Strong buying bolsters Indian markets

Indian markets traded well above the dotted line for the entire trading session today on the back of sustained buying activity across index heavyweights. While the BSE Sensex closed higher by around 182 points (up 1%), the NSE Nifty gained around 56 points (up 1%). Midcap and smallcap stocks also did well as the BSE Midcap and BSE Smallcap notched gains of 1% and 0.4% respectively. Gains were largely seen in metals, auto and banking stocks.

As regards global markets, Asian indices closed firm today while most European indices have also opened in the green. The rupee was trading at Rs 46.78 to the dollar at the time of writing.

Auto stocks closed firm today with the key gainers being TVS Motor, M&M and Tata Motors. As per a leading business daily, passenger vehicles will not be able to sustain the high growth (witnessed over the last six months) in FY11. In the last 6 months, the average growth in the Indian passenger vehicle industry stood at 30%. In FY11, the industry is expected to clock a growth of 12-13% as forecasted by the Society of Indian Automobile Manufacturers (SIAM).

The reasons for the same are not hard to find. In the last few months, the industry benefitted from the relaxed monetary policies, benign commodity prices and robust demand. However, with the imminent hike in interest rates and rising commodity prices, replicating this kind of growth would be a tad difficult. Prices of vehicles could also rise when the Bharat Stage III norm is implemented across the country by October. Meanwhile, two-wheeler sales are expected to grow by 9-10%, while commercial vehicle sales are expected to clock a growth of 17-18%.

Pharma stocks closed mixed today. While Piramal Healthcare and Ranbaxy found favour, Sun Pharma and Cipla closed in the red. As per a leading business daily, Lupin has become one of the top five generic drug companies operating in the US market in terms of number of prescriptions. Lupin now trails behind Teva, Mylan, Sandoz and Watson. Lupin had an average of a little over 8.4 m prescriptions a month in the year between May 2009 and April 2010 according to the global market research agency IMS.

Lupin has made rapid strides in the US on account of its branded generics strategy. Infact, in FY10, formulation sales from the US registered a robust 39% YoY growth. The branded generics business there grew by a dazzling 72% YoY and this business now accounts for 37% of the overall sales in the US. What is more, with the acquisition of 'AllerNaze' (an intra-nasal steroid) and 'Antara' (an anti-cholesterol drug), Lupin has further strengthened its US product portfolio. The stock closed flat.

India is now the hottest flavor in town for the West. And one need look no further than the International Monetary Fund (IMF), which has raised India's growth forecast for 2010 to 9.5%. About 3 months back, its estimate was 8.8%. The IMF has upped its forecast based on positive corporate results and financial conditions. In fact, the IMF has upped global growth projections upwards to 4.5% in 2010 on the basis of strong performance by Asian countries. Of course, Asian countries do have their own set of challenges to address. But given the kind of problems that are plaguing the West, it now seems that the sun is firmly shining in the East.

Indian indices hold on to gains
01:30 pm

Markets continued to trade in the positive on account of sustained buying activity across index heavyweights. Barring stocks from the FMCG space, buying activity is being witnessed across sectors. Stocks from the telecom sector are leading the pack of gainers. 

The BSE-Sensex is trading higher by around 160 points, while the NSE-Nifty is higher by 45 points. The BSE-Midcap and BSE-Smallcap indices are trading higher by 0.9% and 0.7% respectively. The rupee is trading at 46.74 to the US dollar.

Bajaj Auto and Renault-Nissan have signed an agreement to roll out the much spoken about ultra low-cost car (ULC). The car is expected to be launched in 2012 to be sold in India and emerging markets. The car was initially scheduled to be rolled out in 2011. The same was delayed due to differences between the partners in terms of pricing and design. Finally a step forward has been taken and a path for the launch of ULC has been drawn. The small car is being launched in direct competition to Tata's Nano as the car is likely to be priced at US$ 2,500.  The companies had announced that the ULC would be rolled out from an all-new plant to be constructed in Chakan, Maharashtra with an initial capacity of 4 lakh units per year. As per the previous agreement, the design, manufacturing and sourcing for the car would be done by Bajaj while Renault-Nissan would handle marketing in India and overseas. The stock of Bajaj Auto is trading higher currently.

The competition in the small car segment is set to rise. India, along with China, is one of the few bright spots for the automobile sector. In India, the compact car segment is about 70% of the total passenger car market. A car that is compact in size and at the same time low priced suits the aspiring Indian consumer.

Steel sector stocks are trading firm with the major gainers being Tata Steel, Jindal Steel and JSW Steel. As per a business daily, Tata Steel, the world's sixth largest steel manufacturer is looking   to increase the prices of steel in order to pass on the hike in input costs. If the steel producer does not pass on the hike in raw material cost, its margins will be affected. However, the company has not revealed the quantum of hike in prices. Internationally, iron ore prices have witnessed an upward movement. With that the state-run National Mineral Development Corporation (NMDC) has increased the prices of iron ore by 11%. Since the prices of these commodities are internationally linked, the domestic prices have also seen a rise. 

If others follow suit, which is much expected, end user industries' margins may come under pressure in the short term.  Automobile and construction sectors are the primary consumers of steel and might face the pinch of an expected price hike.

Global cues propel Indian markets
11:30 am

The Indian markets have sustained their gains after starting off on a strong note. Other key Asian markets are all trading in the green with China (up 2.5%) leading the pack of gainers. Currently in India, heavyweights from the BSE-Sensex are trading firm with telecom players still leading the gains. Realty and metal majors are also witnessing strong buying activity while FMCG and healthcare stocks are trading flat.

