Indian stocks start week on weak note

The Indian equity started the week on a dull note with the BSE-Sensex closing the day with losses of about 135 points or 0.52%. The NSE-Nifty ended lower by about 42 points or 0.54%. While stocks from the information technology (IT) and FMCG spaces were in favour, those from the oil and gas and realty spaces were amongst the top underperformers today.

Asian markets ended the day on a firm note with China, Japan and Hong Kong up by about 2.5%, 0.5% and 0.9% respectively. The rupee was trading at 60.1 to the dollar at the time of writing.

Stocks of automobile manufacturers ended the day on a weak note with Tata Motors, Hero Motocorp and Ashok Leyland leading the pack of losers. As per a leading business daily, the management of CV manufacturer Ashok Leyland is banking on its many overseas businesses to help it grow its business and in the process reduce its dependence on Indian operations. As you would be aware the last two years were one of the worst for CV manufacturers with auto volumes dropping by 20% plus YoY for each of the two years back to back. As per the company's management, it is looking to increase exports and its non-truck business to curb the volatility in its business operations. The latter includes buses, light commercial vehicles, power solutions, spare parts and defence sector.

Majority of FMCG stocks ended the day on a weak note today. However, on the back of over 3.5% gains in Hindustan Unilever (HUL), the BSE-FMCG index ended the day on a firm note. Gains in the stock were on the back of the company's results beating market expectations. HUL declared its results for the quarter ended June 2014. Revenues grew by 13% YoY on underlying volume growth of 6%. Each of the Home & Personal Care and Food businesses grew by 13% each during the quarter. The operating margin expanded by 1.1% backed by lower ad-spends and staff costs (both as a proportion of sales). Net profits, however, grew by a muted 4% YoY on account of lower extraordinary income earned from the sale of properties as compared to the year-ago quarter. Even the tax incidence in June 2014 quarter was high at 30% as compared to 23% in the year-ago quarter resulting in tepid rise in profits.

Realty & metal, major losers
01:30 pm

Indian share markets continued to slip deeper in the red in the post-noon trading session. Barring consumer durable, all the sectoral indices are trading in the red with realty and metal stocks being the biggest losers.

BSE-Sensex is down 189 points and NSE-Nifty is trading 58 points down. BSE Mid Cap is trading 0.4% down and BSE Small Cap index is trading down by 0.7%. The rupee is trading at 60.07 to the US dollar.

Majority of the energy stocks are trading in the red with Reliance Industries and Bharat Petroleum Corporation Ltd (BPCL) being among major losers. Cairn India and Essar Oil are among the few stocks trading in the green. As per a leading financial daily, Cairn India has asked Oil and Natural Gas Corporation (ONGC) to extend the permit of Rajasthan oil block for at least 10 years beyond 2020. ONGC presently has a 30% stake in the oil block. ONGC has informed the Oil Ministry that the Production Sharing Contract can be extended beyond 2020 if all parties to the contract agree on mutually acceptable terms. ONGC produces 1.81 lakh barrels of oil per day but pays royalty to the government on the entire 100% stake including Cairn's 70% stake. Although the royalty is later recovered from Cairn, ONGC's cash flows get strained. Therefore royalty issues need to be addressed by ONGC at the time of extension. Cairn India stock is trading up 1.9%.

Most of the public bank stocks are trading firm led by Central bank and United Bank of India. Corporation Bank and Allahabad Bank are among the few stocks trading in the red. As per a leading business daily, State Bank of India (SBI) is contemplating to sell equity stake in its insurance and asset management units to finance tighter capital requirements. The bank needs to raise more than Rs 800 bn of additional equity capital by 2019 to fulfill Basel III regulatory norms. The bank had raised Rs 100 bn in January through share sale to government and institutional investors. SBI stock is trading down marginally.

Indian markets drift lower
11:30 am

After opening weak, the Indian stock markets continue to trade well below the dotted line in morning session. Most of the sectoral indices are trading in the red with Energy and Metal stocks leading the losers.

The BSE-Sensex is trading down 143 points. The NSE-Niftyis trading down 42 points. The BSE Mid Cap index is trading down 0.2% and the BSE Small Cap index is trading flat. The rupee is trading at 60.09 to the US dollar.

Software stocks are trading mixed today. While HCL technologies is leading the gainers; Tata Consultancy Services (TCS) is leading the losers. India's third largest software firm Wipro, has set up a US$ 100 m venture capital fund to invest in start-ups. The company is looking to invest in start-ups focused in niche technologies like data, open source and other digital technologies. While Wipro is the first large Indian IT firm to set up such a fund, global IT giants like SAP, Microsoft and IBM have already done so. While Wipro will look for profitable targets, the strategic focus will be on value addition to the parent. While no specific deals have been announced, the company has already shown interest in a few NASSCOM registered start-ups. The fund will be led by Rishad Premji, the elder son of Chairman Azim Premji. Wipro is trading flat today.

