Late buying fuels Indian indices

Indian equity markets had a volatile trading session today. The indices began on a weak note and oscillated to either side of yesterday's close throughout the morning session. However, buying activity picked up pace post noon and pushed the indices well into the positive. This momentum was sustained in the final trading hour as well and the indices closed well above the dotted line. While the Sensex today closed higher by around 80 points, the NSE-Nifty today closed higher by 23 points. The BSE Mid Cap and the BSE Small Cap also did well to notch gains of 0.5% and 0.3% respectively. Gains were largely seen in metals and auto stocks.

As regards global markets, Asian indices closed mixed today while European indices have opened firm. The rupee was trading at Rs 55.43 to the dollar at the time of writing.

Most auto stocks closed firm today with the key gainers being Bajaj Auto and TVS Motors. Bajaj Auto announced its results for the first quarter ended June 2012. Net sales rose by a tepid 4% during the quarter. However, operating margins improved to 19.4% this quarter as compared to 19.1% in the corresponding quarter last year. Sales of its motorcycles in India fell 1% as against 6% growth in the overall market. Exports fared poorly as volumes declined by 41% during the quarter on account of a tax hike in Sri Lanka and political instability in Egypt. It must be noted that earlier the company had set a target of selling a total of 5 m units, translating as a 15% YoY increase in overall volumes. Bajaj expects motorcycles sales to contribute to about 4.5 m units (90% of total volumes), while three-wheelers would contribute to the rest. With the domestic market expected to grow at a subdued pace, exports will have to do quite well for the company to meet its target. Given that the exports scenario has been poor so far, meeting the target seems a bit challenging although the management expects exports to pick up in the coming quarters.

Pharma stocks closed mixed today. While Cadila Healthcare and Wockhardt found favour, Dr.Reddy's and Ranbaxy closed into the red. As per a leading business daily, the US FDA has revoked its earlier warning letter to pharma major Cadila Healthcare. It must be noted that the US regulator had issued a warning letter in June last year for not meeting US drug manufacturing norms. It stated that there was a significant violation of Current Good Manufacturing Practice (CGMP) regulations for finished pharmaceuticals at Cadila's Moraiya plant. However, the issue has now been resolved with the FDA declaring the facilities at Moraiya to be acceptable. Many Indian pharma companies in the past have come under the scanner of the US FDA for not complying with good manufacturing practices. The worst hit so far has been Ranbaxy and Sun Pharma as the warning letters significantly impacted revenues from the US generics market for both the companies.

Indian share markets recover
01:30 pm

After persistent weakness since the start of the trading session, Indian share markets regained lost ground and are trading marginally in the positive in the last two trading hours. Majority of the sectoral indices are trading in the red with auto, consumer durables and Oil and gas stocks being the biggest losers. IT, metal and banking stocks are among the handful sectors trading positive.

The BSE-Sensex is trading up 19 points and NSE-Nifty is trading up 3 points. Both BSE Mid Cap and BSE Small Cap indices are trading up by 0.1% and 0.04% respectively. The rupee is trading at 55.2 to the US dollar.

Majority of auto-ancillary stocks are trading positive with NRB Bearings and Wheels India being the biggest gainers. As per a leading financial daily, lead acid storage battery manufacturer Exide Industries wants to focus on the home inverter (UPS) segment which it believes to be the next growth driver. The company is contemplating either a greenfield or brownfield expansion in this segment. The company in January 2012 had acquired the home inverter business of Kevin Power Solution at a cost of Rs 175 m. Exide has earmarked a capital expenditure of Rs 2.7 bn in the current fiscal to fund its expansion plans. The company expects to regain lost market share in FY13 backed by better performance by the industrial division with the automotive sector reeling under stress. The stock is down 0.9%.

Auto stocks are currently trading firm led by Bajaj Auto, Escorts and Ashok Leyland. A leading business daily has reported that Maruti Suzuki is facing difficulty in meeting delivery demands given that the bookings for the top end versions of its Swift, Dzire and Ertiga models are much higher than what was anticipated by the company. The key reason for the delays is not enough supplies of alloy wheels, which only goes in the top end version of the variants offered by the company. The company is trying to meet customer requirement (for the Ertiga only) by offering customers a discount on the vehicle and supply regular steel wheel tyres instead of alloy wheels. As per the company's management Maruti is looking at introducing a middle variant for select models which would not have alloy wheels. The company is believed to be working on the pricing aspects of the same.

As for the other two models, the company will not be following a similar strategy. As per the company, the waiting period for the top end version of such vehicles is close to a year. In absolute terms, demand for these vehicles is believed to have increased by 80% YoY.

Indian equity markets trade weak
11:30 am

Indian equity markets continued to trade weak over the last two hours of trade. Metal and IT stocks witnessed maximum buying interest, while Auto and consumer durables stocks witnessed maximum selling pressure.

The Sensex today is down by 47 points, while the NSE-Nifty today is down by 17 points. BSE Mid Cap index and the BSE Small Cap index are down by 0.46% and 0.30%. The rupee is trading at 55.31 to the US dollar.

