India tops Asian gainers

Indian stock markets had a strong outing today backed by buying interest in telecom, FMCG and commodity heavyweights. Lower food inflation numbers also helped sentiments. While the BSE-Sensex closed higher by around 351 points, the NSE-Nifty closed higher by around 103 points. Both the BSE Midcap and BSE Small cap indices too ended 1% higher.

As regards global markets, Asian indices closed higher today while European indices have opened in the positive. The rupee was trading at Rs 44.45 to the dollar at the time of writing.

Telecom major Bharti Airtel has decided to have a new organisation structure for its operations in India and South Asia to improve efficiency. Mobile, fixed-line, digital TV and other consumer businesses such as mobile commerce will be part of the business to customer (B2C) unit, while the business to business (B2B) unit will serve corporate. Bharti operates in 19 countries across Asia and Africa and is the world's fifth-biggest mobile carrier by subscribers. The company's key functions such as networks, technology and customer services are managed not by the company, but by specialist vendors. Such outsourcing initiatives have helped Bharti bring in scalability and agility in its business efficiencies. The stock of Bharti gained 4% and ended as the top gainer in today's trade.

Coal India (CIL), the world's largest coal producer, is likely to register mere 4.3% average annual production growth rate during the current five year plan ending in March 2012. This would be the second-lowest growth rate in the last seven Plan periods since the beginning of the Fifth Plan in 1974. CIL has indicated that it would be in a position to supply only 331 m tonne (MT) as against a required 426 MT. The coal ministry has blamed environment ministry for low production during current fiscal as former is unable to get consent for mining coal blocks already allocated to it.

The timely execution of the Ultra Mega Power Projects (UMPP) has become a distant dream due to several roadblocks, prime amongst them being coal availability. The coal consumers from private sector import coal from Australia and Indonesia. However, Indonesia in view of rise in demand from Indian companies has made recent policy change which mandates all coal exporters to sell coal at market prices; Australia is expected to follow the same or may restrict the exports.

Indian stock markets continue in the green
01:30 pm

Indian stock market traded firm in the last two hours of trade on the back of sustained buying activity across index heavyweights. Stocks from the FMCG and capital goods space are leading the pack of gainers.

The BSE-Sensex is trading up by 178 points while NSE-Nifty is trading 51 points above the dotted line. Both BSE Midcap index and BSE Small cap index are up by 0.7% and 1.0% respectively. The rupee is trading at 44.44 to the US dollar.

IT stocks have been trading firm led by CMC Ltd. and Mahindra Satyam while Patni Computers and Tech Mahindra are trading in the red. As per a leading financial daily, Infosys and Wipro have not yet been granted land despite erstwhile Left Front government's tall claims. The decision now lies with Mamata Bannerjee and her government. The land has not been granted over to the companies because of the lack of infrastructure around it. The basic requirements for any IT company like high tension line, road and sewerage are all missing. The government had earlier claimed that 12,000 jobs would be generated by these two companies in two years. The two companies are now relying on the government's "political will" for the land. The stocks were trading in the green.

Aluminium stocks are trading strong with both Hindalco and Nalco trading in the green. As per a leading financial daily, the government will soon clear the uncertainty regarding Mahan coal block located in Singrauli fields in Madhya Pradesh, currently held by Mahan Coal Ltd, a joint venture company equally held by Essar Power and Hindalco Industries. The block is estimated to have 150 million tonne of thermal reserves and will feed upcoming power plants of Essar Power and Hindalco Industries. While Essar has an off take agreement of 60% or 5.4 m tonne per annum (mtpa) of coal from the block to feed its upcoming 1,000 MW power plant in the state, Hindalco will take the remaining to fuel its 750 MW power plant. Hindalco has an off-take agreement of 3.6 m tonne per annum of coal from the coal block. Hindalco's power plant will then supply captive power to its upcoming 359 kilo tonne per annum (ktpa) aluminum smelter called as the Mahan Aluminium project, which is likely to be commissioned by the last quarter of calendar 2011. If the block is not cleared, it could be a big negative for the company. However if it gets cleared, the company will see a huge cost reduction in alumina production.

FMCG stocks lead the rally
11:30 am

Indian stock market indices have been trading strong on back of buying interest in index heavyweights during the previous two hours of trade. All sectoral indices are trading in the green led by FMCG and Realty

The BSE-Sensex is up by 173 points while NSE-Nifty is trading 55 points above yesterday's closing. BSE Midcap and BSE Small cap indices are up by 0.9% and 1% respectively. The rupee is trading at 44.41 to the US dollar.

IT stocks are trading firm led by Crane Software and Mastek. As per a leading daily, India's largest lender SBI is taking a tough stance on defaulters who can pay, but won't. The leading bank has taken this stand because of rising bad loans and defaulters. SBI had Rs 253 bn of bad loans at the end of last year which is the highest in the industry. Its NPAs (non performing assets) constituted 3.28% of its total assets which post provisioning stands at 1.63%. SBI has decided to mark willful defaulters out of its list of borrowers.

