Positive global cues boost indices

Indices in the equity market in India carried their good form right into the closing session today and as a consequence, closed the day strongly in the positive. Thus, while BSE-Sensex edged higher by around 220 points, gains on the NSE-Nifty stood in the range of 70 points. BSE Mid Cap and BSE Small Cap indices also edged higher, gaining 0.5% and 0.8% respectively. Advance to decline ratio stood strongly in favour of the former with two Sensex stocks gaining for every one going down.

While almost all Asian stocks closed in the positive today, Europe too is trading mostly in the positive currently. The rupee was trading at Rs 55.5 to the dollar at the time of writing.

Today's gains were largely in response to the positive global cues emanating mostly from the Euro zone. It is believed that the European Central Bank will intervene in the markets and take part in a bond buying program in order to reduce borrowing costs of countries like Spain and Italy. Besides, the chances of the US Fed doing a QE3 sometime later in the year are also getting stronger by the day. While this could mean higher inflows into emerging markets like India, investors ignore the stock fundamentals at their own peril. Irrespective of whether more stimulus measures are on their way, an approach that seeks to invest in sound business model at attractive valuations will always yield attractive returns over the long term.

Steel Authority of India (SAIL) has announced its results for the quarter ended June 2012. The company has reported a decline of 1.5% YoY and 17.9% YoY in net sales and net profits for the quarter ended June 2012. Operating profits increased by 13.8% YoY mainly due to lower employee cost. Operating margins improved by 1.9% YoY to 14.1%. At the bottomline level, profits for the quarter declined by 17.9% YoY due to higher forex losses and lower other income. The company reported a forex loss of Rs 2.6 bn as compared to a loss of Rs 117 m in the corresponding quarter last year. Net profit margin declined by 1.3% YoY and stood at 6.5%. Other income during the quarter declined by 40.3% YoY. The stock closed marginally higher today.

Britannia announced its results for the quarter ended June 2012. The company reported an 11% increase in its standalone revenues. It managed to improve operating profitability by 1.2% to 5.9% on the back of lower raw material costs and adspends. However, at the net level, margin remained flat at 3.5% on account of a 59% drop in other income earned during the quarter. This is because the year-ago quarter included profit of Rs 153.3 m from sale of property. While interest outgo increased marginally, tax and depreciation charges rose by 10% and 17%, respectively during the quarter. The stock closed sharply lower today.

IT, FMCG stocks not in favour today
01:30 pm

The Indian equity markets continued to trade in a range bound manner during the post noon trading session. Barring IT and FMCG stocks, interest is being seen in stocks across the board with those from the Oil and gas, capital goods and Auto spaces leading the pack of gainers.

The Sensex today is trading higher by about 200 points (up 1.2%) while the NSE-Nifty is trading higher by about 60 points (up 1.2%). However, midcap and smallcap stocks seem to be in favour as the BSE Mid Cap and BSE Small Cap indices are trading higher by about 0.7 and 1% respectively. The rupee is trading at 55.56 to the US dollar.

FMCG stocks are currently trading weak led by Dabur, ITC and Britannia. Marico announced its results for the quarter ended June 2012 recently. The company posted a robust topline growth of 22% driven by a strong 16% volume growth in the domestic consumer products business. This business contributes 69% to consolidated revenues. International business that contributes 24% to overall sales grew by 17% during the quarter. Barring Bangladesh and MENA (Middle East & North Africa), businesses in all geographies grew in double-digits during the quarter. The specialized skin-care business 'Kaya' reported same store sales growth of 12%. Aided by waning commodity inflation, the company has been able to overcome the steep rise in ad spends and clock a 260 basis points (2.6%) expansion in operating margin. The company's earnings surged by 46% on the back of 48% jump in operating profit earned during the quarter. However, the company believes that the superlative financial performance is not likely to be sustained and expects moderation in the coming quarters.

Healthcare stocks are trading firm led by Wockhardt, Bilcare, Dishman Pharma and Lupin. As reported by the Hindu Business Line, Aurobindo Pharma announced to that it has received final approvals from the US Food and Drug Administration (USFDA) for manufacturing and marketing 'montelukast sodium tablets' and montelukast sodium chewable tablets in the US. Given that the annual sales (the 12-month period ended March 2012) of the former are in the region of US$ 3.5 bn (about Rs 190 bn), while that of the latter is about US$ 1.1 bn (about Rs 60.5 bn); this provides a big market for Aurobindo Pharma. Montelukast Sodium is used in the treatment of prophylaxis and chronic treatment of asthma, prevention of exercise-induced broncho-constriction in patients older than 15 years of age. With these approvals, the company is believed to now have received a total of 157 bulk drug approvals from the US FDA.

Oil and Gas stocks lead the rally
11:30 am

Indian equity markets continued to trade strong over the last two hours of trade on back of heavy buying activity witnessed across industry heavyweights. Oil and gas and realty stocks witnessed maximum buying interest.

The Sensex today is up by 228 points, while the NSE-Nifty today is up by 70 points. BSE Mid Cap index and the BSE Small Cap index are up by 1.11% and 1.43% respectively. The rupee is trading at 55.35 to the US dollar.