Mining stocks are trading in the red led by Metals and Minerals Trading Corporation of India Ltd. (MMTC) and Gujarat NRE Coke. According to a leading financial daily, Coal India in its upcoming board meeting on July 31, may finalise a contract worth Rs 1.7 bn for procuring explosives for mining needs of its subsidiaries. It may also resolve the fuel supply pact row with power firms. Earlier the company's board meetings were postponed twice. Explosives are consumed in large quantities by subsidiaries of the mining giant for extracting coal from the mines. It is used in opencast mines as well as underground mines for conducting blasts for coal production. The company has also received indications of soon receiving a written communication from the Prime Minister's Office (PMO) with regard to signing of fuel pacts with power firms.

Auto stocks are trading weak led by Tata Motors and Mahindra & Mahindra. According to a leading financial daily, Hero MotoCorp launched its sporty motorcycle Ignitor. The motorcycle has been launched at 15 dealerships across Karnataka. It will be available in two variants-the base variant and the top variant. The base variant has front drum brake while the top variant has front disc brake. Ignitor which is powered with a 125 cc Ecno-Power low friction technology engine will be available in 4 vibrant colors- Panther Black, Sports Red, Pearl White, & Vibrant Blue. It is expected to be fuel efficient along with having a good power and pick-up. The motorbike is priced at Rs 56,747 (base variant ex-showroom Bangalore).

Indian stock markets open weak
09:30 am

The Asian equity markets have opened the day on a mixed note with market indices in Hong Kong (down 0.7%), South Korea (down 0.6%) and Taiwan (down 0.6%) leading the losses in the region. However, market indices in Japan (up 0.2%), Indonesia (up 0.3%) and Malaysia (up 0.2%) were trading in green. The Indian stock market indices have opened the day on a weak note. The sectoral indices are trading mixed with Pharma and Oil and gas sector witnessing maximum gains and Auto and consumer durables trading weak.

The Sensex today is down by around 16 points (0.1%) and the NSE-Nifty is down by around 4 points (0.1%). Both Mid cap and Small Cap stocks are trading in the red with the BSE Mid Cap index and BSE Small Cap index down by around 0.2% and 0.1% respectively. The rupee is trading at Rs 55.05 to the US dollar.

Software stocks have been trading mixed with InfoEdge and Tata Consultancy Services (TCS) leading the pack of gainers and Moser Baer India and CMC Ltd. trading weak. As per a leading financial daily, TCS has bagged a multi-year outsourcing deal from Scandinavian Airlines (SAS). The deal gives further push to company's non linear strategy. As per the deal, SAS will adopt finance and accounting (F&A) platform of TCS for its operations across 30 nations. The platform will offer pre-built and pre-configured financial processes and will be provisioned through a Cloud computing model. TCS has refused to disclose the value of the deal. It will be paid by SAS on accuracy, timeliness and financial gains that SAS accrues over the duration of the deal.

Power stocks are trading mixed with KSK Energy and Neyveli Lignite leading the pack of gainers and Gujarat Industries Power Ltd and GVK Power &Infrastructure Ltd trading weak. As per a leading financial daily, Tata Power is considering to raise upto Rs 10 bn through the sale of bonds to domestic investors. The move follows a downgrade by rating agency S&P that suggested that the company's ability to raise funds could be affected as it had breached covenants on loans to its Mundra project. The company is planning to use the funds for ongoing expansion at its Mundra project in Gujarat, which is housed in a 100%-subsidiary called Coastal Gujarat Private Limited. As per the company sources, the company will proceed only if the terms are favorable with regards to coupon rate, especially after the ratings downgrade.

Will WPI data convince RBI for a rate cut?

A high rate of inflation has often been the stumbling block for growth. With GDP growth falling to a 9 year low of 5.3% in last quarter, growth concerns are quite tangible. And high inflation was precisely the reason why the central bank did not go in for monetary easing.

And then there was the much awaited drop in the oil prices that reflected in wholesale price inflation (WPI) level for the month of May. Coming at 7.25%, a level much lower than expected, the WPI data is a positive surprise. It has set expectations for a dovish stance in the upcoming monetary policy review due in two weeks. The manufacturing inflation seems to have stabilized at 5%, well within central bank's comfort zone. Despite a fall in rupee, stable inflation levels for non food manufacturing (core inflation) inflation suggest global easing of prices.

However, whether the lower inflation figure will give more cushion to cut interest rates is not clear. Especially because statistics is never sacrosanct. In fact, the Government has recently revised April inflation data upwards from previously announced 7.2% to 7.5%. The current data itself seems to have conveniently missed the increase in power tariffs. We can't overlook the fact that food inflation remains high and monsoons don't exactly seem to be in a mood to oblige. Also, an impending increase in diesel prices could make things worse.

Nonetheless, the data offers a window of opportunity to balance inflationary pressures with the growth target. However, even if a rate cut follows, it will be no guarantee for a stable economy unless the Government's fiscal policies are in tune with the monetary policies of central bank.