FMCG, realty lead the surge

After two days of weakness, Indian markets gained today, led by buying in stocks from the realty and FMCG sectors. IT and power stocks however performed the worst today. On the broader BSE, almost two stocks gained for every one that closed in the negative.

The BSE Sensex and NSE Nifty closed with gains of around 185 points (0.9%) and 50 points (0.9%) respectively. Midcap and smallcap stocks followed suit, as the BSE Midcap and BSE Smallcap indices closed up by around 1% each. The rupee was trading at 45.28 to the US dollar at the time of writing this.

Realty stocks led today's rally. The BSE-Realty index closed with around 1.8% gains, propelled by buying in stocks like Sobha Developers, DLF, and Unitech. The Wall Street Journal carries a column on how the Indian banking sector has entered a high risk phase via lending to realty companies. The report states that Indian banks' lending to the real estate sector has grown at an average annual growth rate of 40% over the past four years. What's even more concerning is that this pace of growth is nearly twice the rate of overall credit growth! Currently, Indian banks' exposure to the realty sector stands at around US$ 21 bn. And this does not even include lending to home buyers but is entirely the amount lent to builders. Also interestingly, many of these builders are unlisted or have poor public credit ratings.

The situation looks worse in light of the fact that these borrowers, i.e., real estate builders have not seen a revival in demand, especially given they themselves have jacked up prices of properties. And as per Deepak Parekh, the chairman of India's leading lender for housing HDFC, "If the developers don't lower the prices and clear the existing stock, there could be a problem very soon." Amidst this thus, it will be interesting to see how the banks fare with their realty loan assets, which might indeed become huge liabilities in the future. Anyways, banking stocks closed strong today, led by gains in ING Vysya Bank, HDFC Bank, and IDBI Bank.

Power stocks also closed strong today, led by GVK Power, PTC, and Tata Power. Like all companies looking to raise funds or unlock value and thus receiving buying interest, today's gains in the power trading major PTC was on the back of reports that the company is looking to file documents for the IPO of its finance arm. PTC Financial Services (PFS) is looking to file its offer document with SEBI by mid-October. PTC has a 77% stake in PFS and is planning to retain a 51% holding post the IPO. Other key investors in the company include Goldman Sachs and Macquarie, which hold 11.5% each. As reported, PFS is looking to raise around Rs 10 bn to fund power projects.

Stocks from the IT sector had a mixed day today. While gains were seen in HCL Tech and Infosys, selling pressure marked trading in Tech Mahindra and TCS. A leading business daily has reported that the Indian IT sector might see some consolidation in the coming quarters. This is given that mid-size companies are finding it hard to sustain businesses on the back of slowdown in the US and European markets. However, we are not sure of this given that the large IT companies that have hordes of cash, might not be interested in buying out their peers in the similar businesses. And given that there aren't many small and mid-size Indian IT companies that are doing much extraordinary work like product development, consolidation might not be a buzzword.

FMCG stocks on a tear!
01:30 pm

Persistent buying activity led the Indian markets to rise higher into the positive territory during the previous two hours of trade. Currently stocks from the consumer durables, realty and FMCG spaces are amongst the top gainers, while those from the IT and metal indices are the top underperformers. The market sentiment is optimistic as there are 1.8 gainers for every loser on the overall BSE.

The BSE-Sensex is trading higher by around 110 points (up 0.6%), while the NSE-Nifty is up by about 35 points (up 0.6%). Stocks from the small and midcap spaces are however seeing more interest as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.8% and 1.0% respectively. The rupee is trading at 45.52 to the US dollar.

Stocks of pharmaceutical companies are currently trading firm led by Dishman Pharma, Biocon and Ipca Labs. The stock of Aurobindo Pharma is also trading firm on news of the company receiving final approvals from the US health regulator, the US FDA (Food and Drug Administration), to sell its generic 'Ampicillin' and 'Sulbactam' for injections in multiple strengths. The FDA is believed to have approved three Abbreviated New Drug Applications (ANDA) for these injections. These are used to treat skin infections, abdominal and gynecological infections. The Ampicillin and Sulbactam for injection is a generic version of Pfizer's drug ‘Unasyn’, which is believed to have a market size of US$ 50 m (approximately Rs 2.3 bn) as of June 2009. This is a positive for the company and will enable it to bolster revenues from the highly competitive US generics market.

FMCG stocks have seen a sharp increase in price over the last few days with the BSE-FMCG index registering an increase of about 10% in the last 30 days. In fact, heavy weights like HUL and ITC have grown even fast, registering a growth of over 12.5% and over 10.5% respectively during the same period.

One of the reasons for this has been the recent price hikes taken the industry as a whole to protect margins. Another reason is that the BSE-FMCG index had been an under performer over the past year due to high valuations of FMCG companies. However, the recent FII funds entering the country have seen investing into this sector as a hedge against their other investments thereby pushing up the valuations further.

Markets hold on to gains
11:30 am

After starting today's session on a positive note, Indian indices have managed to hold on to their gains. However, other key Asian markets are trading mixed with the Hang Seng trading higher and Nikkei in the red. Currently heavyweights in the Sensex are trading mixed with stocks from the FMCG and consumer durables space finding investors' favour.

Currently, the BSE-Sensex is trading up by around 66 points, while the NSE-Nifty is up by about 18 points. Strong buying interest is witnessed amongst the mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading up by 0.7% and 1.0% respectively. The rupee is trading at 45.55 to the US dollar.

