Global signals lead to sell-off

Indices in the equity market in India came off the day's lows during the closing stages but could not avoid a negative ending to the session. Consequently, BSE-Sensex edged lower by around 130 points (down 0.74%) whereas NSE-Nifty closed with a decline of around 40 points. BSE Mid Cap and BSE Small Cap indices fared even worse, losing more than 1% each. Only three stocks on the Sensex ended in the green with rest closing marginally to meaningfully lower.

Most Asian indices ended in the red today with Europe too trading in the negative currently. The rupee was trading at Rs 55.9 to the dollar at the time of writing.

With the leaders once again falling behind on finding meaningful solution to the Euro crisis, investors were understandably jittery and hence, decided to take some money off the table today. The fact that markets had been in a buoyant mood past few trading sessions also gave them an opportunity to indulge in some profit booking. With no clear policy direction in sight, volatility is likely to remain the buzzword the next few trading sessions as well.

Power major National Thermal Power Corporation (NTPC) is hopeful of getting back three out of its five de-allocated mines from the Government this month. It should be noted that last year, the Ministry of Coal had de-allocated five mines of the firm in the aftermath of the failure of the firm to develop them within the stipulated time frame. The coal ministry has now given its in-principle approval to give the mines back to NTPC. The other two mines however were recently allocated to Coal India Ltd with the firm being asked to appoint mine developers so that production could be started. NTPC closed marginally lower on the bourses today.

As per reports, pharma major Dr Reddy's Laboratories has decided to introduce its biosimilars in developed markets. Worth adding that biosimilars are generic versions of innovator biotech drugs at a price that is significantly lower than the latter. With healthcare costs increasing, developed markets such as Europe for instance have begun to announce laws to introduce biosimilars in those markets. During FY12, the company's bio similar business grew 25% YoY albeit on a lower base. The company also entered into an alliance recently with Merck Serono to co-develop bio similar products. Dr Reddy's closed marginally higher on the bourses today.

IT stocks buck the trend
01:30 pm

The Indian stock markets dropped further into the red during the post noon trading session. Barring stocks from the IT space, stocks from across the board are trading weak with realty, power and metal stocks being the least favoured at the moment.

The Sensex today is trading lower by about 150 points (0.9%), while the NSE-Nifty is trading lower by about 50 points (0.9%). The BSE Mid Cap and BSE Small Cap indices are trading lower by about 0.1% each. The rupee is trading at 56 to the US dollar.

Auto stocks are currently trading mixed with Bajaj Auto and Hero Motocorp trading weak, while TVS Motors, M&M and Tata Motors are leading the pack of gainers. The stock of TVS Motor is leading the gains on the back of reports of the company being in talks with German auto major BMW AG's motorcycle division for a possible technological alliance. This move would be a strong advantage for TVS Motor as it would allow the company to improve its offerings on the technology front and compete with rivals in the higher powered two-wheeler segments. This news comes in at a time when TVS has been struggling to hold its ground in scooter and motorcycle segment given that Honda overtook it to become the third largest two-wheeler player in India. While TVS is largely present in the entry level two wheeler segment, it has been losing market share in the same. Also, higher powered bikes have been gaining momentum in terms of volumes in recent times, and thereby growing at a faster pace. Also, this move would be beneficial for TVS given that it could earn higher margins as well.

As per a leading financial daily, Steel Authority of India (SAIL) has said that barring the Burnpur project, its capacity expansion programme is largely on schedule. The company, in 2009, had outlined a Rs 720 bn capital expenditure plan to expand capacity by 9.6 million tonne per annum (mtpa) to 23.4 mtpa by 2013. The expansion is being carried out at its five integrated facilities and three alloy steel making facilities. Till now, SAIL has placed orders for equipment worth Rs 590 bn and spent nearly Rs 385 bn in expansion. As per the company, the Burnpur project has been delayed by more than one year on account of molten debris being found at the plant site. This has led to cost overrun of Rs 20 bn in scaling up the plant capacity at Burnpur by three mtpa.

Metal stocks lead the downfall
11:30 am

Indian equity markets continued to trade weak over the last two hours of trade. FMCG and IT stocks witnessed maximum buying interest, while capital goods and metal stocks witnessed maximum selling pressure.

The Sensex today is down by 70 points, while the NSE-Nifty today is down by 26 points. BSE Mid Cap index and the BSE Small Cap index are down by 0.75% and 0.51%. The rupee is trading at 55.97 to the US dollar.

Engineering stocks are trading weak led by BH.EARTH MOVERS (BEML) and Punj Lloyd. According to a leading financial daily, ABB Limited has launched 1100 Kilovolt (KV) ultra high-voltage direct current (UHVDC) converter transformer. The new 1,100 kV converter transformer technology will make it possible to transmit more than 10,000 MW of power across distances as long as 3,000 km. The company had earlier commissioned the Xiangjiaba-Shanghai link which was the world's first commercial 800 kV UHVDC connection with a capacity of 6,400 MW and to cover a distance of just over 2,000 km, making it the longest of its kind in operation. This new 1,100 kV transformer technology will make it possible to transmit even more electricity efficiently and reliably, at higher voltage levels, across greater distances with minimum losses.

