Sensex reclaims 17k

Profit booking towards the fag end led indices in the Indian stock market to shed some gains. However, they still managed to close the day in the positive territory and the BSE-Sensex was able to stay above the psychologically crucial mark of 17,000. It finally closed higher by around 200 points (up 1.1%) while the gains on NSE-Nifty stood at around 60 points. The BSE Mid Cap and BSE Small Cap indices also performed well, edging higher by more than 1% each. On the Sensex, around 4 stocks closed in the positive for every one that closed in the red.

Almost all the major Asian indices closed the day in the green while Europe is also trading in the positive territory currently. The rupee was trading at Rs 46.1 to the dollar at the time of writing.

It can be recalled that the markets staged a late recovery yesterday after opening the day on a negative note. However, there were no such worries today as the market looked in prime form right from the beginning and kept on gaining strength with each passing hour. Although the last hour and a half did see the indices coming off the day's highs, they nevertheless closed comfortably in the positive. Today's gains seemed to have come on the back of bargain hunting in Asian stocks as a steep sell off in recent times made most of the regional counters appear attractive again.

As per reports, Oil and Natural Gas Corporation Ltd. (ONGC) , the state owned oil exploration and production major has finally started pumping oil from a deep sea field in the prolific KG Basin. With this development, the company marks its entry in the promising high tech area, boosting its prospects to find more oil. It should be noted that although the KG Basin is rich in hydrocarbons, the region is not without its fair share of technological challenges and extreme conditions. ONGC is currently producing around 2,000 barrels of oil per day. The concerned blocks hold around 21 m tonne of oil reserves and oil equivalent gas. The project is five years behind schedule and ran into problems on account of an Australia contractor quitting midway due to bankruptcy. The stock of ONGC closed marginally higher today.

State Bank Of India (SBI), India's largest bank, also witnessed significant buying activity today and closed nearly 3% higher. As per reports, the bank has introduced a state of the art technology platform for financing its supply chain partners by using its internet banking platform. The advantage of this platform is that a corporate can upload the details of invoices raised by their suppliers and the details of invoices covering the supplies made to the dealers on SBI's internet banking platform. This would result into real time transfer and automated settlement of funds. Currently, 43 major corporates across a wide variety of industries are using this platform. It should be noted that the platform provides for both vendor as well as dealer financing.

Indian stock markets extend gains
01:30 pm

The Indian stock market extended gains over the last two hours of trade due to sustained buying interests in heavyweights. All sectoral indices are trading in the green. Stocks from the banking, metal, capital goods, power and realty space are leading the pack of gainers.

The BSE-Sensex is trading up by 222 points while NSE-Nifty is trading 70 points above yesterday's closing. The BSE Mid Cap and BSE Small Cap indices are trading up by 1.4% and 1.6% respectively. The rupee is trading at 46.01 to the US dollar.

Power stocks have been trading firm with Jaiprakash Power, Tata Power, Torrent Power and Coal India leading the pack of gainers. However, Gujarat Industries Power is trading in the red. As per a leading financial daily, Tata Power's flagship Ultra Mega Power Project (UMPP) at Mundra in Gujarat's Kutch district may face adverse impact of higher imported coal costs after the change in mining laws by the Indonesian government. However, part of the costs will be compensated by higher coal realisations, due to its stake in Indonesian coal mines. The industry reports suggest that the Gujarat government, which had signed to buy about 2,000 MW from there, is not inclined to pay the higher costs. The company is speaking to the Union government for a rate increase as well as planning other measures to mitigate the impact. The project is expected to be fully commissioned by 2012-13. It was awarded to Tata Power through competitive bidding, on a rate of Rs 2.26 per unit. In the original coal supply contract, Mundra UMPP was to get 75% of the coal at index-linked prices, and the rest 25% was to be supplied at a lower price (about $40 per tonne), fixed for five years. After five years, the entire quantity would come at market prices. However, with the change in mining policy, the fuel costs are expected to rise by about $30-40 per tonne and hence, the project is estimated to incur losses if the company is unable to pass on the higher costs.

Steel stocks have been trading firm as well with Tayo Rolls, Steel Authority of India Ltd (SAIL), Tata Sponge and Metals and Minerals Trading Corporation of India Ltd. (MMTC) leading the pack of gainers. However, Gujarat Mineral Development Corporation is trading weak. As per a leading financial daily, a consortium of Indian steel and mining firms led by SAIL has bid for mining concession of four blocks at Hajigak Iron Ore Mines in Afghanistan. The firm has proposed to set up a steel plant in the country. The blocks are estimated to have reserve of around 1.8 billion tonne of high-quality magnetite with 62-63% iron content. The Indian consortium faces competition with five other global bidders. The name of the preferred and reserved winners will be announced next month. The expected date for the same is October 4.

Banks lead the rally
11:30 am

Indian stock market indices traded in the positive during the previous two hours of trade led by buying witnessed in index heavyweights. All sectoral indices are trading in the green except for FMCG and auto stocks.

The BSE-Sensex is up by 143 points and NSE-Nifty is up by 50 points. BSE Mid Cap and BSE Small Cap indices are also up by 1.0% and 1.2% respectively. The rupee is trading at 46.03 to the US dollar.