Energy stocks are trading strong led by Reliance Industries and Castrol. According to a leading financial daily, Gas Authority Of India Ltd. (GAIL) and Vadodara Municipal Corporation (VMC) are all set to form a joint venture (JV) for supply of natural gas in the city of Vadodara and its surrounding areas. All the required formalities have been completed and the proposal of this joint venture company would come before the general body of the VMC on August 8. Once the new company comes into existence, it is expected to provide over 85,000 gas piped connections in the city, in addition to the existing 78,000 connections. GAIL presently has allocated one lakh cubic metres of gas for the city, which will be increased to provide more gas connections for domestic, non-domestic and industrial sector. The new proposed JV company will have six directors, with three representatives each from VMC and GAIL.

Pharma stocks are trading in the green led by Wockhardt and Glenmark Pharma. According to a leading financial daily, Cipla is planning to set up active pharmaceutical ingredients (API) facilities at Patalganga, Bengaluru and Kurkumbh. The company is planning to invest Rs 5 bn towards setting up of these facilities which are expected to be completed by FY13. The company is actively involved in developing bio- similars/ bio-therapeutic products through its partners in China. It is expected that the clinical trials on these drugs will be completed in 2-3 years and subsequently, the products will be launched in India. The company is also expanding its presence in the inhaler segment in Europe, with regulatory approvals for a few products already in place and few more in the pipeline.

Indian share markets open firm
09:30 am

All Asian stock markets have opened the day on a firm note with markets in Hong Kong (up 2.0%), Japan (up 1.2%) and South Korea (up 2.0%) leading the gains in the region. The Indian share market indices have also opened the day on a positive note. All sectoral stocks are trading in the green led by metal and banking sector.

The Sensex today is up by around 160 points (0.9%) and the NSE-Nifty is up by around 50 points (0.9%). The Mid and Small cap stocks are trading in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.1% and 0.7% respectively. The rupee is trading at Rs 55.27 to the US dollar.

Telecom stocks have mainly opened on a firm note led by ITI Ltd and Reliance Communications. As per a leading financial daily, mobile phone companies intend to drag Government to court over recent policy decisions regarding spectrum auctions. The development could delay the spectrum sale process. As per the director-general of the Cellular Operators Association of India (COAI) , the industry body representing the GSM telecom companies like Bharti Airtel, Vodafone and Aircel is looking at legal options regarding as many as five key policy decisions linked to the spectrum sale. These include discrimination in terms of payment for airwaves secured in the auctions and spectrum usage charge between GSM and CDMA companies. Idea Cellular also plans to approach the courts separately over the government's decision to limit the spectrum sale to a maximum of 13.75 MHz in every region. It could lead to chances of only two mobile phone companies winning back their cancelled permits. Earlier in February, the Supreme Court had cancelled licences of nine operators in February and directed the government to issue fresh permits through an auction.

Oil and Gas stocks have opened mainly in green led by Castrol and Reliance Industries Ltd. As per a leading financial daily, Reliance Industries Ltd. has agreed to oil minister Mr. Jaipal Reddy's demand to share the accounts of KG D6 with the national auditor under the terms of the production sharing contract (PSC) ahead of a crucial meeting of the block's management committee. In return, the company has been assured that the Government will speed up approval of various proposals in four blocks including KG D6. After a year of tension between oil ministry and RIL, the management committee (MC) of RIL'S KG-D6 is scheduled to consider commercial viability of the three new gas discoveries on Tuesday. It is important to note here that the Government has been blaming RIL for the sharp fall in D6 output while company says production fell because of geological complexities. The meeting will consider "declaration of commerciality" of the D29, D30 and D31 discoveries in the KG-D6 block, which were submitted for government's approval in February 2010. The company can develop the fields only after this approval.

Why agriculture needs impetus

Everything seems to be slowing in India over the past two years, GDP growth, infrastructure spending, credit growth, power supply etc. The RBI's aggressive rate hikes and policy paralysis are among the many reasons for the same. But, one thing continues to keep India's growth story alive, despite a number of negatives on the macro front. India's rural consumption, especially in interior towns and villages continues to remain strong. The latest consumption figures from the National Sample Survey Organisation (NSSO) show that rural consumption grew 18% in the two years to 2011-12. Poverty fell by roughly 7% in villages and 1% in towns. The town-country gap in incomes narrowed. But, while this looks rosy, this yet has to be properly quantified.

But, looking at a longer 7 year timeframe, i.e. from FY05 to FY12, the annual compound growth in real consumption in both urban and rural areas is less than 4%. It is to be noted that the NSSO captures less than 50% of the consumption reported in the national accounts. However, India's GDP growth was in excess of 8% over this period, thus there is definitely some disparity. This just proves the growing inequality that is crippling our country. It is not a very encouraging state of affairs if the consumption by the rural poor is growing at half the rate at which the overall output is growing.

Growth in any case benefits the well off more than it does the poor. Either way, an around 4% compound annual growth rate in real consumption is a significant achievement by past Indian standards. Their living conditions are improving, and they have been benefiting from higher cash flows. Plus companies catering to rural demand have seen significant volume growth. But, the only way this section of society can develop further is if agriculture were to grow faster. When the agri sector, the part of the economy that that directly engages the bulk of the poor grows, the impact on poverty is much greater than from overall growth. Sadly, the growth in agriculture over the seven-year period has been 3.7% compound.

The government needs to switch from plainly providing subsidies to actually investing in the farm sector . It needs to provide rural areas with well-maintained roads and power supply. It needs to give farmers more strength versus oppressive controls. All this will help produce more growth for the sector as well as in poverty alleviation. Maybe this will help India once again reach its days of 9%+ GDP growth.