Weak global cues hurt indices

While selling pressure was witnessed across the board, the Indian markets featured as the second biggest losers in Asia today, after Hong Kong. Profit booking in, power, infrastructure and commodity stocks dragged the key indices in Indian equity markets lower since early trades. While the BSE-Sensex closed lower by 286 points (down 1.5%), the NSE-Nifty closed lower by 87 points. The BSE Mid Cap index and the BSE Small Cap index lost about 1.5% each.

As regards global markets, while Asian indices closed deep in the red today the European indices have also opened lower. The rupee was trading at Rs 60.38 to the dollar at the time of writing.

In a bid to offset rising input cost due to depreciation of rupee, engineering major Voltas has raised its air conditioners' prices by up to 5%. The company already has increased prices for some models and other models would follow suit in the near future. Voltas' ACs are priced at a range of Rs 13,000 to Rs 50,000 across different models. The company had increased prices of its products in March this year. Last year too, Voltas had to increase prices twice due to cost pressures. Voltas' order book has declined by 12.2% YoY and 13.4% YoY for FY12 and FY13 respectively. Further, influx of competitors in air conditioning segment is likely to hurt its earnings.

As per the Finance Minister, PSU banks will aim to open more than 8,000 branches in FY14. This is in pursuit of the government's plans to directly transfer cash benefits to bank accounts of beneficiaries by expanding the banking network. Currently, more than 40% of the 1.2 bn population is not covered by the banking system. Financial inclusion, particularly in rural areas is expected to accelerate the direct cash transfer scheme. For the PSU banks, however, the addition of franchise will mean higher operating costs in the near term.

Indian markets continue to trade weak
01:30 pm

Backed by persistent selling activity Indian equity markets continued to slide during the post noon trading session. Barring stocks FMCG sector, all the sectoral indices are trading in red. Stocks from realty and metal sector are witnessing maximum selling pressures.

BSE-Sensex is down by 290 points and NSE-Nifty is trading down by 90 points. While BSE Mid Cap is trading down by 1.53%, BSE Small Cap index is trading down by 1.20%. The rupee is trading at 60.24 to the US dollar.

Majority of the Automobiles stocks are trading in the red with Tube investments and Escorts being the major losers. As per a leading financial daily, Maruti Suzuki has today announced that it will be launching limited edition of its premium compact car, Swift. This model will be Rs 24,500 more costlier than its existing version. This limited launch model viz 'Swift RS' will be having new styling and graphics and will be available Vxi and Vdi variants. Reportedly, the ex-showroom price in Delhi of both the current Swift models is Rs 4.99 lakhs and 5.99 lakhs respectively. The company's new version launch has come after, it has been witnessing decline in the sales volume of its cars. The company's sales in the compact segment (comprising the Estilo, Swift and Ritz models) fell 7.2% at 20,996 units during June 2013, against 22,624 units during June 2012. The stock is trading down by 0.87%.

Most of the Indian pharma stocks are trading in red with Panacea Biotech and Orchid chemicals are witnessing maximum selling pressures. As per the financial daily, the Indian pharmaceutical alliance (IPA) has rolled back the ban on manufacture and sale of pioglitazone drug. Last month, this ban was put by union health ministry. However, IPA said that the ban put by union health ministry was done without following due process and scientific enquiry and thus has taken back the ban. Reportedly, the IPA said that the sudden ban will impact approx 30 lakh patients who were consuming pioglitazone for diabetes. This treatment was costing Rs4 to 8 per day. The sudden ban had pushed the cost towards costlier medication. Various Indian pharma companies viz; Cadila, Dr Reddys etc were selling this drug.

Indian share markets remain in red
11:30 am

Indian share markets have remained in red during the previous two hours of trade. The most noticeable upward movements have been witnessed in the FMCG and healthcare sectors while realty and metals have witnessed some selling pressures.

The BSE-Sensex is down by 237 points and NSE-Nifty is down by 74 points. However, BSE Mid Cap is down by 1.4% and BSE Small Cap is down by 0.9%. The rupee is trading at 60.08 to the US dollar.

All of the auto shares have slipped in red except Force Motors and Hero Motocorp, the only ones leading the gains with TVS Motors and Tube Investments facing the maximum selling pressure. According to a leading financial news medium, Mahindra & Mahindra, the auto major has raised Rs 5 bn in a 50-year unsecured bond sale programme, becoming the first domestic firm to sell such a long-tenure rupee debt instrument. The bond can be redeemed at the end of maturity and carries an annual interest rate of 9.55% and does not have call or put option. The proceeds of the issues are expected to be utilised for capex, project funding, refinancing of capex plans as well as long-term working capital requirements. The management was keen to do a benchmark deal with a longer maturity horizon and leverage upon its credit profile. Yes Bank stands as a sole merchant banker to the deal. Rating agency CRISIL has assigned an AA+ or stable rating to the instrument. In its statement, the agency cited that this issue will be the first 50-year plain-vanilla rupee denominated instrument by a domestic corporate. And this is indicative of the increasing investor confidence in corporate and holds good for the long-term prospects of the country. Mahindra & Mahindra share was down by 1%.

