Bluechips find favour in staid session

In what was a rather lackluster session for the Indian equity markets, select Sensex heavyweights from the banking, power, pharma and paint sectors found investor favour. The benchmark indices, however began the day's proceedings on a weak note and closed near the day's highs, albeit below breakeven. While the Sensex today closed lower by around 26 points, the NSE-Nifty today closed lower by 12 points. The BSE Mid Cap and the BSE Small Cap indices ended flat. Gains were largely seen in healthcare, IT and energy stocks, while metals stocks were the biggest losers.

As regards global markets, Asian indices closed mixed today while European indices have also opened on a mixed note. The rupee was trading at Rs 55.75 to the dollar at the time of writing.

Coal India (CIL) has agree to sign the Fuel Supply Agreements (FSAs) with the power companies for shipping to them a minimum of 80% coal out of the total contracted quantum. The coal major would meet 65% of the supplies from domestic sources and would import the remaining 15%. It is yet to take a final call on whether the company would pool the price of domestic as well as imported fuel. The coal major had, in June 2012, lowered its production target for the financial year 2012-13 to 440 million tonne from the estimate of 452 million tonne in its annual plan, citing various reasons like heavy rainfall, strike and delays in the grant of environmental clearances to coal projects for the downward revision in the production target.

Meanwhile, pharma major Ranbaxy Laboratories has entered into an in-licensing agreement with Gilead Sciences to promote access to high quality, low cost generic versions of Gilead's HIV medicine emtricitabine in developing countries. Gilead Sciences is an American biotechnology company that discovers, develops and commercializes therapeutics. Under the new agreement, Gilead will provide a technology transfer for the manufacture of emtricitabine, together with funding to assist with investment in process improvements to reduce manufacturing costs. Ranbaxy's revenues from the US business recorded sales growth of around 172% YoY. This was largely led by healthy growth in base business sales and continued sale of 2 exclusivity products notably Atorvastatin (Lipitor) and Amlodipine+Atorvastatin (Caduet). The company has already garnered a market share of around 42% in Atorvastatin.

Indian share markets remain weak
01:30 pm

Indian share markets recovered some losses but continued to trade below the dotted line in the last two trading hours. Barring pharma and IT, all the other sectors are trading in red with metal, capital goods and auto stocks leading the losers.

The BSE-Sensex is trading down 109 points and NSE-Nifty is trading down 36 points. Both BSE Mid Cap and BSE Small Cap indices are trading down 0.4% each. The rupee is trading at 56.0 to the US dollar.

Barring Mahanagar Telephone Nigam Limited (MTNL), all the telecom stocks are trading in red with Reliance Communications and Tata Communication being the biggest losers. As per a leading financial daily, Bharti Airtel's infrastructure arm Bharti Infratel has entered into a partnership with OMC Power to power the telecom tower sites of the telecom major in rural regions. As per the agreement, OMC will set up micro power plants in Bharti Infratel's offgrid and poor grid telecom tower sites in rural regions using renewable energy sources. The partnership is expected to reduce dependence on diesel-powered gensets to electrify towers. Reportedly, Bharti Infratel has 33,000 towers out of which 9,000 are located in off-grid and poor grid locations. Bharti Airtel stock is down 1.2%.

Most of the paint stocks are trading in green with Berger Paints being the biggest gainer. Kansai Nerolac announced its results for the quarter ended June 2012. The company reported 11.2% YoY topline growth during the quarter. While the inflationary pressures have eased out a bit, rupee depreciation continued to dampen profits. Though the company was able to partly offset the cost inflation, it was not sufficient to shield margins which declined by 60 bps YoY to 13.4%. Earnings grew by a sluggish 3.4% YOY on account of 5.6% YoY fall in other income and 30% YoY rise in depreciation expenses during the quarter. The stock is up 1.9%.

Metal stocks lead the slump
11:30 am

Indian equity markets continues to trade weak over the last two hours of trade. Metal and capital goods stocks witnessed maximum selling pressure while pharma stocks witnessed maximum buying interest.

The Sensex today is down by 179 points, while the NSE-Nifty today is down by 55 points. BSE Mid Cap index and the BSE Small Cap index are down by 0.55% and 0.52%. The rupee is trading at 56.11 to the US dollar.

Auto stocks are trading in the red led by Tata Motors and Bajaj Auto. According to a leading financial daily, Maruti Suzuki is exploring possibilities to ramp up its production capacity of diesel vehicles at its Gurgaon unit. This comes after the production of its best-selling models Swift and DZire is stalled at the Manesar facility. The company operated three shifts at Suzuki Powertrain India. Since the lock-out at the Manesar facility, they have curtailed production and are now running only two shifts a day. While production of transmissions would remain relatively unaffected, since these are used on all their models, the excess diesel engines may be used for increasing production of diesel vehicles at their Gurgaon unit. The changes being considered in the production processes may help counter a daily revenue loss of Rs 700 m the company has been incurring, owing to the lockout at the Manesar facility.

