Gains sustained till the end

The Indian markets threatened to close below the breakeven point during the closing hours. However, they recovered just in the nick of time and thus, enabled the indices to close the day with some sort of gains. The BSE Sensex logged in gains of around 50 points (up 0.3%), whereas NSE Nifty closed higher by around 15 points (up 0.3%). BSE Midcap and small cap indices witnessed contrasting trends with the former edging marginally higher and the latter ending marginally lower. Nearly 2 stocks gained for every 1 that declined on the Sensex today. It were the financial institutions like HDFC and SBI that contributed in a big way to the gains on the Sensex.

Most Asian indices also closed in the positive today whereas Europe too has opened on a strong note. The rupee was perched at Rs 46.8 to the dollar at the time of writing.

As per a leading daily, (small cement companies) are likely to face the heat in the near to medium term. This is because the best days for the industry seem to be behind it and going forward, it will be a battle for survival. It should be noted that the Indian cement industry is highly consolidated with the top two groups accounting for 40% of the industry’s capacity. These large entities are better placed as they have a pan Indian presence and hence, slowdown in one region can be compensated to some extent by the growth in other regions. However, smaller players with presence concentrated in just one region, do not have any such luxury.

Thus, if prices were to tumble in their region, their profitability is likely to take a significant hit. A lot of midsized companies are looking at expanding in other regions but with cement being a long gestation project, there aren’t many who would like to take the bet. Looks like the smaller players will increasingly be at the mercy of the larger players. Sector stocks closed mixed today with Birla Corp and Ultratech amongst the gainers whereas smaller players like Prism and Mangalam Cement ending up on the losing side.

Telecom stocks also closed mixed today with two biggies Bharti Airtel and Reliance Communications ending higher and lower respectively. Meanwhile, Vodafone Essar, India’s 3rd largest company has shelved for now, its plans of getting listed on the bourses. As per a daily, the decision comes after consultations with various investment banks who last month participated in a beauty parade to bag a mandate for the IPO. If successful, the IPO would have raised close to US$ 1.5 bn for the company and its promoters combined. Although the company has not spelled out the reasons for not going ahead with the IPO, it may have to do with the volatile nature of the markets currently and the slew of other IPOs that it would have had to compete with. Furthermore, with telecom stocks not exactly catching fire these days, enthusiasm for a huge telecom IPO could well have been pretty muted.

FMCG stocks up on price hikes
01:30 pm

The Indian indices have been trading moderately in the green, since opening in the morning. While IT and oil & gas stocks are seeing the maximum sell-off at the moment, FMCG and banking stocks are seeing some buying interest.

The BSE-Sensex is currently trading up by around 52 points (up 0.3%), while the NSE-Nifty is up by about 15 points. Mid and small cap stocks are also seeing some interest with the BSE-Midcap and BSE-Smallcap indices trading lower by 0.5% and 0.7% respectively. The rupee is trading at 46.83 to the US dollar.

Auto stocks are currently trading positive led by Escorts, and Ashok Leyland. According to a leading business daily Maruti Suzuki plans to set up a third plant at its Manesar unit. This will lead to an investment of Rs 17 bn and the plant will have an annual capacity of 250,000 units per year. Currently, the company is working on increasing the capacity of its second plant at the Manesar unit with similar investments and capacity additions. This second phase is expected to be operational by 2012.

The company's Manesar plant currently has an annual production capacity of 300,000 cars, while its Gurgaon plant produces 700,000 units per annum. Recently the company's CEO Shinzo Nakanishi stated that the Indian car market is likely to double to 5 m units by 2015. The company seems to be well on its way to meet the growing demand in order to maintain its market leadership position.

FMCG stocks are trading mixed with Camlin and Nirma trading firm while HUL and Paper Products are trading weak. As per a leading financial daily, after HUL, Marico has announced a price hike on its products. The company has announced price hikes of approximately 3% and 5% on Saffola and Parachute respectively. As per the company, increasing price trend in copra has necessitated the price increase in Parachute. However, the company has not increased the price of smaller or recruiter packs. The price increase in Saffola is actually a price correction as during the last financial year, the price of Saffola was brought down by 10% due to competitive pressure.

In fact even Godrej is considering a price hike or alternatively a grammage reduction in its brands due to the rising cost of palm oil. In may be recalled that two years ago HUL had increased its soap prices in response to input cost pressure. On the other hand Godrej had opted to hold on to its prices. The result was that Godrej managed to gain market share at HUL's expense. Under such circumstances Godrej's move will be watched closely by HUL.

Smallcaps & midcaps lead gains
11:30 am

After starting today's session on a positive note, Indian indices have managed to stay in the green. Other key Asian markets are all trading in positive territory as well with China (up 0.7%) leading the pack of gainers. Currently heavyweights in the Sensex are trading weak with stocks from FMCG and banking space witnessing gains. However, stocks from IT and oil & gas space are trading negative.

Currently, the BSE-Sensex is trading up by around 45 points, while the NSE-Nifty is up by about 11 points. Some buying interest amongst the mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.5% and 0.6% respectively. The rupee is trading at 46.83 to the US dollar.