Except few, all of the Finance shares have slipped in red with Geojit BNP Paribas and Prime Securities leading the gains while Rural Electrification Corporation and Power Finance Corporation facing the maximum selling pressures. According to leading financial news daily, IDFC Limited, the infrastructure financing institution, has embraced 'Equator Principles (EPs)' performance standards. IDFC, with a balance sheet size of Rs 710 bn signed up the EPs in June becoming the first financial institution from India to do so. The EPs are expected to change the dynamics of how infrastructure projects are designed, financed and constructed. EPs were first launched in June 2003 by 10 private financial institutions alarmed by the environmental and social disorders that most infrastructure projects caused. These institutions adopted a voluntary set of reforms for assessing and managing environmental and social risks pertaining to large infrastructure projects. In the opinion of the IDFC management, adherence to these standards will ensure expansion of its business and enhancement in asset quality with no impediments to growth. IDFC has grown aggressively over the past decade; although it has been enforcing environmental standards all along. The gross loan book of IDFC grew at 38% CAGR over the last decade and profits have grown at 18% over the last year despite the challenging times. IDFC Limited share is down by 6%.

Indian share markets open weak
09:30 am

Barring Malaysia, all major Asian stock markets have opened the day on a weak note with Hong Kong (down 1.9%) and China (down 1.3%) leading the losses. The Indian share markets indices have opened the day on a weak note. Stocks in the realty, metal and banking space are leading the losses. However, healthcare and information technology stocks are trading firm.

The Sensex today is down by around 198 points (1%), while the NSE-Nifty is down by around 57 points (1%). Mid and small cap stocks are trading in the red with the BSE Mid Cap and BSE Small Cap indices down by around 1% and 0.6% respectively. The rupee is trading at Rs 59.54 to the US dollar.

Cement stocks have opened the day on a weak note with Madras Cements, India Cements and JK Lakshmi Cement leading the losses. As per a leading financial daily, Swiss cement giant Holcim is planning to restructure its Indian operations. One of its initiatives is the likely merger of its two Indian subsidiaries- ACC Ltd and Ambuja Cement. Holcim currently controls a little over 50% stake in both these cement companies. It is said that various options about how the two entities can be merged are being evaluated. However, the process is still at a very preliminary stage and the final outcome remains uncertain. It is worth noting that Holcim is currently the fourth largest cement producer in the world. The two Indian subsidiaries account for about 20% of Holcim's global operating EBITDA (earnings before interest, tax, depreciation and amortization).

Telecom stocks have opened the day on a weak note with Bharti Airtel, ITI Ltd and Idea Cellular leading the losses. As per a leading daily, the foreign direct investment (FDI) limit in the telecom sector has been approved to be raised to 100% by the Telecom Commission (TC), the highest decision-making body in the telecom ministry. Now, the approval of the cabinet is being awaited to allow 100% foreign ownership in the telecom sector. Currently, the FDI limit stands at 74%. Herein, the automatic route allows for 49% of investment in an entity. For further stake increase, an approval is required from the Foreign Investment Promotion Board (FIPB). It must be noted that the telecom sector is currently reeling under the burden of a huge debt of nearly Rs 1.9 trillion. Allowing more FDI in the sector is likely to provide some relief to the sector.

Buying home in Mumbai is a dream

Property prices in Mumbai have always been above average as compared to other cities of India. Scarcity of land and ever increasing demand are the two main reasons behind it. However, price rise has not affected the affluent class. Builders know that demand elasticity does not get impacted in the luxury segment. Hence, luxury segment has been their main focus area. In fact, as per an article in First Post, about 29% of the property which is under construction in Mumbai has crossed Rs 10 m mark. Compare this with the 11% and 5% figures for National Capital Region and Bangalore respectively. (Source: Knight Frank report). In short, builders in Mumbai are focusing on the luxury segment where buying patterns are less receptive to changing prices. This has increased the average property prices in Mumbai.

Now let us take a glance at the pricing scenario in the city. As per Knight Frank, a real estate consultancy firm, weighted average price in Mumbai is at about Rs 14,400 per square feet (sq ft). Including suburbs the weighted average price falls to Rs 5,900 per sq ft. However, this is considerably higher than the prices that are prevailing in other cities of India.

Such a huge difference in pricing and unit value makes Mumbai one of the most difficult cities in which to own a home in India. Considering that prices are high, the absorption rate in city has declined. Despite this, builders are unwilling to relent and have held on to their prices. They know that demand in the premium category is unaffected by pricing. Hence they are holding on to their rates. This has effectively created a pricing bubble in the market.

So, when will the bubble burst?

It seems that we are right at the tip of the ice berg. Builders have been holding onto prices and offering discounts to buyers since long. But sales have refused to pick up since affordability is not there. Even the mid income housing is affected due to lack of volumes. Banks have also become more conservative in lending to builders. External source of finance has become costly since execution risks have increased. With builders having limited access to finance the only option is to reduce prices. It is true that they have been avoiding the inevitable for long. But it seems that the end is near now.