Energy stocks are trading weak led by Mangalore Refinery and Petrochemicals (MRPL) and Essar Oil. As per a leading daily, Reliance Industries (RIL) is planning to invest US$ 1 bn in its new aerospace division. The company will also increase its employee base by hiring around 1500 people. RIL is looking at global collaborations to bring in sophisticated civil and military aerospace technologies to India. We may note here that earlier in July, Reliance Industries applied a government licence to design and make equipment for military and civilian aircraft as well as unmanned airborne vehicles; The new business will be a part of the company's two new entities, Reliance Aerospace Technologies and Reliance Security Solutions, created about a year back. Reliance is aiming to double its operating profit in the next 4-5 years with more investments in flagship energy business as well as further development of telecom and retail operations.

Indian share markets open weak
09:30 am

Major Asian stock markets have opened the day on a weak note with stock markets in Japan (down 1.3%), Hong Kong (down 1%) and Taiwan (down 0.8%) leading the losses in the region. However, the markets in China (up 0.4%) are trading firm. The Indian share market indices have opened the day on a weak note. Stocks in the metal, auto and realty space are leading the pack of losers.

The Sensex today is down by around 121 points (0.7%), while the NSE-Nifty is down by around 46 points (0.9%). Mid and small cap stocks are also trading in the red with the BSE Mid Cap and BSE Small Cap indices down by around 0.6% and 0.3% respectively. The rupee is trading at Rs 56.08 to the US dollar.

Cement stocks have opened the day on a weak note with Heidelberg Cement, Prism Cement and Chettinad Cement leading the losses. South India based cement player Madras Cements has announced its financial results for the quarter ended June 2012 (1QFY13). Net sales for the quarter stood at Rs 9,892.8 m, higher by 29.5% YoY than the corresponding quarter of the previous financial year (1QFY12). The growth was driven by both healthy growth in volumes and better cement realisations. Operating margins contracted from 32% in 1QFY12 to 31% in 1QFY13 on account of significant increase in logistics expenses. Net profits for the quarter stood at Rs 1,230.1 m, witnessing a rise of 25.1% YoY. Net margins declined by 50 basis points (0.5%) from 12.9% in 1QFY12 to 12.4% in 1QFY13.

Food stocks have opened the day on a mixed note with Nestle and ITC Ltd trading in the red. However, Tata Global Beverages and GlaxoSmithKline Consumer Healthcare are trading firm. As per a leading financial leading, Swiss food major Nestle is offering aggressive discounts and incentives to retailers on its flagship product Maggi instant noodles. It is believed that Nestle is offering aggressive discounts in order to the guard its market share against rising competition from aggressive new entrants such as ITC's Sunfeast Yippee, GlaxoSmithKline's Horlicks Foodles and Hindustan Unilever's Knorr Soupy Noodles. Analysts opine that this is the first time in a decade that the company is offering such aggressive discounts. For close to three decades, Nestle's Maggi has dominated the instant noodles market in India. But in recent times, it has been losing market share to competitors such as ITC's Sunfeast Yippee. While two years ago, Nestle commanded 90% market share, the same has slipped down to 80%, as per Nielsen data. The size of the instant noodles market is estimated to be around Rs 13 bn.

QE3 remains on hold

This Wednesday, when the Federal Open Market Committee (FOMC) sat for the meeting to decide its future monetary policy actions; many economists around the world were expecting the announcement of unconventional monetary actions such as quantitative easing, known as QE3, for the third time. Some experts were looking for change in the timeline from late-2014 to 2015 as far as its low-rate guidance is concerned.

However, nothing significant happened. No policy actions were announced. The Fed maintained position, stating that a subdued outlook for inflation over the medium run are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.

But there were significant changes in the policy statement made by FOMC. In its earlier statement, the committee took the view that the US economy has been expanding moderately during the year 2012. However, this time, they have accepted that economic activity decelerated somewhat over the first half of this year. However, from the no policy actions, it is very clear that in their view economy is not worsened enough to warrant any urgent action.

Experts are taking this no-action-policy-statement differently. One section is of the view that the committee does not feel that at this point in time, any monetary stimulus would significantly improve the condition of economy in terms of growth rate or employment rate. Others feel that actions would be useful in case of worsening economic situation. In any case, the Fed has kept its door open for policy actions in the future. It did signal for future stimulus action in the statement. It states that the Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.

The important point to be noted that the slowing economic growth of the US economy not only affects North America, but it is some way also related to the prevailing crisis situation in the European region. In the absence of any quantitative easing measures, another financial crisis cannot be ruled out. Therefore, it is not only the US but the whole world is looking for QE3 for quite some time.

When the Federal Reserve Chief Dr Ben Bernanke would do this is anybody's guess. But all ears would await his next speech at the central bank's high-profile gathering in Wyoming, sometime in late August.