Retailing stocks are trading in the green led by Koutons Retail and Zodiac Clothing. As per a leading financial daily, branded jewellery retailers are now venturing into the rural markets. This is because of the changing taste and preferences of the rural consumers. They are now more open to contemporary designs and styles. As per World Gold Council, rural and semi-urban markets make up 60% of the country's Rs 700 bn gold jewellery market.

Titan's Tanishq has launched a separate brand "GoldPlus" aimed specifically at semi-urban and rural areas. Shree Ganesh Jewellery plans to open 250 outlets mainly in Tier II and Tier III cities such as Lucknow, Jodhpur and Kochi to cater to the growing demand there. Almost 2/3 rd of all new jewellery outlets being opened by retailers will be in small towns.

Telecom stocks are trading firm. Reliance Communication and Tata Communication are the biggest gainers. According to a leading financial daily, mobile tariffs are set to go up further due to rising costs. The telecom operators have to service the rural customers as well who do not use any value added services thereby resulting in loss of revenue and higher operating costs overall. The rural customers use phones only for voice calls and text messages.

It may be noted that Indian mobile users have been enjoying the lowest tariffs in the world. The telecom companies thus have been reeling under the burden of low tariffs, high competition and high debt levels as a result of newly launched 3G (Third Generation) and broadband wireless access services. In such a scenario, the management of telecom companies feel that hike in tariffs is inevitable going forward.

Realty stocks lead Indian markets
09:30 am

Asian stock markets have opened the day on a firm note. Stock markets in South Korea (up 2.7%), Japan (up 1.7%), Hong Kong (up 1.2%), China (up 1.1%) and Indonesia (up 1%) are trading in the green. Indian stock market too have opened the day on a firm note. Stocks in the Realty and Banking space are leading the gains.

The BSE-Sensex is trading up by 150 points (0.9%) and the NSE-Nifty is up by around 35 points (0.7%). BSE Midcap and BSE Small cap stocks are trading in the green, with the BSE Mid Cap and BSE Small Cap indices are up by 0.8% and 0.6% respectively. The rupee is trading at 45.89 to the US dollar.

Power stocks have opened the day on a firm note with Jaiprakash Power and National Thermal Power Corporation (NTPC) in the green. Public sector unit, NTPC, has decided to venture in the international market. This is its first overseas venture and will operate a US$ 700 m coal-based power plant in Sri Lanka. It has entered into a JV with Ceylon Electricity Board (CEB) and will be a part of establishing a 500 MW plant (2x250 MW) in the eastern part of Sri Lanka. Both the companies will have equity in the JV and the JV will be incorporated in Sri Lanka. Once the JV will be incorporated, both the companies will go ahead with the remaining documentation and agreements including the power purchase agreement with CEB, board of investment agreement with the Board of Investment and implementation agreement with the Government of Sri Lanka. The agreements are ready and the project is expected to achieve a financial closure in this financial year.

Pharma stocks have opened the day on a firm note with Ranbaxy Laboratories, Aurobindo Pharma and Cadila Healthcare leading the gains. Cipla, the second largest Indian pharma company, has shut down two of its four marketing divisions. The company has said that the rationalisation move was taken to improve distribution and thus, productivity. The two divisions, Protec and Omnicare, sold generic products and generated sales worth Rs 5 bn. The company has also stated that it will not be slashing any of its products. Cipla has a strong sales force comprising 7,000 sales representatives. By far, this is the largest in the industry. The company sells over 2,000 products in 65 therapeutic areas.

How else can the govt. tame inflation?

It's inflation versus growth rate again. This time, the inverse relation is even stronger, as macro economic conditions deteriorate. The GDP for the first quarter came at 7.7%, and as per FICCI, we should not be surprised if it further slips to 7.5%. The gravity of the situation can be assessed from the fact that fiscal deficit during 2QFY11 worsened to 55% of the annual budget estimate, as compared to 24% last year accompanied with slippage on the revenue side as well. That means that we are no better than the US when it comes to maintaining fiscal discipline.

The Indian economy seems to be taking a hit from all the directions. The manufacturing sector has slowed down. The outlook for the agriculture sector looks gloomy due to an unfavorable monsoon forecast. To make things worse, the service sector, which accounts for more than 50% of the GDP, will suffer slowdown in exports, especially in the software segment.

In such a scenario, hiking interest rates will slow the engine of the Indian economy. But does the Government have an option? Well, as per FICCI, these are the times to experiment with supply side measures. Since food inflation is the prime culprit, allowing free movement of commodities could be a solution. This will require a major reform in the Agricultural Produce Market Committee (APMC) mechanism. Under the current system, the farmers have to sell their produce to agents or traders under supervision of the APMC. This makes them vulnerable to traders' and marketing agents' price manipulations. And this is just one of the multiple reforms waiting to be undertaken. The other beneficiary could be the retail sector. It's time to go for FDI in multibrand retail as it will spur up investments and spruce up logistics.

To conclude, the need of the hour is to work on supply dynamics to ease inflationary pressure without sacrificing growth. This will require a flexible business environment that can facilitate investments, not to mention the various regulatory reforms waiting for the light of day.