Telecom stocks are trading positive with Bharti Airtel and RCom leading the gains. Bharti Airtel has become the first Indian mobile operator to receive a license from the RBI to offer mobile-payment services. The RBI has earlier granted the license to use the 'semi-closed mobile wallet' earlier in this quarter. The central bank's approval will enable Airtel to offer mobile-payment services. This will enable its subscribers to exchange physical cash for virtual money stored on the mobile wallet. Consumers can use the prepaid wallet at partner merchants for purchases; however they cannot use it to withdraw cash. Customers can use their phones to pay for goods and services for transaction valued at less than Rs 5,000 rupees (US$ 109) at specified merchant locations. Bharti plans to disclose more details on how the system conducts payments closer to the product's launch.

Earlier this month, BSNL launched a service that enabling customers who have credit cards to pay their bills using their mobile phones. Nokia India also partnered with Yes Bank and Obopay India Pvt. Ltd. to offer a limited trial for mobile payments.

Auto stocks are trading strong with TVS Motors and Maruti Suzuki leading the gains. However, M&M and Tata Motors are trading weak. As per a leading news daily, Tata Motors is geared up to launch new range of buses in the last quarter of this fiscal. The buses will be built at the company's Dharwad plant with the help of its JV partner Marcopolo and will be priced at a 5-10% premium over its current medium buses. The company intends to expand production at Dharwad from 1,000 units to 1,400 units a month by the year-end. The new buses will be added in the 7 to 12 tonne category with more feature content. Pricing will be the key here as competition from MNC players and new entrants is heating up. However, in order to de-risk competition, the company is planning to export buses to South Africa and Middle East and is also eyeing the markets of Latin America and Eastern Europe.

FMCG stocks lead markets higher
09:30 am

The Indian markets have started today's session on a positive note. The benchmark indices opened below the breakeven mark but soon moved into the positive territory. Other key Asian markets are in the red with Japan (down 1.3%) leading the pack of losers. The US markets ended lower by 0.7% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with FMCG majors attracting investors' interest. The BSE-Sensex is trading higher by around 30 points, while the NSE-Nifty is up by about 5 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 0.3% and 0.5% respectively. The rupee is trading at 45.6 to the US dollar.

Hotel stocks have opened the day on a positive note. Gainers here include EIH and Taj GVK. As per a leading business daily, Reliance Industries (RIL) and the Oberoi family will increase their shareholding in East India Hotels (EIH) by buying the unsubscribed portion of a Rs 13 bn rights issue. The rights issue was cleared by EIH board. It may be noted that the Oberois hold 32%, down from 46.43% in August, after RIL bought 14.8% stake in EIH. RIL will make an open offer after the rights issue, as its stake will go beyond the 15% threshold set by SEBI. RIL and the Oberois will eventually have an equal stake in EIH. Apparently, EIH is planning to float two new companies. One will operate the hotel chain. It will be controlled by EIH. The other will hold the hotel chain's assets and be controlled by RIL. RIL's presence provides EIH the financial strength to expand its footprint abroad, especially in the US and UK.

Engineering stocks have opened the day on a strong note. Gainers here include Crompton Greaves and Voltamp Transformers. As per a leading business daily, L&T has entered into an agreement with South Africa-based Befula Investments for a joint venture to develop power transmission and distribution projects (T&D) in the African nation. L&T will have a 72.5% stake in the venture. It will help L&T exploit the business potential for T&D projects in Africa. In fact, the South African government is likely to invest US$ 10-12 billion in the next five years in augmenting T&D network in the next five years. The country has a current peak demand shortage of 3,000 mega watts and this is expected to grow by 6% every year.

The only way to make big profits

Everyone wants to make above-average returns from stocks.

However, there's only one way to make really huge profits in the stock markets. And that is to be completely content with the fact that most people won't agree with any particular investment idea that you may have. This may sound surprising at first. More so, because most investors search for a consensus view of things before making any decision. But it is true nonetheless, as you will discover in the rest of the article.

You see, a stock's price is nothing but a function of demand and supply. At a particular price, let's say Rs 500, if most people expect the stock to fetch really big returns within a short time (like 100% or so), then its price wouldn't be Rs 500 in the first place. It will have already and instantly moved up to a much higher level. A level where the profits that can be achieved from that stock come down to a much lower range. Courtesy - demand being significantly more than supply. Demand for a share that is expected to fetch 100% returns in a short while will obviously be much more than the supply of such a share.

So if you yourself are expecting upwards of 100% returns from a stock (the doubling of a stock in other words), you should know while making the purchase that most people don't agree with you. Because as mentioned above, if most did indeed agree with you, the stock wouldn't be selling for that price in the first place.

But this seems to be quite a different from how things really work. Most investors spend considerable time searching for ideas where a lot of people agree with them. Only when they get a green signal from many different quarters do they consider it to be a great investment. In fact, that most people in the media and otherwise should agree with them is considered almost a necessary criterion for something to be considered a good investment.

Thus, it is only when the vast majority do not agree with you that you can get to buy a stock at a price that will give you those kind of supernormal returns. Do not expect such great profits to ever come from an idea that every second person in the papers and on television agrees with. Infact, to make above average returns over a long period of time necessarily means that most people did not agree with you at the time that you made each of those decisions.