Realty, IT stocks lead the gains

The Indian markets ended the day comfortably in the positive zone, with the BSE-Sensex ending higher by about 152 points, while the NSE-Nifty closed higher by about 52 points. Gains were seen in stocks across the board with those from the realty, IT and healthcare spaces leading the pack. Mid and smallcaps ended the day on a strong note as well, with their respective indices closing higher by about 0.8% and 1% respectively.

Asian stock markets closed mixed today. While the Nikkei 225 gained 0.46%, the Hang Seng rose by 0.44%. The Shanghai Composite on the other hand, lost 1.65%. European markets are broadly higher today with shares in Germany leading the region. The DAX is up 1.03% while France's CAC 40 is up 1.03% and London's FTSE 100 is up 0.18%. The rupee depreciated 19 paise to 63.93 against the US$.

According to a leading financial daily, FMCG major Britannia Industries will set up two greenfield plants, one near Erode in Tamil Nadu and the other in Bengaluru, Karnataka, at an estimated investment of Rs 2.5 bn. The new units are likely to be ready by December and will have a total capacity of 100,000 tonnes per annum. This is part of the Rs 5 bn capex that the company has planned during the fiscal. Reportedly the company is looking at a 10% volume growth annually and it needs to add at least 80,000 tonnes (or a 10% addition) to their total capacity each year for the next few years. The company, currently, has a total capacity of 800,000 tonnes per annum across 14 of its own plants and 28-30 contract manufacturing facilities in the country. Apart from the two proposed units, it is also expanding production capacity at its Gujarat unit.

According to a leading economic daily, Wockhardt is recalling over 5 million bottles of various drugs, used for treating ailments like high blood pressure and ulcer, in the US market due to deviations in current good manufacturing practice norms laid down by the American health regulator. All the drugs being recalled by the company have been manufactured at its Mumbai-based facility and distributed in the US by its subsidiary, Wockhardt USA. The recalls have been classified as 'Class-II' by the FDA, which is defined as "a situation in which use of or exposure to a violative product may cause temporary or medically reversible adverse health consequences or where the probability of serious adverse health consequences is remote". Last month, Wockhardt had recalled 162,142 cartons of various drugs in the US market. The scrip of Wockhardt ended the trading day up by 0.5% on the BSE.

Indian markets trade positively
01:30 pm

After trading on a firm note during the morning session of the day, the Indian equity markets continued to trade positively in the post noon trading session. Gains were led by stocks from auto, software and steel segments.

The BSE-Sensex is trading up 186 points (0.7%) and the NSE-Nifty is trading up by 57 points (0.7%). The S&P BSE Midcap index and the S&P BSE Smallcap index are trading up by 1% and 1.3% respectively. Gold prices, per 10 grams, are trading at Rs 24,742 levels. Silver price, per kilogram, is trading at Rs 33,420 levels. Crude oil is trading at Rs 2,958 per barrel. At the time of writing, the rupee stood at 63.83 to the US dollar.

Most of the stocks in the auto ancillaries sector are trading in the green with Wheels India and Sundaram Clayton leading the gainers. As per a leading financial times, Bharat Forge has notched up a 14% YoY jump in its revenues for the quarter ended June 2015. This was on the back of robust growth in its exports and higher realizations. Exports for the company, which form 60% of standalone revenues, surged 21% YoY and offset the muted 6% growth in the domestic segments. Operating profit margins stood at their four year highs with a YoY rise of 31.8%. Going further, the company has a capital expenditure plan of Rs 100 bn over FY 15-17 which will be incurred on de-bottlenecking, improving capacity of machining and research and development (R&D). Scrip of Bharat Forge is presently trading up nearly by 5.2%.

Paint stocks are trading mixed with Jenson & Nicholson leading the gains and Asian Paints leading the losses. According to a leading financial daily, Berger Paints India, one of the leading paint manufacturing companies, is planning to launch new products in coating and construction chemicals segments. The company is also going to reformulate some of its decorative paint products for better finish and durability along with new offering in the water-based and enamel-based ranges. On a separate note, the company is also in talks with the Assam government to set up two plants which will improve its market standing in the northeast region. Currently the stock of Berger Paints is trading up by 1%.

Steel and Mining stocks in favor
11:30 am

After opening on a firm note, the Indian Markets continued to trade in the positive territory. Sectoral indices are trading on a firm note with stocks from the mining, steel and auto sectors leading the gains.

The BSE-Sensex is trading higher by 206 points (up 0.7%) and the NSE-Nifty is trading up 58 points (up 0.7%). The BSE Mid Cap index is trading up by 1.2% while the BSE Small Cap index is trading up 1.4%. The rupee is trading at 63.80 to the US dollar.