The BSE-Sensex is trading higher by around 195 points, while the NSE-Nifty is up by about 56 points. Buying interest is being witnessed across the board including among mid and small cap stocks. The BSE-Midcap and BSE-Smallcap indices are trading higher by 1.1% and 0.8% respectively. The rupee is trading at 46.77 to the US dollar.

Banking stocks are trading positive with Axis Bank, Oriental Bank and Federal Bank leading the gainers. Axis Bank is seeing strong gains. This is possibly on the back of the bank planning to sell its network of 4,200 automated teller machines (ATMs) to third-party service providers. For an upfront payment, the lender may allow vendors to collect 'inter-change fees'. These will be collected from other banks to let their customers use Axis Bank's ATMs. In this move the ATM assets will move off Axis Bank's balance sheet. The management of the network will be outsourced to service providers. Payment to them will be made on a per-transaction basis. Request for proposals to seek solutions on how this can be accomplished have been sent to multiple vendors. Axis Bank would however still be responsible for its ATMs. A lot of banks are looking at avoiding the expense of setting up, managing and maintaining these ATMs by following an outsourcing model.

Telecom stocks are trading at high levels with Bharti Airtel, Idea Cellular and Tata Teleservices leading the gainers. Bharti Airtel is planning to expand its submarine cable offerings globally. This is in order for it to target business opportunities in over 100 countries by 2013, according to its CEO Sanjay Kapoor. Currently, the undersea cable business is present in 50 countries. The company has invested over Rs 25 bn in this business over the past three years. It either has stakes or has bought capacities in 18 cable systems across the world. The operator has also bought stakes in five new undersea cable global consortiums that will become operational from the end of 2010. Its main focus markets are South East Asia, Asia-pacific region, Middle East and Africa. It plans to be at the top of this opportunity in the near future.

Telecom stocks lead markets higher
09:30 am

The Indian markets have started today's session on a positive note. The benchmark indices opened at the breakeven mark, but soon surged in to the positive territory. They have easily managed to hold on to their gains since then. Other key Asian markets are in the green with China (up 1.3%) leading the pack of gainers. The US markets closed higher by 1.2% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with telecom majors finding investors' favour. The BSE-Sensex is trading higher by around 158 points, while the NSE-Nifty is up by about 45 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 0.9% and 0.7% respectively. The rupee is trading at 46.8 to the US dollar.

Banking stocks have opened the day on a positive note. Gainers here include Yes Bank and Lakshmi Vilas Bank. As per a leading business daily, ICICI Bank is planning to raise between US$ 500 m and US$ 700 m in the international market through a five and a half year bonds issue. The exact amount and maturity of the issuance is yet to be decided. The bank will keep an option of redemption of the notes any time. The dollar denominated bonds will be issued by the bank through its Hong Kong branch. The bonds are expected to be priced around 3.2 % higher than 5-year US treasuries. They will be listed on the Singapore Stock Exchange. Their proceeds will be used by ICICI Bank for general corporate purpose. The paper has been rated by Moody's at the same level as India's foreign currency debt.

Power stocks have opened the day on a positive note. Gainers here include CESC and PTC India. As per a leading business daily, NTPC plans to set up a 1,320 mega watt (MW) coal based thermal power project in Gujarat. The state government has given clearance for setting up the project on the surplus land at the existing Dhuvaran plant of the Gujarat State Electricity Corporation. The project will have two units of 660 MW super critical technology using domestic coal blended with imported coal. NTPC is initiating the site specific studies for establishing the techno-economic feasibility of the project. The report is likely to be ready by the end of FY11. It may be noted that NPTC currently has a power generation capacity of over 30,000 MW and is planning to take this capacity to 50,000 MW by 2012.

Impact of a higher GDP forecast

The International Monetary Fund (IMF) upgraded its 2010 global growth forecast yesterday. It raised its 2010 global GDP forecast to 4.6% from 4.2% earlier. Further, it kept its 2011 view for global GDP growth unchanged at 4.3%. Robust expansion in Asia and renewed US private demand were some of the reasons cited for doing so. A double-dip world recession, it feels, is highly unlikely to happen.

But even as the IMF got more optimistic about the global economy and its recovery, big question marks continue to loom over like black clouds in the sky.

For one, the euro zone's sovereign debt crisis poses a big risk to the recovery. Uncertainty about bank regulation in developed countries has added to investor anxiety. Governments of most major developed countries find themselves loaded with debt. Then there is also the persistent and nagging weakness in the US housing and labour markets. If that isn't enough, fears that a bubble is forming in the Chinese real estate market are rampant. A bursting of this bubble, many point out, could be devastating for the Chinese banking system and for commodity prices.

As far as the IMF is concerned, it remains steadfast in its forecasts. It feels that even assuming shocks to the global financial system resulting from Europe's debt problems are as severe as those experienced in the wake of Lehman Brothers' failure in 2008, world GDP growth in 2011 would be reduced by just 1.5%.

So at the end of the day, what does this upgrade in GDP growth forecast mean for you as an investor? Not much actually. For one, economic forecasts remain as unreliable as ever. Such forecasts are good to make, talk about and print as part of a news story. It does not really cost the forecaster much if his forecasts turn out to be wrong, and they often do. But if they are really reliable enough to serve as the basis of investing one's hard earned money is something we remain circumspect about.

Second, broad macroeconomic forecasts seldom tell you anything about the extent to which they will affect each individual business. Let alone telling you anything about the value their stocks will create for you in the years to come. That translation from a broad economic call to a particular stock's price is an extremely imperfect and subjective process.

When making investments, it is perhaps a better idea to try and segregate what is 'important and knowable' from what is 'important but unknowable'. To concentrate on the former while making decisions would yield a better long term result.