the green with Dhanlaxmi bank and South Indian Bank being the biggest gainers. As per a leading financial daily, the Cabinet Committee of Economic Affairs (CCEA) has given a go-ahead to Yes Bank for increasing its foreign holding to 60%. The bank is also planning to raise US$ 500 m through the Qualified Institutional Placement (QIP), American Depository Receipt (ADR) or Global Depository Receipt (GDR) route. The company already has got shareholder's approval to raise up to US$ 500 m. Yes Bank stock is currently trading 1.2% up.

Most of the Indian pharma stocks are trading in the green with Sun Pharma and Orchid Chemicals leading among gainers. As per financial daily, Cadila Healthcare has been sued by Alpex Pharma for filing an ANDA (Abbreviated New Drug Application) with USFDA (United States Food and Drug Association). Alpex, based in Mezzovico, Switzerland, alleges that Cadila, has wrongly applied to the USFDA to sell the generic version of its brand Suprenza. As per the filing of the innovator, it claims that Cadila is intending to launch the low-cost copies of the medicine before the patent expiry in 2018. The said drug is prescribed for the obesity. Reportedly, the law suit was filed yesterday in Federal court in Wilmington, Delaware. Cadila was trading up by 0.4%.

Fall in CA deficit cheers markets
11:30 am

Indian share markets have continued to cheer the drop in current account deficit and have remained firm in the last two hours of trade. IT and consumer durables are the only two sectors which have witnessed selling pressures.

The BSE-Sensex is up by 344 points and NSE-Nifty is up by 111 points. BSE Mid Cap index is up by 1.4% while the BSE Small Cap index is up by 1.2%. The rupee is trading at 59.84 to the US dollar.

All except two automobile shares, Tube Investments and Eicher Motor are trading in green with Tata Motors and Bajaj Auto leading the pack. According to a leading financial news medium, Ashok Leyland's Ennore plant's workers are working only three days a week this month, considering a production cut because of slowdown. The commercial vehicle maker will give the compensation as per the number of working days. The compensation levels will go up, once demand picks up and normal working schedule gets restored. For the year ended March 31, 2013, the company has registered a 23.4% fall in its net profit at Rs 4337 m in FY13 as against Rs 5660 m in FY12. Total income of the company has decreased by 3.3% YoY to Rs 124.8 bn. Ashok Leyland's share is trading up by 1.5%.

All except three Consumer Products shares, P&G Hygiene, Marico and Hindustan Unilever are trading in green with Lakshmi Energy and Archies Ltd leading the pack. According to a leading financial news medium, Proctor & Gamble is likely to extend its funding agreement with Jawed Habib Hair and Beauty salons beyond the UK to new markets such as Dubai and Singapore. The FMCG major has allocated a loan amount of 10,000GBP for each Jawed Habib-owned salon in the UK. It will fund Jawed Habib's 50 stores that are to be launched in the next two years. P&G Hygiene and Health Care is one of India's fastest growing fast moving consumer goods companies. Globally, Procter & Gamble owns brands like Duracell, Olay, Tide, Gillette, Braun, Pringles, Lacoste, Puma, Oral-B, etc.

Indian share markets open firm
09:30 am

All the major Asian stock markets have opened the day in the green with Japan (up 3.1%) and Indonesia (up 1.6%) leading the pack of gainers. The Indian share market indices have also opened the day on a positive note. Barring consumer durables and software, all sectoral indices have opened in the green with stocks in the oil and gas and metal sector leading the gains.

The Sensex today is up by around 282 points (1.5%), while the NSE-Nifty is up by around 86 points (1.5%). The mid cap stocks and small cap stocks have also opened in the green with BSE Mid Cap and BSE Small Cap indices up by around 0.9% and 0.5% respectively. The rupee is trading at Rs 59.82 to the US dollar.

