RBI policy fails to enthuse markets

Despite the RBI keeping key rates unchanged in the monetary policy review today, the key indices were weighed down by selling pressure in bluechip stocks. Energy, commodity and engineering stocks made up for most of the losses in today's session. That the RBI revised the GDP growth estimate lower to 5.5% for FY14 also hurt sentiments. While the BSE-Sensex closed lower by 245 points (down 1.2%), the NSE-Nifty lost 77 points. Both the BSE Mid Cap index and the BSE Small Cap index lost about 2% in today's session.

As regards global markets, while Asian indices closed a mixed bag today the European indices have opened lower. The rupee was trading at Rs 60.58 to the dollar at the time of writing.

UltraTech Cement announced the results for the quarter ended June 2013 (1QFY14). On a standalone basis, sales declined by 2.3% YoY during the quarter. Operating profits decline by 18.7% YoY as operating margins decline from 25.4% in 1QFY13 to 21.2% in 1QFY14. The other income increased by 116.5% YoY during the quarter. The depreciation charges and interest expenses increase by 10.5% YoY and 32.6% YoY, respectively. Net profits declined by 13.6% YoY during the quarter; while net margins declined from 15.3% in 1QFY13 to 13.6% in 1QFY14.

Talks between PSU mining major Coal India's (CIL) workers and the government on disinvestment failed today. The government was expecting to mop up Rs 200 bn through 10% disinvestment in CIL. The government has earlier also recommended that CIL usese its cash surplus effectively by paying more dividend or investing in other PSUs. CIL is pen to improve the dividend payout ratio from current level (50%) to effectively utilize the cash. It has, however, clearly stated that it is not in favour of investing its surplus cash in the other PSU companies. Also it will not be able to do a buyback as it will lead to violation in the minimum shareholding limit for listing. The company expects to sell 46-48 m tonne of e-auction coal in FY14. But the key concern part is the declining e-auction premium which has currently reduced to 35-36% as against the 39-40% achieved in FY13. The company does not expect to import coal in FY14 for fulfillment of its fuel supply agreements.

Indian share markets slip further
01:30 pm

Indian share markets were not enthused even as RBI kept interest rates unchanged and indicated a roll-back in tightening measures when the rupee gets stabilized. The share markets widened losses in the post-noon trading session. Barring IT, all the sectoral indices are trading in the red with realty, power and oil and gas stocks being the biggest losers.

BSE-Sensex is down 141 points and NSE-Nifty is trading 48 points down. BSE Mid Cap is trading down 1.4% and BSE Small Cap index is trading down 1.3%. The rupee is trading at 59.7 to the US dollar.

Majority of the FMCG stocks are trading in the green with Marico and Pidilite among the major gainers and Dabur and Colgate being the biggest losers. Colgate has announced its results for the quarter ended June 2013. The company recorded a 14.7% YoY rise in sales led by 9% YoY volume growth. Its toothpaste sales grew by a strong 11% during the quarter. However the company's operating margin contracted by 2.3% YoY to 19.2% due to a steep rise in other expenses that offset savings in input costs and wages (all as a proportion of sales). However at the net level, net profit surged by 58% on the back of exceptional income of Rs 555 m from slump sale of Global Shared Services Organization to its foreign parent company's wholly-owned subsidiary. During the quarter, the company has launched an innovative product 'Visible White' that prevents tooth surface stains for visibly white teeth.

Most of the Indian pharma stocks are trading in the red with Orchid Ltd and Dishman Pharma witnessing maximum selling pressures. Apotex a US based pharma company has recently received approval for Fenofibrate of 43mg and 160mg strengths from USFDA (United States Food and Drug Administration). This approval is equivalent to Lupin's brand Anatara. Some time back Mylan had launched the generics of the said drug. Apotex launch will further increase the competition and increase the price erosion. This will further impact Lupin's market share. It is still not clear whether Apotex has launched the drug or not. However as Mylan has already launched the generic of Antara, even Apotex launch can be expected in short time. Lupin generated annual revenues of US$ 60 m from the sale of this drug annually before Mylan's launch. Lupin was trading down by 1.93%.

Indian share markets slip in red
11:30 am

Indian share markets have slipped in red, minutes before 11:30AM. IT and capital goods are leading the pack of winners while PSU and realty are facing the maximum selling pressures.

The BSE Sensex is down by 19 points and the NSE-Nifty is down by 0.3 points. Both BSE Mid Cap and BSE Small Cap indices are down by 0.6%. The rupee is trading at 59.73 to the US dollar.

IT shares are trading on a mixed note with HCL Tech and Wipro leading the gains while Moser-Baer India and Info Edge are leading the losses. According to a leading financial news medium, Wipro, the country's third-largest IT services exporter is planning to ramp up operations in its largest market, the US, by creating more local jobs and hiring Americans green-card holders and citizens for strategic roles. This move has been taken on account of slowing US economy and immigration issues. For 1QFY14, Wipro has generated 49.7% of its revenue from the US market, lower than its peers, TCS and Infosys. During the same period, TCS has got 54.1% of its revenue from the US while it has been 61.4% for Infosys.

On a consolidated basis, Wipro has registered a rise of 2.7% in its net profit after taxes, minority interest at Rs 16,233 m for the quarter ended June 2013 as compared to Rs 15,802 m for the same quarter in the previous year. Total income of the Company, on a consolidated basis, has increased by 6.1% at Rs 100,693 m for quarter ended June 2013 as compared to Rs 94,889 m for the quarter ended June 2012.