As per RBI, a willful defaulter is a person or entity that has defaulted in meeting its payment/ repayment obligations to the lender even when it has the capacity to honour the said obligations. Also, an entity that does not use the borrowed money for the specific purpose but for others is a willful defaulter. An entity that has siphoned off funds or has removed the fixed assets or property given by it for the purpose of securing a term loan without informing the lender is also termed as a willful defaulter. After being declared a willful defaulter, an entity and all its affiliates are prevented from borrowing money from any financial institution.

Auto stocks are trading firm led by Escorts and M&M. As per a leading financial daily, Tata Nano is set to make inroads into the rural and semi-urban parts of the country. Tata Motors to achieve this aims to launch 300 new dedicated sales outlets this fiscal year in the rural and semi urban markets. This increase in distribution reach combined with new export markets of Sri Lanka and Nepal is expected to help pick up sales for the car. It may be noted that sales of Nano fell to 5,451 units per month in June from 10,012 units sold in April. As per a company spokesperson, sales of Nano are expected to normalize soon. The dip has been due to slowdown generally seen during the monsoon months and increasing fuel prices and interest rates.

Indian markets open in the green
09:30 am

Asian stock markets have opened the day on a mixed note. Benchmark indices in Indonesia (up 0.7%), Hong Kong (up 0.6%) and Singapore (up 0.6%) are leading the gains. However, markets in Taiwan (down 0.6%) are trading below the dotted line. The Indian stock markets have opened the day on a positive note. Stocks in the FMCG and technology sectors are leading the gains.

The BSE-Sensex is higher by around 48 points (0.3%), while the NSE-Nifty is up by around 14 points (0.2%). Midcap and small cap stocks are trading in the positive as well, with the BSE Midcap and the BSE Small cap indices up by about 0.3% each. The rupee is trading at 44.41to the US dollar.

Auto stocks have opened the day on a good note with Ashok Leyland, Hero Honda and Mahindra & Mahindra leading the pack of gainers. Leading car manufacturer, Maruti Suzuki has stated that its K-series engines has crossed 10 lakh units in sales. This milestone has been achieved within three years of starting the production of the engine. The K-series engine is a fuel efficient engine that Maruti manufactures and uses in its Wagon R, Swift, Estilo and Alto models. Maruti had introduced the high end engine in its a-Star model in 2008. As stated by the management, the success of the engine highlights Maruti's commitment to introducing improved technologies over the years. The engine has been well received by its customers. Maruti also plans to launch a new version of Swift next month. The new model would be more fuel efficient and would come with 1.2 litre petrol and 1.3 litre diesel variants. The stock of the company is currently witnessing selling pressure.

Pharma stocks have opened the day on a positive note as well with Lupin, Glenmark Pharma and IPCA Labs leading the gains. The U.S. Food and Drug Administration (USFDA) has imposed a ban on the products made at Dr. Reddy's Laboratories Ltd.'s (DRL) Mexican unit. This is the result of violation of manufacturing rules. The information was displayed on the regulator's website. The USFDA has previously issued a warning letter to DRL with all the details of violation at the Mexican facility. The regulator has asked the company to find the cause and put measures in place to prevent such violations in the future. This Mexican facility is a part of DRL's bulk drugs business. The stock of the company is currently trading in the green.

Is this the shot in the arm that India Inc. needs?

Sample this. In the last one year, CRB Reuters US Spot All Commodities Index has risen by an unprecedented 31.4%. Brent Crude has risen by 50.6%, while cotton prices almost doubled during the same period. The culprit was the Quantitative Easing - Round 2 (QE2) money being splashed across the global markets. When stock markets ran ahead of fundamentals, investors looking for alternate investments pumped this free money into commodity futures and ETFs.

The high commodity inflation which resulted ended up giving a headache to central banks in the emerging markets. To control the unbridled inflation, these banks started tightening their monetary policies. While the effect of this measure on inflation is questionable, what is obvious is that this policy stifled economic growth.

For Indian corporations, the high inflation and interest rates acted as a double edged sword. Higher commodity prices squeezed profitability while at the same time destroyed demand. Higher interest rates meant more expensive debt for companies as well as higher cost for consumers to finance purchases.

Recently, as QE2 drew to a close, the bubble built up in various assets classes including commodities started to deflate. In the last few months, commodities have started coming off their peaks with some commodities correcting by almost 20% in the last 3 months. While this shows that the global economy is slowing down, it is going to be a boost for India.

Cheaper commodities mean cheaper input costs and higher profits for corporates. It also means more disposable income in the hands of consumers. Moreover, lower inflation would be a signal for the RBI to take a look at reducing interest rates. In fact the government has also been eagerly waiting for inflation to decline. We believe that reduction of subsidies in fuel and fertilizers is long overdue and the government will grab this opportunity with both hands. On the slowdown in the global economy, we are not too worried. This is because we believe that the latent demand in India is sufficient to balance out any fall in exports due to sagging international demand.

While we don't expect the economic situation to turn around overnight, we see this development as the first signal for economic stability and a sustained rally going forward.