Final hour surge

Repeating the trend seen in yesterday's session, the benchmark indices in the Indian stock market surged into the positive territory after a weak start. Speculations of a rate hike by RBI and reports of poor execution of infrastructure projects did not have a very meaningful impact on investor sentiment. The BSE-Sensex finally closed higher by around 167 points (up 1.0%) while the gains on NSE-Nifty stood at around 63 points. The BSE Mid Cap and BSE Small Cap indices edged higher by more than 0.3% each.

While most major Asian indices closed higher, India featured amongst the top gainers. The European markets have started on a positive note. The rupee was trading at Rs 47.5 to the dollar at the time of writing.

Engineering major Bharat Heavy Electricals (BHEL), has bagged an order worth Rs 30 bn from Singareni Collieries, a state-owned mining company. The company has bagged order to supply two 600 MW boiler turbine generators on September 12. BHEL has also participated in bidding for NTPC's Rs 180 bn project for the bulk supply of 800 MW supercritical equipment in which L&T, Bharat Forge, JSW, BGR Energy, Thermax and Doosan have also participated. For FY11, BHEL reported a total order inflow of Rs 605 bn up 2.4% YoY finishing the year with a total order backlog of Rs 1,641 bn. The company is targeting to achieve a net worth of Rs 238 bn in FY12, as it will entail the coveted Maharatna status.

Deputy chairman of the Planning Commission, Mr Montek Singh Ahluwalia has today cited India's inability to meet the US$ 500 bn target for infrastructure investment during the Eleventh Plan (2007- 2012). However, the country will raise at least two US$ 10 bn debt funds for the sector in the next few months. Mr Ahluwalia sees the infrastructure investment targets falling short by around 10% to 12%. However, he believes that the debt funds could bring in additional funding for the twelfth plan period. Over the next five years ending March 2017, India plans to invest US$ 1 trillion in building infrastructure. Given the policy inactions and lack of political will we doubt that the debt funds will ensure better execution during the 12th plan period.

Recently the government relaxed investment norms for FIIs (foreign institutional investors) and increased the investment limit in the long-term infrastructure corporate bonds by US$ 5 bn to US$ 25 bn. However, investment in such infra bonds will come with rider of minimum three years of lock in period and during this lock in period the FIIs cannot trade infra bonds with domestic investors.

Indices stay close to dotted line
01:30 pm

Despite buying interests in select heavyweights, the Indian indices continue to languish close to the dotted line. Stocks from the realty, software and consumer durables space are leading the pack of gainers while those from capital goods, FMCG and metal space are trading weak.

The BSE-Sensex and NSE-Nifty are trading flat. The BSE Mid Cap and BSE Small Cap indices are trading up by 0.2% and 0.1% respectively. The rupee is trading at 47.73 to the US dollar.

Telecome stocks have been trading mixed with Reliance Communications, ITI Ltd and Himachal Futuristic leading the pack of gainers. However, ADC India Communications, AGC Networks and Idea Cellular are trading in the red. As per a leading financial daily, according to the draft telecom policy 2011, it is proposed to have new framework for the telecom sector. In the new framework, there is a proposal of abolishing roaming chargers within India by introduction of a 'one nation-one license' regime for mobile phone companies. The concept of domestic roaming is absent in most of the countries even in the big countries like the US. In India, the country is divided into 22 telecom circles. Hence, customers need to pay if they use their mobile phones in other circles. There is also a proposal to expand mobile number portability facility which would allow consumers to retain their numbers without any domestic circle restrictions. As a result, consumers can retain their numbers when they change their service operators as well as circles.

This proposal is definitely good for Indian mobile phone users. However it would impact the revenues of the telecom companies. Hence, the proposal is going to be objected by telecom companies. At present, the telecom companies generate Rs 130-140 bn or around 10% of total revenues from roaming services.

Power stocks have been trading mixed as well with Gujarat Industries Power, Jaiprakash Power and CESC Ltd leading the pack of gainers. However, Reliance Infrastructure, GVK Power and PTC India Ltd are trading weak. As per a leading financial daily, due to lack of logistical infrastructure, Coal India communicated to NTPC that it will not be able to import fuels and get delivered at the doorsteps of various power plants of NTPC. As a result, NTPC Ltd, the largest Indian Power producer, has cancelled a deal with Coal India Ltd to import fuel to feed its various power plants. As per a coal India official, the company is not in a position to provide end-to-end services. Earlier Coal India tried to rope in Indian Railways for the logistics. It also attempted to make a joint venture with the Shipping Corporation of India for imports. But nothing worked for the company. Now NTPC is again planning to invite bids to import fuels.

Markets shed all their gains
11:30 am

After opening on a positive note, Indian stock market indices shed all their gains during the previous two hours of trade and are now trading in the red. All sectoral indices are out of favour, except for realty and consumer durable stocks.

The BSE-Sensex is down by 140 points and NSE-Nifty is down by 27 points. BSE Mid Cap and BSE Small Cap indices are also down by 0.1% and 0.2% respectively. The rupee is trading at 47.82 to the US dollar.

PSU banking stocks are trading strong led by Union Bank and Punjab & Sind Bank. According to a leading financial daily, the government of India may soon allow the PSU banks to source funds from the equity markets. This is being done with the aim of funding their expansion plans. However, the minimum stake of the government will have to be maintained at 51%. Presently, the government holds 58% stake in 6 of these banks and less than 58% in three. This paves the way for the Follow-on-offer (FPO) of State Bank of India. It must be noted that this state run bank requires Rs 200 bn for its expansion plans.