All except three auto shares, Escorts, Maruti Suzuki and Tube Investments are trading in red with Bajaj Auto and Force Motors facing the maximum selling pressures. Maruti Suzuki, the country's largest carmaker is planning to foray into the light commercial vehicles (LCV) segment in the coming two years. It has bagged its Board of Directors' approval for the project in the last week. These new LCVs will be for both domestic and export markets. The Company's engineers have started working on adapting the diesel engine (1.3L) that it has licensed from Fiat to be used in the proposed vehicle. The new LCVs will be pure goods carrier and will be available in both diesel and compressed natural gas variants. The new product will compete with LCVs already in the market such as Mahindra & Mahindra's Genio and Maxximo Plus, Tata Motors' Ace and Ashok Leyland's Dost.

Indian stock markets open firm
09:30 am

The major Asian stock markets have opened in the green with stock markets in China (up 1.1%) and Japan (up 1.2%) leading the gains. The Indian stock market indices have also opened the day on a firm note. The sectoral indices have opened mixed with stocks in the capital goods and software sector leading the gains. However, stocks in the metal and FMCG were leading the losses.

The Sensex today is up by around 14 points (0.1%), while the NSE-Nifty is up by around 3 points (0.1%). Mid cap and small cap stocks have opened also opened in the green with the BSE Mid Cap index and BSE Small Cap index up by around 0.1% each. The rupee is trading at Rs 59.68 to the US dollar.

Finance stocks have opened mainly on a mixed note with Mahindra Finance and IndiaBulls Financial Services leading the gains. However, Prime Securities and Geojit BNP Paribas were facing selling pressure. Infrastructure Development and Finance Company Ltd (IDFC) has announced its results for the first quarter of the financial year 2013-14 (FY14). The consolidated income from operations registered a growth of 25% year on year (YoY) for the quarter. The advances for the quarter grew by 13% YoY. However, the disbursements and approvals witnessed a decline mainly on account of slowdown in infrastructure activity and other macro concerns. The total assets under management (AUM) stood at Rs 486 bn at the end of June 2013. The net interest margins (NIMs) during the quarter declined marginally to 4.1%, as compared to 4.3% in the corresponding quarter last year. The net profits for the quarter grew by 47% YoY. This was mainly on account of lower provisioning during the quarter. The capital adequacy ratio at the end of the quarter stood at 23% while net NPAs came at 0.2%.

Cement stocks have opened the day on a mainly in the red with Madras Cements and Mangalam Cements leading the losses. The cement major Ultratech Cement has announced results for the quarter ending June 2013. The company has reported a decline of 2.2% in the net sales on a year on year (YoY) basis. This was mainly on account of slowdown in the home building and infrastructure projects in the country. The average realization per tonne of cement sold stood at Rs 4,823, down 1.8% YoY. Due to lower realizations and high cost, the operating margin during the quarter declined to 21.2%.The net profits for the quarter declined by 13.5% YoY. As per the management, the business outlook remains challenging and the demand growth for cement in the current fiscal year is expected to be at 6%. In the long term, the management expects cement demand to grow at more than 8%. The company has earmarked Rs 137 bn to increase capacity by 10 million tons by 2015.

Is 5% GDP growth a new normal?

Rewind a year back from today. Issues pertaining to rising fiscal deficit, worsening current account deficit (CAD), currency depreciation and ineffective decision making were grappling India. Between then and now several measures being taken by the government. For instance, fuel prices were de-regulated in this period. Government also announced a slew of measures like opening up of foreign investments in various sectors like retail and aviation. Reserve Bank of India (RBI) too adopted a dovish stance with easy monetary policy by gradually reducing benchmark repo rate over the last one year.

All these measures were expected to bring economic growth back on track. In fact, when there was hope that some of these measures may produce the desired results rupee played a spoilsport. US Fed's plans to taper quantitative easing (QE) led foreign investors to withdraw their money from emerging markets including India. This led to a significant depreciation of Indian rupee. High CAD and fiscal deficit made the matters even worse.

As a result, RBI resorted to monetary tightening, albeit indirectly. It hiked rates under money borrowed via marginal standing facility scheme. Limits were also put on overnight borrowing facility from the central bank. All these measures are likely to raise borrowing costs of banks. Higher rates can hurt capex cycle and thus growth. As a result, it seems that growth resurgence will be pushed back to 2014. Initially, it was believed that reform measures would be sufficient to put growth back on track. But steps taken by RBI to arrest the fall in rupee are likely to de-stabilize the growth prospects in near term by increasing the cost of funds.

Consensus figures over growth forecasts in FY14 have also been lowered (between 5-6%) across the board due to these measures. So, is even 5% GDP growth challenging for India from here on?

While it is difficult to put a number to growth figures amidst invariable contingencies we feel that we are pretty much at bottom of the growth cycle. It may be noted that right now deficit, growth and currency are all at decade lows. Now this does not mean that they can't go lower from here. However, the steps taken by government and RBI to restore growth are expected to have the desired effect sooner than later. Easing constraints on FDI will attract money to the country. Decontrol of petrol prices is expected to lower fiscal deficit. RBI's steps to curb gold imports may help on the CAD front.

Thus, multiple measures have been taken to resolve the deficit issues. Hence, the overall growth picture is encouraging. However, unless government takes steps to resolve the policy issues, infrastructure bottlenecks will continue to prevail. And till the time these bottlenecks remain growth may not come that easily.