Majority of Indian pharma stocks are trading in green with, Torrent pharma and Dishman pharma leading the gainers. Biocon Ltd has declared its results for June quarter (1QFY15). Net sales grew by 3% YoY, during the quarter. The company's Biopharmaceutical segment sales were impacted due to lower sales in MENA region and decline in sales of a product. The contract manufacturing segment grew by 12% YoY during this period. EBITDA and net profit both grew 9% YoY. Improvement in EBITDA and subsequently in net profits was largely attributable to decline in net research and development expenses. Biocon is trading down by 2.5% YoY.

Indian share markets open weak
09:30 am

Barring Taiwan (down 0.2%), most major Asian stock markets have opened the day on a firm note with stock markets in Hong Kong (up 0.9%) and China (up 2.1%) leading the gains. The Indian share markets have opened the day on a negative note. The sectoral indices have opened on a mixed note with realty and oil & gas stocks leading the losses. However, banking and auto stocks are trading firm.

The Sensex today is down by around 44 points (0.2%), while the NSE-Nifty is down by about 9 points (0.1%). Mid and small cap stocks are also trading in the red with the BSE Mid Cap and BSE Small Cap indices down by around 0.02% and 0.1% respectively. The rupee is currently trading at Rs 60.14 to the US dollar.

Fertilizer stocks have opened the day on a mixed note with Nagarjuna Fertilizers & Chemicals Ltd and Coromandel International Ltd leading the losses. However, Godavari Fertilisers and Deepak Fertilisers and Petrochemicals Corporation Ltd are trading firm. As per a leading financial daily, Tata Chemicals has moved a special resolution to seek the approval of its shareholders for raising up to Rs 10 bn from private placement of non-convertible debentures. The aim of the exercise would be to expand the long term resources for financing and for general corporate purposes. Tata Chemicals may offer or invite subscriptions for redeemable non-convertible debentures in one or more tranches. In addition, the Tata Group firm has also moved a resolution for the approval of borrowing limits to up to Rs 55 bn.

Auto stocks have opened the day mainly on a firm note with Tube Investments and TVS Motor leading the gains. As per a leading financial daily, India's leading passenger vehicle maker Maruti Suzuki is aiming to augment supply of the auto gear shift version of its latest compact hatchback Celerio in a bid to cut down the waiting period that currently stands at about four months. Celerio was launched in February 2014. Since the launch, the company has received bookings for over 57,800 units. Of these, 43% (25,000) are units with automated manual transmission (AMT) technology. It must be noted that Maruti had increased the monthly production of Celerio with AMT option to 6,500 units from about 4,500 units when it was launched.

Crisis brewing in commodity markets?

Rs 5,600 cr scam that engulfed National Spot Exchange Ltd (NSEL) is still running fresh in our minds. This was followed by an audit agency scrutiny that figured out several non-genuine transactions in the books of Multi Commodity Exchange of India Ltd (MCX). The list doesn't end here. Another Universal Commodity Exchange (UCX) announced its closure on 16th July 2014 just after 18 months of its incorporation. Earlier, the Indian Commodity Exchange had shut shop.

Phew! Commodity markets have gone disarray. Perhaps a crisis is underway. Fraudulent trading practices have become rampant in the commodity markets. What's more agonizing is the fragile regulator governing these markets. Forward Markets Commission or FMC regulates the commodity trades in India. Seemingly the regulatory body failed in its duty with regards to NSEL and was accused of unscrupulous lending to the group entities with unknown promoters. Found guilty of Rs 5,600-crore payment default and persistent violations of various regulations, NSEL fraud even wiped off the wealth of many families. MCX in turn turned out to be a casualty of the payment crisis at NSEL and the imposition of commodity transaction tax (CTT) applied in July 2013. The carnage in the commodity market did not stop here. And quite shockingly FMC did not wake up to the mess. And then came the UCX fiasco. Convicted for fictitious volumes to push up profits and valuations, UCX came under the scanner of FMC. The quantum of the fraud turned out to be so huge that the exchange was left with no money to continue its business operations. Violation of regulatory guidelines, lack of due diligence backed by irregularities in risk management blew up crisis in these exchanges.

India has six national commodity exchanges and 14 regional ones. But today they are victims of mismanagement and poor governance. The value destruction as a result at the India's commodities exchanges has been enormous. The trading turnover of the entire commodity market has crashed 65% in the first quarter of this year. Primarily because the regulator had asked many to suspend their operations! The market participants had feared the worst. Clearly, this is a high-profile bust. Nothing seems to be right with the commodity markets. And quite annoyingly investors remain prone to the dodgy activities of the exchanges. The role of the regulator therefore is of paramount importance. Essentially the regulator needs to work upon enhancement of quality of due diligence. Scrutiny and surveillance standards must go up.

Poor governance has been the endemic problem in the Indian economy. While the Modi government has promised us better governance, it is time to rise to the occasion. And as far as commodity markets are concerned, the government better maintain this motif - Clean up or pack your bags! A leading financial magazine puts up a better solution. Bringing uniformity in the rules governing equity holding, suitability of promoters and governance structures across equity, commodity and currency derivatives markets will go a long way in reviving the exchanges. We hope the Finance Minister is listening.

Well that's for the government to do. But we also believe that investors too should exercise caution in their own capacity. And especially should not fall for bait. Due diligence at their end is equally important.