IT stocks are trading weak. Patni Computers and Mphasis are the biggest gainers, while Infosys and Financial Technologies are the biggest losers. According to a leading financial daily, Infosys is the frontrunner to acquire the health care business of Thomson Reuters. The deal is estimated to be worth approximately US$ 700 m. The health care unit is a provider of data, analytics and performance benchmarking solutions and services to companies, government agencies and health care professionals. This acquisition is a part of Infosys' strategy to diversify beyond banking services. The IT company had earlier maintained that healthcare is one of the key focus areas going forward. This is because health care, as a part of revenue contribution, was just about 1.1% at the end of the quarter ended June 2011. This is far less compared to Wipro which had 11% and Tata Consultancy Services (TCS) which had 6% contribution from healthcare.

Indian stock markets open firm
09:30 am

Most Asian stock markets have opened the day on a firm note. Stock markets in Japan (up 1.5%), Taiwan (up 2.3%) and South Korea (up 1.7%) are leading the pack of gainers. However, the markets in Indonesia (down 1.3%) are trading weak. The Indian stock markets have opened the day on a firm note as well. Realty, metal and IT stocks are leading the gains.

The BSE-Sensex is trading higher by around 66 points (0.4%), the NSE-Nifty is up by around 21 points (0.4%). The midcap and smallcap stocks are in the positive as well with both the BSE Mid Cap and BSE Small Cap indices up by 0.5% and 0.4% respectively. The rupee is trading at 47.71 to the US dollar.

Steel stocks have opened the day on a firm note with Tata Steel, JSW Steel, Jindal Steel and Steel Authority of India Ltd (SAIL) leading the gains. Over the next four years, Indian steel major Tata Steel plans to cut about 1,000 full-time jobs at Ljmuiden plant in the Netherlands. While engaging in such cost cutting measures, the company also plans to invest about Euro 800 m (approximately Rs 52.2 bn) in the facility to raise liquid steel production capacity by 0.5 m tonnes (mt) to 7.7 mt and enhance product quality over the next five years. The cutting of jobs is part of the company's "Improvement Programme", which is a five-year plan designed to sustain the potential of the plant by reducing costs and improving product quality.

Aluminium stocks have opened the day on a firm note with Hindalco Industries and National Aluminium Company Ltd (Nalco) trading in the green. Due to short supply of coal, state-owned steel major Nalco has finally resorted to importing the same. It has placed an order to import about 2 lakh tonnes of coal. The supply glut has been caused due to the heavy rains and floods in Orissa. The company procures coal from Mahanadi Coalfields for its 1,200 MW thermal captive power plant at Angul in Orissa. This plant supplies power to the company's aluminium smelter located nearby. As a result of the supply shortage, the company had been receiving only 7,400 tonnes of coal per day over the last two weeks as against the daily requirement of 12,000 tonnes. This in turn caused the company to incur losses of about Rs 10 m per day.

Is bad news actually good news?

Greece is once again at the brink of default, and European banks holding Greek debt are now under the scanner. Globally there are fears that this would set off another financial crisis which may be even worse than the one seen in 2008, post Lehman Brothers' collapse. The world's largest and most indebted economy, the US is also facing its own set of issues. Americans are staring at a lost decade, where people are worse off now than they were in the 90s. Unemployment is high and the future outlook is gloomy.

With so much uncertainty and negative sentiment on the horizon, mutual fund managers are refusing to bet on the equity markets. They have cut their positions in equities and are instead sacredly holding onto cash. Average cash balances are at a high 4.9%. Plus, for the first time since May 2009, fund managers are underweight on equities. Even hedge funds have cut their net exposure to equities to 19% as opposed to 33% in August, the lowest level in 15 months. According to Bank of America Merrill Lynch, risk appetite is at a 30 month low.

Well, wouldn't you prefer to visit the shopping mall when there was no one around? You could leisurely browse along and not even have to wait in a line at the cash counter. Well, in this market with few buyers and a number of sellers, you can leisurely take your pick. But the question is, are you brave enough?

Global markets may see a rally if there are positive policy announcements. However, even Bernanke's Jackson Hole speech and Obama's jobs statement failed to enthuse markets. People are struggling to see what kind of positive information could propel markets further. There are fears that deterioration in current economic sentiment may affect stocks and commodities further.

Fund managers, however, continue to be bullish on emerging markets. But, things are not all hunky-dory, especially in India. The BSE-Sensex is down around 20% since the start of the year. The rupee has also depreciated significantly on account of huge FII outflows in August 2011. The Indian rupee recently hit a 15 month low at Rs 47.6 against the US dollar. Currency depreciation and higher crude prices could put additional pressure on India's oil bill and thus its current account deficit. The latest IIP (Index of Industrial Production) growth data of 3.3% in July is also far from comforting.

But there are a few silver linings. Valuations in Indian markets are getting cheaper with more and more bad news floating around. Bluechips are at their 52 week lows, and bears are flooding the market. So now is an opportunity to pick up good stocks at reasonable valuations from a long term perspective. Going forward, various reforms and moderation in central bank's aggressive interest rate stance may act as positive drivers for the stockmarkets and the broader economy.