FMCG stocks are trading positive with Godrej Consumer and ITC leading the gains. Hindustan Unilever (HUL) has raised prices of its major soap brands 'Lux' and 'Lifebuoy' by Rs 1 each and has cut product weight while retaining the price. The cut in the weight (grammage) of Lux soap means the company has effectively hiked prices by 10%. The two soap brands contribute 67% of HUL's soap segment revenues. This is the first price hike the company has taken in 20 months. The company was earlier trying to focus on regaining market share in light of increasing competition. However, it is now trying to focus on increasing profitability.

These price increases are mainly for offsetting higher raw material costs. Prices of palm oil, a key ingredient in soap making were up 20% in July, and still continue to trade higher. In 1QFY11, the company's operating margins fell by 1.9% during the quarter to stand at 14%. This move, to increase prices, indicates that pricing power is coming back to the company. Further price hikes are expected in the near future to help improve margins.

Oil & gas stocks are trading mixed with HPCL leading the gains. Cairn India was one of the biggest losers. Post signing the non-compete agreement with ADAG, Mukesh Ambani run, Reliance Industries made a strong move into telecom. And now it is entering the financial services space as well. According to a leading business daily, the company is close to inking a deal with DE Shaw to launch a US$ 700-800 m infrastructure fund. Besides the fund activities, the two are also looking at carbon trading and other areas. The exact financial terms of the tie-up are yet not disclosed.

FMCG stocks lead markets higher
09:30 am

The Indian markets have started today's session on a positive note. The benchmark indices opened above the breakeven mark and have stayed in the positive territory. Other key Asian markets are in the green with China (up 0.7%) leading the pack of gainers. The US markets closed higher by 0.2% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with FMCG and realty majors finding investors' favour. The BSE-Sensex is trading higher by around 45 points, while the NSE-Nifty is up by about 15 points. Buying interest is also being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.5% and 0.6% respectively. The rupee is trading at 46.92 to the US dollar.

Pharma stocks have opened the day on a positive note. Gainers here include Glenmark and Ranbaxy. As per a leading business daily, Cipla plans to invest Rs 10 bn in factories, expansion of existing facilities and infrastructure. The company is setting up a new research and development (R&D) centre at Patalganga in Navi Mumbai and is expanding the Vikhroli R&D unit in Mumbai. It will also invest in biotechnology, in China and India. The company will also acquire Meditab Specialities, a promoter group company, for Rs 1.3 bn. It has also entered into a deal to invest about Rs 500 m in Stempeutics Research to access stem cell-based therapies. Moreover, a factory to produce reverse engineered versions of biotech drugs is in the process of completion in Goa. The first products will be launched in early 2012. Earlier, the company had indicated that it would invest Rs 3 bn over three years to acquire 40% in a biotech company in India, and 25% in a Hong Kong-based company with manufacturing units in Shanghai.

Auto stocks have opened the day on a strong note. Gainers here include TVS Motor and Eicher Motor. As per a leading business daily, Tata Motors is looking at joint development of compact engines with Jaguar and Land Rover (JLR). The two companies intend to jointly develop smaller engines that could be fitted on vehicles of all the three brands - Jaguar, Land Rover and Tata Motors. It may be noted that JLR is facing pressure due to emission norms in Europe and will have to start downsizing their engines. The engines for JLR are currently supplied by Ford. Tata Motors can combine its knowledge in compact engines as well as low-cost development with the R&D expertise of JLR. Interestingly, this development comes at a time when Tata Motors is looking at assembling the Land Rover in India, to bring down its cost and increase its market potential.

Current interest rates are too risky

It is time China, US and Europe do what India did. Infact, India has done it four times in the past five months. On the other hand, countries like Malaysia, South Korea, Taiwan and Thailand have done it at least once this year. We reckon you should have guessed it by now. In case you haven't, we are talking of interest rates.

Jim Rogers, one of the most famous investors of our times, has opined that most countries increase interest rates to contain a surge in inflation. "Everyone should be raising interest rates, they are too low worldwide", Rogers is believed to have told Bloomberg.

Indeed. China's central bank has not increased rates since November 2007. The US Federal Reserve's policy of keeping interest rates at record lows has been in existence for more than 18 months now. And the European Central Bank has kept its key interest rate at a record low of 1%. Thus, all of these major economies seemed to have kept interest rates too low for too long. This strategy has often proved to be disastrous in the past. And there is no reason why it may not lead to the same outcome in the future as well.

Rogers believes that the world never got out of the first recession. He further added that the Chinese economy is a fraction of the US and Europe combined whereas the Indian economy is a quarter of China. Thus, even if both these economies were to grow, they won't be able to bail out the whole world.

Little wonder, Rogers is continuing to stock up on commodities. A slowdown from here would prompt Governments to go in for a fresh round of money printing and this would lead to further currency devaluation. Thus, as per Rogers, commodities are the way to go. "Commodities will go above their old high sometimes in the next decade even if they grow 5%-6% annually", the bow tie sporting investor is believed to have said.

We believe that Rogers has covered himself quite well here. Even if his thesis of a continued recession is wrong, inflation and economic growth would ensure that commodities still scale new highs. Thus, recession or not, commodities seem destined to go higher.

Investors in India though can also invest in good quality stocks apart from commodities. For economic growth in the long term is not an issue for India and thus, good quality stocks provide an attractive avenue for enhancing wealth just as commodities are likely to do.