Indices languish near dotted line

As the indices in Indian equity markets shed their gains after a positive start, only stocks from defensive sectors like pharma and FMCG managed to sustain gains. Stocks from energy, auto and IT sectors topped the list of losers by the end of the session. There was no respite for the stocks from BSE Mid cap and BSE Small cap indices as well. While the Sensex today closed higher by around 2 points, the NSE-Nifty today closed lower by 4 points.

As regards global markets, Asian indices closed higher today while European indices have also opened on a positive note. The rupee was trading at Rs 55.15 to the dollar at the time of writing.

Axis Bank declared the results for the first quarter of financial year 2012-13 (1QFY13) today. The bank has reported 26% YoY growth in net interest income and 22% YoY growth in net profits for the full year period. The net interest income grew by 26% YoY during 1QFY13 on the back of 30% YoY growth in advances. Net interest margins (NIM) also improved marginally to 3.4% in 1QFY13 from 3.3% in 1QFY12 due to fall in cost of funds over the past two quarters. The average NIMs for the bank over the past 5 fiscals have been 3.5%. The growth in net profits was despite rise in provisions and slower growth in fess (9% YoY). Net NPAs stable at 0.3% of advances at the end of 1QFY13, gross NPAs at 1.1% of advances. The bank's capital adequacy ratio (CAR) on firmer footing at 13.0% at the end of June 2012, Tier 1 capital at 9.5%.

Meanwhile, as per a business daily, Grasim Industries, the flagship company of Aditya Birla Group company, is planning to set up a US$ 500 m plant in Turkey for producing viscose staple fibre (VSF), a raw material used for making apparels and home textiles. It is looking for requisite approvals for this project. The new facility along with a captive power plant and Sulphuric Acid plant will come up in two phases. Its current VSF manufacturing capacity is 7.5 lakh tonne per annum and it aims to raise it to 1.1 million tonnes by 2015. The company expects to commission plant in Turkey by early 2015. This capacity will cater primarily to the textile industries in Turkey.

Small, midcaps not in favour today
01:30 pm

While the Indian Indian equity markets witnessed a volatile post noon trading session, they are currently trading well above the dotted line. Stocks from the defensive sectors such as healthcare and FMCG seem to be in favour at the moment, while those from the IT and auto spaces are amongst the top underperformers at the moment.

The Sensex today is trading higher by about 55 points (0.3%), while the NSE-Nifty is trading higher by about 5 points (0.1%). The BSE Mid Cap and BSE Small Cap indices are however trading lower by about 0.3% each. The rupee is trading at 55.12 to the US dollar.

Stocks from the healthcare sector are leading the pack of gainers with the BSE-Healthare index trading higher by 1.2%. Amongst the stocks forming part of the index, Cadila Healthcare, Biocon and DR. Reddy's are leading the pack of gainers. Cadila Healthcare is trading firm on the back of news of the US Food and Drug Administration (FDA) revoking the warning letter it had sent to the company. As per a leading business daily, US FDA has now found the company's facilities at Moraiya to be acceptable and as such has given the facility a clearance. In June last year, the US FDA had issued a warning letter to Cadila, citing non-conformity of the facilities with the US FDA norms and has accused the company of drug products being adulterated and also believed to raise concerns over that the procedures for keeping the manufacturing area completely sterile.

Auto stocks are currently trading weak with the BSE-Auto Index trading lower by 0.4%. TVS Motors, and Bajaj are amongst the top losers at the moment. The Centre for Monitoring Indian Economy (CMIE) expects automobile production to grow by 9.6%, a percentage point lower as compared to its earlier estimate for FY13. The reason for the same has been the prevailing high interest rates coupled with higher taxes and therefore higher prices of vehicles. All this, along with overall concerns related to the slowdown in the domestic economy is leading to customer to defer their decision to purchase new vehicles. As per the report, production of commercial vehicles is expected to grow by about 9% during the fiscal as compared to about 20% last year. On the passenger vehicle side, the report expects production to increase during the second half of the fiscal, once the festival seasons kicks in. As per the report, production of passenger cars and vans is expected to increase by about 10% this fiscal, while that of multi-utility vehicles is expected to grow faster at clip of about 20%. As per CMIE, production of two-wheelers is expected to grow by a moderate 10% during the year.

Indian equity markets extend gains
11:30 am

Indian equity markets continued to trade in the positive during the last two hours of trade. Barring IT stocks, all sectoral indices were trading firm led by healthcare and realty stocks.

The BSE-Sensex is up by 114 points and NSE-Nifty is up by 32 points. BSE Mid Cap and BSE Small Cap indices are trading higher by 0.5% each. The rupee is trading at 54.92 to the US dollar.

Engineering stocks are trading on a mixed note with Welspun Corp and Kalpataru Power leading the pack of gainers. However, Alstom Projects and Thermax Limited are on the losing end. As per a leading financial daily, sales of consumer durables have bounced back after falling constantly for nearly three quarters. This spells good news for all makers of electronics and appliances including Voltas. Consumer sentiments seem to have improved over the past couple of months. Buyers who were unwilling to buy due to recurrent price hikes are now back to purchasing washing machines, refrigerators and air conditioners.