Energy stocks have opened the day mainly in the green with Oil and Natural Gas Corporation (ONGC) and Mangalore Refinery and Petrochemicals Ltd (MRPL) leading the gains. In a key development in India's energy sector, despite opposition, the Government has approved doubling of gas prices from the current US$ 4.2 per million metric British thermal units (mmbtu) to US$ 8.4 per mmbtu. The new price will be effective from April 1, 2014. It is to be noted that the Cabinet Committee on Economic Affairs (CCEA) has decided to overlook the US$6.775 per mmbtu proposed by the petroleum ministry. Instead, it has opted for the Rangarajan formula advocated by the finance ministry and planning commission. The Rangarajan formula would be applicable for five years. The new price at US$ 8.4 per mmbtu will be reviewed every three months. It will apply to all the gas producers uniformly including firms like Oil India Limited (OIL), ONGC and private companies like Reliance India Ltd. The new price has been arrived by using a formula of long-term and spot liquid gas (LNG) import contracts as well as international trading benchmarks.

Engineering stocks have opened the day mainly in the green with Sanghvi Movers Ltd and Everest Kanto Cylinder Ltd leading the gains. As per a leading financial daily, Crompton Greaves Ltd (CG) has bagged three contracts from Power Grid Corporation of India (PGCIL) worth Rs 2.3 bn for supply of autotransformers and reactors for its Thiruvelum, Kurnool, Raipur and Wardha substations. The manufacturing of the products is likely to take place at CG's Bhopal plant. The scope of the contracts includes design, manufacturing, factory testing, dispatch, erection, site testing, commissioning and related civil construction, at various locations in India. The projects are expected to be completed within 31 months.

Rupee's road ahead is bumpy

After the US Federal Reserve indicated that it would taper off the quantitative easing (QE) program most emerging market equities took a beating. Along with equities their respective currencies also came under the hammer. The reason was simple. Gradual tapering of QE is an indication that the US economy is recovering and therefore no longer needs additional doses of liquidity.

It may be noted that the liquidity injection exercise in the form of QE led to a flow of money across borders. But with Fed indicating that the stimulus program might well end soon investors started to withdraw their money from foreign markets. In short, emerging market equities fell. There was a sharp fall in prices of all asset classes, and emerging market currencies were not spared either. Rupee was no exception here. The Indian currency recently touched the 60 dollar mark.

But the question is whether the current fall is just a knee jerk reaction or are there some structural problems associated with the fall?

Well, it's a combination of both. There is no doubt that the recent sell off in equities/bonds by foreigners has resulted in rupee's fall. But it may be noted that there are structural problems associated with the currency which further accentuated the fall. Rupee was already under pressure before the announcement on QE withdrawal due to India's widening current account deficit (CAD). And the recent sell off in equities/bonds by foreigners further increased rupee supply. This added fuel to fire. At the same time, the current investment climate is not very conducive for foreign investors either. As such, the dollar inflow in the form of foreign direct investment (FDI) and foreign institutional investment (FII) was muted. In short, there was no support for rupee which led to a free fall.

Another important point to note is that fearing further rupee depreciation foreign institutional investors (FIIs) sold off their rupee bond portfolios. With rupee depreciating the returns of FIIs in dollar terms were eroding. Hence, they indulged in selling their bond portfolios. The selling pressure was further worsened when the interest rate arbitrage between the two countries started narrowing. It may be noted that US treasury yields are 2% while government bond yields in India are 7%. As such, there is an arbitrage of 5% (odd) if one borrows in US dollars and invests in Indian bonds. But rupee depreciation wiped this arbitrage which triggered further selling of rupee bond portfolios.

We feel that unless India's domestic environment becomes investor friendly rupee would continue to suffer. Narrowing CAD could help to some extent. Though government did take steps in this direction by curbing gold imports this is a short term measure. The RBI has limited fire power (in the form of forex reserves) to intervene in the currency markets and arrest the fall in rupee. Thus, realistically government has to take steps to attract dollar investments to support the rupee. Else the road ahead for the Indian currency would be a bumpy one.