Sustained buying fuels indices

Indian stock markets began the day's proceedings on a firm note and maintained this buoyancy throughout the trading session today. Strong buying across index heavyweights fuelled the indices and ensured that they closed well above the dotted line. While the BSE-Sensex closed higher by around 286 points (up 1.5%), the NSE-Nifty closed higher by around 92 points (up 2%). The BSE Midcap and BSE Small cap also did well and notched gains of 1% each. Gains were largely seen in banking and auto stocks.

As regards global markets, Asian indices closed firm today while European indices have also opened in the green. The rupee was trading at Rs 44.36 to the dollar at the time of writing.

Barring Biocon, most pharma stocks such as Sun Pharma, Dr.Reddy's and Sun Pharma closed firm today. As per a leading business daily, Biocon's contract research subsidiary Syngene has entered into an agreement with US based Endo Pharmaceuticals to expand their collaboration to develop molecules to fight cancer. It must be noted that both the companies had tied up for drug discovery collaboration in March last year. As per the terms of the agreement signed last year, Endo would retain all rights to the molecules developed while Syngene would receive research fees, milestone payments and success fees from Endo. Syngene did well in 1QFY11 as its revenues grew by a robust 21% YoY led by expansion by existing clients, addition of new clients and evolution of the business mix towards higher value services. Thus, this deal bodes well for the company especially since the therapeutic field of oncology (anti-cancer) is one of the fastest growing classes in the global pharma market.

Hindustan Zinc announced its results for the quarter ended June 2011. The company's topline grew by 45% YoY and was driven both by volumes and realisations. However, the latter contributed more to the overall improvement. The company posted a 17% increase in refined zinc output, however the same for refined lead came in at 6% YoY. Production for silver also came in higher and stood at 8% YoY. However, the major contribution to topline growth came from higher realisations. Although commodity prices have softened in recent times, they are significantly higher on a YoY basis and this helped give revenues a big boost. With expenditure growing at a much slower rate of 32% YoY, the already high operating margins of the company received a further boost and increased 4% YoY to 55.9% in 1QFY12. PBT for the quarter came in higher by 70% YoY, an improvement over 56% YoY growth in operating profits, mainly on account of higher other income and better operating leverage. At 68% YoY, the net profit growth for the quarter has more or less come in line with the impressive PBT growth. The stock closed higher today.

Engineering, software propel markets
01:30 pm

Indian stock market continued to trade firm due to buying interests in the index heavyweights over the last two hours of trade. All sectoral indices are trading firm except consumer durables. Stocks from software, capital goods, auto and oil & gas space are gaining the most while those from consumer durables space are trading weak.

The BSE-Sensex is up 275 points while NSE-Nifty is trading 84 points above yesterday's closing. The BSE Midcap and BSE Small cap indices are up by 1.0% and 0.7% respectively. The rupee is trading at 44.40 to the US dollar.

Engineering stocks have been trading mixed with Everest Kanto Cylinder, Thermax Ltd and Sanghvi Movers leading the pack of gainers. However, Praj Industries and Bharat Earth Movers Ltd (BEML) are trading weak. As per a leading financial daily, BHEL is looking at multi-modal transport options, including coastal shipping, to reduce the delivery time of boilers from its Tiruchirapalli unit in Tamil Nadu. The company is in talks with Karaikal Port in the union territory of Puducherry, to carry its equipment by sea and also with Indian Railways. It plans to unload its cargo at Karaikal Port and the port authorities will take care of loading and onward shipment and unloading at the destination.

As per the company management, BHEL is executing projects in the eastern region and would like to ship its heavy boilers and other items to Paradip (Orissa) or Haldia (West Bengal) ports. BHEL has started using railways to carry its boiler and its components booking 40 rakes to supply boilers and related items to its clients in north India. The cost thus incurred is just one third of road transport freight. It also results in shorter transport time of six days by rail versus 15 days by road. Regarding expansion, the management has said that the company's Tirumayam piping plant in Tamil Nadu, built at an outlay of around Rs.4 bn, will go on stream early next year. The capacity expansion at Trichy from 10,000 MW to 15,000 MW is in progress (at an outlay of Rs.2.8 bn) and is expected to be over by this December. The management targets to supply 850,000 tonne of fabricated steel components this year, up from 630,000 tonne achieved last fiscal. It is looking at supplying 40 percent of the order book during the first half of the year and the balance in the second half. The stock of the company is trading firm.

Most of the energy stocks have been trading in the green in the last two hours of the trade led by Gujarat State Petronet, Petronet LNG and Mangalore Refinery and Petrochemicals Ltd (MRPL). However, IOCL (Indian Oil Corporation) is trading weak. As per a leading financial daily, Hindustan Petroleum Corporation (HPCL) has said that it will not get oil supplies from Iran in August with Tehran. It has insisted on first resolving a seven-month-old payment row . It has been confirmed that HPCL has sought an additional one million barrels of oil for August from top producer Saudi Aramco. As per the management, the corporation will draw more from other suppliers with whom term deals are in place and it has made adequate arrangements to replace Iranian volumes for August. Since December, India and Iran have been struggling to find ways for New Delhi to pay for imports of 400,000 barrels per day or 12 percent of its oil demand after the Reserve Bank of India halted a clearing mechanism under U.S. pressure. Going forward, HPCL would seek additional supplies from United Arab Emirates, Kuwait, Iraq and Saudi Arabia to meet its oil needs. The stock of the company is trading up.

