India trails Asian gainers

Taking cues from the buoyant global markets, the Indian benchmark indices ended the session well above the dotted line today. Pharma, software and banking stocks led the pack of gainers. Selective profit booking was however seen in auto and cement stocks. The Chinese and Indonesian markets were the top gainers in Asian region. European markets have also opened in the positive.

The BSE Sensex and NSE Nifty closed with gains of around 173 points (1.0%) and 53 points (1.0%) respectively. However, the mid and small cap stocks failed to catch up. The BSE Midcap index closed higher by 0.8%, while the BSE Smallcap index closed with gains of around 0.6%.

In a move that may allow Indian companies to hire skilled employees with global experience, the government is looking at revising the guidelines for work visas. Previously, Indian firms had to limit their foreign hires to 1% of their workforce. Also the minimum pay scale was US$ 25,000 (Rs 1.2 m) a year. However, these relaxations come with a clear mandate that only skilled and technical workers should be allowed. Thus while facilitating Indian companies, especially MNCs hiring employees with overseas experience, these guidelines do ensure that the unskilled jobs come to Indian first. Indian IT majors who are the major hirers of foreign nationals may stand to benefit from this move. The stocks of Infosys, Wipro and TCS ended higher today ahead of the upcoming result season.

Indian banks are having to pay a heavy price for the tight liquidity situation prevalent currently. The players in the sector are reportedly raising funds atleast 0.5% to 1% higher than that paid for bulk deposits a month earlier. The RBI's cues of an upward bias in interest rates are not helping banks either. However, the situation is expected to ease up by the end of July 2010 when some government papers mature. Meanwhile, we believe that it may not be a very prudent move by banks to raise bulk deposits at exorbitant rates as the same may eat into their already thinning margins. Key stocks in the sector including SBI, IDBI Bank and PNB ended in the positive.

The politicians did their best yesterday when it came to holding the nation to ransom on the pretext of inflation. What needs to be seen is what would be their reaction if inflation were to actually taper down on the back of good monsoon. Yes, the latest food inflation number at 12.9% is an enthusing 4% lower than the previous record. But that is not something to celebrate. For the lower number is purely due to a higher base in 2009. On a week on week basis, food prices continue to scale up. Having said that, as per the Finance Secretary and the Planning Commission, it is only a matter of time. The government officials seem confident that better food supplies this year will certainly ease pressure on prices. In fact they see inflation coming down to 5%-6% by the end of this fiscal. This hopefully is after taking into account the impact of higher fuel prices. We are keeping our fingers crossed.

Markets trading firmly in the green
01:30 pm

After starting today's session on a positive note, Indian indices have continued to trade in the positive during the last two hours of trade. Other key Asian markets are trading well in the green. Stocks from IT and metal space are witnessing significant buying interest while stocks in the FMCG and auto space are witnessing lower gains.

The BSE-Sensex is trading up by around 149 points, while the NSE-Nifty is up by about 44 points. Buying interest is also being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are both trading higher by 0.7%. The rupee is trading at 46.78 to the US dollar

NTPC has signed production sharing contracts with the government for exploration blocks awarded in the eighth oil and gas blocks auction round held in 2009. State-run NTPC will have a 100 per cent interest and operate an onland block in the Cambay basin in western India, while it will hold a 10 per cent interest in 3 other blocks in other regions. The move is in line with the company's plans to ensure fuel sources (coal and gas), given the constraints it is facing from domestic resources.

NTPC has outlined an aggressive capacity addition plan to add around 22,400 MW of new generation capacity. The pace of execution is poor. Slowdown in capacity addition has been on account of issues in sourcing of adequate fuel among others. Thus, the move is considered positive.

Electrical equipment maker Havells India is planning to relaunch 'Sylvania' brand in India. It plans to invest Rs 1.2 bn in marketing and network expansion this year. Sylvania was earlier present in India through a joint venture Laxman Sylvania. Now, Havells India is planning to form a separate entity called Sylvania India. It foresees this entity to become Rs 5 bn brand in the next five years. The company has planned to launch Sylvania brand in India with the latest technology from Europe in the next two-three months. In 2007, Havells had acquired Frankfurt-headquartered Sylvania for US$ 300 m through its Dutch subsidiary Havell's Netherlands BV. 

Sylvania lighting group is a global designer and provider of lighting systems, including both lamps and fixtures. The European subsidiary is still loss making, although the quantum of losses has come down. The subsidiary is expected to break even in the current fiscal. However, it makes sense to have a foothold in the growing Indian economy. This is especially considering the strong growth prospects of the domestic economy and a prolonged slowdown in the developed markets.

Flat with positive bias
11:30 am

After starting today's session on a positive note, Indian indices have managed to hold on to the gains during the last two hours of trade. Other key Asian markets are also marginally in the green. Stocks from IT and metal space are witnessing buying interest while stocks in the auto and consumer durables space are trading flat.