Finance stocks are trading on a mixed note with SREI Infra Finance and Indiabulls Financial Services witnessing maximum buying interest. As per a leading financial daily, non-banking finance company Capital First has declared its numbers for the quarter ended June 2015. The company has posted 59% rise in its profit after tax on a YoY basis. This was helped by steady growth in assets under management (AUM) and control on operating costs. The retail loan assets grew by 24% YoY. As stated, the growth in income was primarily driven by higher net interest income which grew 39% YoY. Presently the stock of company is trading lower by 1%.

Stocks in the energy sector are also trading mixed with Gujarat State Petronet leading the gains and Chennai Petroleum leading the losses. As per an article in Business Standard, Bharat Petroleum Corp (BPCL) is planning to shut a 90,000 barrels per day (bpd) crude unit at its 1,90,000 bpd Kochi refinery for about 10 days from September 26. This is undertaken in order to link new units with the crude unit. Through this the company is planning to expand the refinery to 3,10,000 bpd by May 2016. Further, BPCL is also planning to shut a 1.5 million tonnes a year fluidised catalytic cracker for about 8-10 days along with the crude unit. Scrip of BPCL is currently trading up nearly by 1.1%.

Indian Markets open strong
09:30 am

The major Asian stock markets have opened the day on positive note with Japan market (up 0.71%) and Hong Kong market (up 0.21%), leading the gainers. However, stock markets in China (down 1.27%) have opened on a negative note. European and US stock markets closed their session on a flat note. The rupee is trading at 63.90 per US dollar.

Indian markets open on a firm note. Sensex up over 200 points (up 0.79%) and NSE-Nifty is trading up by 63 points (up 0.74%). BSE Mid Cap is trading up by 0.82% while BSE Small Cap index is trading up by 0.83%. Sectoral indices are trading positive with stocks in Banking, Capital Goods and Metal sector witnessing maximum buying interest.

Stocks in the telecom space are trading on a mixed note. Bharti Airtel reported its quarterly results for the first quarter of FY 16. The company reported a 40.2% jump in the net profit for the quarter ending June at Rs 15.5bn. The sharp surge in the bottom line was boosted with several exceptional items like sale of tower business. Mobile data revenues now account for 14.6% percent of the total revenues compared to 9.6% in the corresponding quarter last year. During the year the mobile data revenues grew 57% y-o-y to Rs 34.59bn as data traffic rose by 86.5% The Company managed to expand operating margins by 160 basis points to 38.8% during the quarter. The average revenue per user in Africa declined 10% on a y-o-y basis. Stock of Bharti Airtel is trading up by 2.73%.

Stocks in the banking sector are trading on a mixed note. As per an article in economic times, Yes Bank has raised $ 49.2mn from International Finance Corporation, the private sector financing arm of World Bank. The funds are raised for a period of 10 years at 6.45%. Yes Bank will invest the proceeds from these bonds in the energy efficient projects and the renewable energy projects mainly in the solar and the wind sectors. This is the second green bond from the Yes Bank. The bank said that it has made a commitment of 5000MW of renewable energy projects to the government which would be funded by the proceeds of the bonds. Stock of Yes Bank is trading up by 0.69%.

Are the treasury gains sustainable?

Major private sector banks such as HDFC Bank, ICICI, Yes Bank have reported their numbers for the first quarter of FY 16. Their bottom line was mainly boosted by higher other income. Other income mainly compromise of treasury income and fee income. Treasury income is the returns a banking company earns by investing their surplus funds in government bond. For instance HDFC Bank, Yes Bank, Axis Bank's other income grew by 33%, 31.8%, 36% respectively as compared to the corresponding quarter last year led by treasury gains. There is an inverse relation between the bond prices and the bank rates.

The prices of bonds which banks had bought when interest rates were high will rise. As the government securities are shown in the book of accounts at current market value i.e mark to market their profit would increase. In spite of reducing the lending rate by 15-30 bps the companies posted a healthy Net Interest Margin (NIM). The main reason behind it was that the lenders had started reducing the deposit rates some time before they started reducing the lending rates.

Yet another factor that is worring is that the higher other income is helping the bank cover up the higher provision costs. It is encouraging that the banks and RBI are together taking precautionary measures to stop the piling up of bad loans. However, with sectors like telecom, infrastructure and power far from recovery, banks will continue to feel the stress on asset quality.

As and when the growth in other income dwindles, banks have to provide for bad loans will feel the pressure on profits. Investors should therefore be very cautious about selecting entities with a track record of good credit history.