Energy stocks are trading in the red led by Petronet LNG and Cairn India. According to a leading financial daily, Oil and Natural Gas Corporation Ltd. (ONGC) is planning to release gas from tomorrow from its Tripura unit. ONGC's Tripura unit would release gas to the ONGC-Tripura Power Corporation (OTPC) for the first phase of the 726.6 MW gas-based power project at Palatana in Gomati district. OTPC is a 726.6 MW gas-based power project at Palatana would cater to the needs of power deficit areas of north-eastern states of the country. Around 2.6 million standard cubic metre of gas per day (mmscmd) would be required when it would start generation in full scale and it would take a few months more to make it fully operational.

Global weakness weighs on Indian equity markets
09:30 am

Weak US jobs data has led the Asian equity markets to open the week on a negative note. Markets in Hong Kong (down 1.5%), Korea (down 1.3%) and China (down 1.1%) are witnessing maximum losses in the region. The Indian equity markets have opened the day on a negative note as well. Stocks in the metals and power sectors are witnessing maximum losses.

The Sensex today is down by around 89 points (0.5%), while the NSE-Nifty is down by around 25 points (0.5%). Mid and small cap stocks are trading in the red as well with the BSE Mid Cap and BSE Small Cap indices down by around 0.5% and 0.3% respectively. The rupee is trading at Rs 55.89 to the US dollar.

Banking stocks have opened the day on a negative note with Canara Bank, Bank of Baroda and Bank of India leading the pack of losers. The country's largest lender, State Bank of India (SBI) has stated that it may not go ahead with any consolidation in the current year. The bank has stated that it is not looking at consolidating any of its associate banks this year as there are still several issues that need to be sorted out. SBI had consolidated two of its associates, State Bank of Saurashtra and State Bank of Indore in 2008 and 2010 respectively. It now has five more associates of which three are listed on the stock exchanges. As amalgamation of unlisted entities is relatively easier, the bank is expected to consolidate the unlisted associates, State Bank of Patiala and State Bank of Hyderabad first. SBI has stated that it may look at further consolidation next year.

FMCG stocks have opened the day on a mixed note with Godrej Consumer Products Ltd and Colgate Palmolive trading in the red while Hindustan Unilever and United Breweries are trading in the green. Major FMCG companies have stated that they may not undertake further price hikes in the quarter of July to September 2012. The companies have steadily increased prices over the past eight quarters due to higher raw material prices. However, most companies feel that any further increase in price would have an adverse impact on the volumes growth. Companies have also been helped by the softening in the raw material prices as commodity prices have showed signs of cooling off. FMCG majors like Emami and Dabur have stated that they may look at moderate price increases in selective categories. However, they would be adopting a cautious approach so as to not hurt their volumes and top lines.

No slowdown for the top of the pyramid

Slowdown. What slowdown? It is business as usual for ultra high net worth households (HNHs) in India. And their spending doesn't seem to have any bounds. The sluggishness in the economy, where GDP growth slowed to 6.5% in FY12, the slowest pace over the past 9 years seems to have no effect on this tribe. For many of these individuals, maintaining their uber lifestyle is an extremely important part of their social life. And they will continue to do so, whatever the cost.

This is music to the ears of any high end retailers or luxury goods manufacturers. Especially since the number of such spendthrift individuals is only set to expand going forward. Their number is estimated to have grown 30% to around 81,000 in 2011-12. This is expected to treble to around 286,000 over the next five years. The net worth of these households is estimated to surge five times from an estimated Rs 65 trillion in FY12 to Rs 318 trillion by FY17. Over 50% of these individuals are in the four metros (Mumbai, Delhi, Kolkata and Chennai). The next top six cities account for around 12% of this population.

Here comes the interesting part. What's top on these high spenders' shopping list? Apparel and accessories are on top on the list, seeing a 50% jump over last year, according to an article in Business Standard. This is followed by vintage spirits/liquor, jewellery and precious stones, and luxury watches. These jet-setters also plan 2-4 international trips every year to elite locations like Machu Pichu, Bora Bora islands, etc. Exclusivity is a major factor behind their luxury car purchases, and very often well established models are not considered as they lack the exclusive factor. What is surprising is that around 65% of these ultra HNI's purchase cars on loans in order to avail of tax benefits.

But, where do these individuals invest their money? They are actually quite staid when it comes to their investing philosophies. It seems like they prefer exotic holiday destinations and liquors versus such financial instruments. Their focus is on capital protection, and they prefer low-risk instruments such as fixed income and avenues within their circle of competence.