The BSE-Sensex is trading up by around 88 points, while the NSE-Nifty is up by about 30 points. Buying interest is also being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.5% and 0.6% respectively. The rupee is trading at 46.8 to the US dollar

Tech stocks are trading firm with TCS and Wipro leading the gains. Tech Mahindra and Infosys are trading flat. As per leading news daily, HCL Technologies (HCL Tech) is planning an acquisition in the European market. HCL Tech strategically plans to acquire companies that will expand its business with the European government. Thus, it is eyeing those companies which are existing vendors of the government. HCL Tech has an unconventional approach to acquisitions. Instead of integrating the acquired company with itself, it moves parts of the parent company into a new business unit. It should be noted that the Axon Group Plc's acquisition was structured in a similar way. New acquisitions are also likely to follow the same route. Apart from HCL Tech, other software service providers such as Wipro, TCS and Infosys are also targeting growth in developed markets including US and Europe.

NBFC stocks are currently trading positive with LIC Housing Finance, REC and IDFC seeing some buying interest. Most public sector banks have set their base rates at around 8%. This will impact NBFCs as their cost of borrowings from banks is likely to increase by around 1%. NBFCs also provide lending services and compete with banks for housing and vehicle loans. However, they depend on banks for a large portion of their financing needs. Currently, these NBFCs, including LIC Housing Finance are on term loans of 7%. This increase in bank rates will force them to look for alternate sources of funds, since term loans may become unviable. These include commercial papers and money market instruments. These companies are planning to first look at cheaper funding sources before they pass on the rate increases to customers

Metal stocks push markets higher
09:30 am

The Indian markets have started today's session on a positive note. The benchmark indices opened below the breakeven mark, but soon moved into the positive territory. They have managed to hold on to their gains since then. Other key Asian markets are in the green with China (up 1.8%) leading the pack of gainers. The US markets remained closed yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with energy and metal majors finding investors' favour. The BSE-Sensex is trading higher by around 62 points, while the NSE-Nifty is up by about 14 points. Buying interest is also being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.4% and 0.5% respectively. The rupee is trading at 46.82 to the US dollar.

Steel stocks have opened the day on a positive note. Gainers here include SAIL and Tata Steel. As per a leading business daily, the current quarter will see an erosion of profitability of steel companies. The gloomy demand scenario will prevent them from hiking rates amid high input cost pressure. This is as per the Joint Plant Committee, a government agency which collates data on the Indian iron and steel industry. It may be noted that steel firms have seen prices coming down by up to Rs 6,000 a tonne to around Rs 27,000 to 33,000 per tonne as construction work slowed down ahead of the monsoon. Now, the demand for long steel products will be especially hit. Long steel products are mainly consumed by construction and infrastructure companies. As a result, companies which produce flat steel products, mainly used in automobiles and consumer durables, may consider hiking rates of some segments.

Energy stocks have opened the day on a positive note. Gainers here include ONGC and Reliance Industries. As per a leading business daily, Reliance Industries' daily crude oil imports fell about 23% in May from April. It was due to a planned shutdown of 100,000 barrels per day (bpd) vacuum gas oil hydrotreater at its older refinery to change a catalyst. The unit is still off-line. The company's two complex refineries at Jamnagar can together process 1.24 m bpd of crude. Compared to April, the company cut the intake of African crude in May by about 40%, while imports of cheaper Middle East grades declined by 16%. Its purchases from Latin America fell 9%. It may be noted that in 2009, it significantly raised imports of light sweet crudes from Africa to benefit from a narrowing price differential between light-sweet and heavy-sour crude grades.

Global uncertainty is an opportunity

The notion that India was decoupled from the developed world was buried in the dust when Indian markets crashed and the economic engine slowed down. True, that the country has recovered much faster than the less fortunate rich world. But the global financial crisis has certainly highlighted one important fact. This is that when it comes to the financial markets at least, India is increasingly linked to what is happening in the global world.

And in the global world, things are not looking too rosy. Take the US for instance. Stimulus measures and printing dollars have not really worked in terms of tiding over recession. Infact, these are bound to haunt the US in the longer term. This is in the form of inflation and a weaker currency. More importantly, unemployment in the US has persistently refused to abate. In Europe, the debt crisis has only worsened. Once again, the European policymakers' response to pump in more money to bail out the defaulters is only likely to cause problems in the longer term.

There are changes perceptible in the Chinese economy too. In an attempt to ensure that its growth continues at a furious pace, various measures by the government has only led prices of Chinese stocks and real estate to reach unjustifiable levels. Commodity prices have also reached highs. What is more, the Chinese are not likely to consume commodities at the pace like they did before.

Little wonder then that Indian stockmarkets are feeling some of the heat. Although the Indian markets have rallied splendidly since March 2009, continued uncertainty in the global markets has slowed the markets down. Having said that, the Indian economy is in some sense less dependent on what happens globally than the financial markets are. This is largely due to robust domestic consumption and less dependence on exports unlike China. It cannot be denied that India's growth story in the longer term remains intact. Thus, any dips in the stockmarkets globally and thereby in India should be looked upon as opportunities to buy into good quality stocks that will benefit immensely from the buoyancy in the Indian economy.