Steel stocks are trading strong led by JSW Ispat and JSW Steel. According to a leading financial daily, Tata Steel will sell its 50% stake in the Netherlands-based metals recycler HKS Scrap Metals to Euro Scrap Alliance (ESA). ESA already holds the remaining 50% stake in HKS and as a result of the deal ESA will become the 100% owner of HKS. The deal, which is subject to approval from the European Commission, will mean Tata Steel's exit from HKS, engaged in recycling both ferrous and non-ferrous metals. The transaction is in line with Tata Steel's strategy of focusing on its core activities. Although the company has maintained that the business connections between Tata Steel in the Netherlands and HKS will remain active.

Indian stock markets open firm
09:30 am

Barring Taiwan (down 0.1%), the key Asian equity markets have opened the day on a positive note with market indices in Hong Kong (up 1.7%), Singapore(up 0.8%) and South Korea(up 0.6% ) leading the gains in the region. The Indian stock market indices have also opened the day in green. All sectoral indices are trading in the positive with pharma and metal sectors witnessing maximum gains.

The Sensex today is up by around 95 points (0.6%) and the NSE-Nifty is up by around 29 points (0.5%). Both Mid cap and Small Cap stocks are trading in the green with the BSE Mid Cap index and BSE Small Cap index up by around 0.4% each. The rupee is trading at Rs 54.91 to the US dollar.

Energy stocks are trading mixed with Essar Oil and Gujarat State Petronet Ltd. (GSPL) leading the pack of gainers. However, Bharat Petroleum Corporation Ltd. (BPCL) and Gas Authority of India Ltd. (GAIL) are trading weak. Castrol, the country's leading automotive and industrial lubricants manufacturer has announced results for second quarter of calendar year 2012 (2QCY12). The company reported a 7.7% year on year (YoY) increase in the topline during the quarter. This was mainly on account of a 5% boost in volumes. The operating margins for the quarter were down by 13.2% YoY. The margins also slipped to 20.2% versus 25.1% last year. This was due to rupee depreciation and high cost of raw materials. The company's bottomline was down by 15% YoY. The net profit margins for the quarter stood at 14.2%, down from 18.0% last year. Castrol has declared an interim dividend of Rs 7 per share and the Board of Directors has proposed to issue bonus shares in the ratio 1:1 subject to the approval of shareholders.

Barring Gujarat Industries Power Company Ltd., all Power stocks are trading in green with Tata Power and GVK Power & Infrastructure leading the pack of gainers. As per a leading financial daily, Power Grid Corporation of India Ltd (PGCIL) is planning to set up an equal joint venture with three companies including Steel Authority of India Ltd. (SAIL) to manufacture transmission equipment. The company is yet to seek the government approval for the project and is expected to invest around Rs 3 bn in it. In separate news, the company expects to connect the Southern Grid with the National Grid by middle of next year. The expansion is estimated to cost Rs 60 bn. It is to be noted that South is the worst hit region with regards to power deficit that stands at 15.3% of the total demand as compared to 8.6% for the entire country in April -June period.

Is it ok for your mutual fund to lose your money?

Mutual funds are typically open-ended investment vehicles that are managed by a fund manager or a group of professionals. They are comprised of any number of stocks, bonds and other investment securities. People invest in mutual funds because they are considered less risky. However investing in a mutual fund is not necessarily less of a risk. What makes a mutual fund less risky than a single stock is that the risk is spread out amongst many more companies.

As most investors have little understanding of the way the markets behave and companies are run, they put the onus of stock selection on the fund manager, a person whom they believe to be qualified, with access to a deeper knowledge base and resources, tasked with the full-time responsibility of managing assets held by the fund. Thus in a mutual fund an investor takes all of the risk, puts in all of the capital, but most of the earnings from the Mutual Fund go to the Fund manager while losses are borne by the investor. Thus they expect that their money will be handled skillfully and grow over time. Unfortunately, some fund managers have made a habit of falling short of expectations.

There are several mutual fund schemes like J M Basic, Taurus Discovery, SBI Magnum Midcap and many others which have been consistently underperforming their benchmarks for quite some time, and which show no signs that they will improve in future. There are several reasons for the underperformance. One reason is that some of these funds never recovered after the market crash that occurred during 2008-09. Another reason is that, the Indian equity markets have been quite volatile over the past few years. As a result those funds which have not been able to protect the downside risk have typically underperformed.

This has caught the attention of the market regulator Securities and Exchange Board of India (SEBI) who is considering denying approval to new offerings from fund houses whose schemes have been underperforming consistently. Although the regulator's wake-up might be too late for those invested in some of these underperformers, it is none the less a step in the right direction.

If this is implemented then it would definitely lead to higher accountability of mutual fund companies towards their investors, and they may be forced to alter their processes and be more concerned about the performance.