Greece aid plans bring cheer
11:30 am

Indian stock market extended their opening gains on buying interest in heavy weights over the last two hours of trade. Stocks from the oil and gas and auto space are the biggest gainers, while stocks from the consumer durables and FMCG space have gained the least.

The BSE-Sensex is trading up by 263 points while NSE-Nifty is trading 35 points above the dotted line. BSE-Midcap index is up by 0.9% while BSE-Small cap index is trading 0.6% above yesterday's closing. The rupee is trading at 44.36 to the US dollar.

Auto stocks are trading firm led by Tata Motors and Escorts. Hero Honda declared its 1QFY12 results. The company's top line grew by 32% YoY to stand at Rs 56.3 bn. However net profits increased by only 13% YoY to stand at Rs 5.5 bn. This slower than top line growth was a result of higher manufacturing costs due to increase in input costs. Sales volume of the company grew by 24% YoY to stand at 1.5 m units which is the highest unit sales for any quarter. Operating margins stood at 10.2% as raw material costs went up by 37% YoY. Going forward, the company's management expects to see raw material costs soften which would help expand margins. The company has reiterated its guidance for selling 6 m units during the current fiscal.

Media stocks are trading firm led by DB Corp and Next Mediaworks. Zee Entertainment Enterprises Ltd (ZEEL) declared its 1QFY12 results. The company's sales grew by 3.1%, from Rs 6.7 bn in 1QFY11 to Rs 6.9 bn in the current quarter. Advertising revenue remained flat at Rs 3.7 bn while subscription revenue grew by 16.7% on the back of 56% YoY growth in domestic DTH sales. Net profit on the other hand fell by 13% YoY to stand at Rs 1.3 bn for the quarter. This was due to increase of 12.2% YoY in programming and operating costs and 25.1% increase in employee costs. As per a company official, Zee has suffered as a result of high inflation and the resultant tight money policy of RBI. This led to a slowdown and reduction in advertisement spending by companies.

Indian markets open in the green
09:30 am

Asian stock markets have opened the day on an upbeat note. Stock markets in Hong Kong (up 1.7%), Singapore (up 0.9%) and Japan (up 0.8%) are the biggest gainers. However, markets in Malaysia (down 0.1%) are witnessing selling pressure. The Indian stock markets have opened the day on a positive note as well. Almost all the sectoral indices have opened in the green. Stocks in the energy and auto space are leading the gains.

The BSE-Sensex is up by around 111 points (0.6%), while the NSE-Nifty is up by around 35 points (0.6%). Midcap and small cap stocks are trading in the positive zone as well, with the BSE Midcap and the BSE Small cap indices up by about 0.8% and 0.5% respectively. The rupee is trading at 44.38 to the US dollar.

Energy stocks have opened the day on a positive note with Reliance Industries, GAIL and ONGC leading the gains. India is on the cross-roads with the Middle East oil rich kingdom, Saudi Arabia. The issue relates to the anti-dumping duty imposed by India on polypropylene products. The product, which is essentially a derivative of crude oil, has been brought under the net of anti-dumping duty. The sector is currently dominated by Reliance Industries, which holds a 70% market share. The duty is supported by the Indian industry which argues that even with the anti-dumping component; India's basic import duty is lower than other countries. The levy is supported by other Indian petrochemicals majors like Haldia Petrochemicals as well. However, Saudi Arabia has criticized the duty and is actively lobbying to get rid of it.

Pharma stocks have opened the day in the green with Cipla and Glenmark Pharma leading the gains. However, the stock of Biocon is trading in the red. Biocon has announced its first quarter results for financial year 2012 (1QFY2012). Biocon's consolidated sales grew by 11% YoY during the quarter. During the same period, he net profits grew by 7% YoY. The profit increase is without considering the profits from the European subsidiary, Axicorp as it has been divested. The operations were partially affected by the unrest in the middle-east and lower licensing income during the quarter. However, the management said that the licensing income for the year will be as per expectations. Inherent variability in licensing income is linked to development and regulatory timelines and therefore it is better to be viewed on an annualized basis.

Is food inflation here to stay?

When one opens the newspaper in the morning, one would invariably be greeted by at least one article on food inflation. This is not surprising considering the country has been battling the food inflation demon since the last two years. Each successive week, a government spokesperson declares that food inflation will come down in the next 2-3 months. But even after so long, this has not happened. Although food inflation has moderated recently, this has been due to a high base effect. We believe that food inflation is going to remain high even if year turns out to be another year of bumper crop.

But why would this be the case. It can be argued that the subpar monsoon which we saw a couple of years back is the culprit. Due to shortfall in production there was depletion in buffer stock with the result that there was huge demand from the government to top up its stocks. This coupled with the normal consumption demand resulted in a shortage which pushed up prices. This is true. But as it turns out this is only one of the reasons and not the only reason. It is estimated that 20-30% of the total grain harvested is wasted due to lack of storage capacity, regional imbalance in warehouses, lack of adequately scientific storage and inefficient logistic management. The government has been aware of these issues for years but has been dragging its feet. The fact that it has not learnt its lesson is clear from the fact that grain producing states are now complaining that grain consuming states are not picking up stock due to government policies. At this stage, one would have expected the government to at least take care that the food grain lying with the Food Corporation of India is available to those who need them. But it seems that all that is freely available and in abundance is red tape.

The infighting between state and central government over food policies is another point now added to the long list of reasons why food inflation is here to stay. If food inflation is to be controlled, then a lot more than lip service is required. The government needs to pull up its socks and frame a food policy which covers not only the production of food but also the delivery mechanism.