Persistent selling mars indices

Indian stock markets traded in the red throughout today's trading session. The indices opened on a weak note and selling pressure intensified in the ensuing hours pushing the indices deeper into the red. That said, in the afternoon session, investors resorted to buying at lower levels which resulted in the markets paring some losses. However, it was not enough and the indices closed below the dotted line in the final trading hour. While the BSE-Sensex closed lower by around 111 points (down 1%), the NSE-Nifty closed lower by around 32 points (down 1%). The BSE Mid Cap and the BSE Small Cap were not spared either as they closed lower by 1% and 2% respectively. Barring IT stocks, all sectoral indices closed in the red today.

As regards global markets, Asian indices closed weak today while European indices have opened on a positive note. The rupee was trading at Rs 49.66 to the dollar at the time of writing.

Food stocks closed in the red today and the key losers here were Britannia, GSK Consumer and Imperial Tobacco Company (ITC). As per a leading business daily, ITC's Personal Care Products Division is looking to foray into the domestic deodorant market. The deos market is valued at about Rs 9 bn and the company wants to capitalise on the fact that this market is growing at a strong rate. That said, this space is already crowded with around 60 players present. It must be noted that ITC is already present in the fragrances market through its Essenza range of fragrances which fall in the premium category. The company has no presence, however, in the deo range priced between Rs 100 and Rs 150, a segment that is quite popular in the country. Whether this business turns out to be profitable for the company remains to be seen given that there is fierce competition in this space. Especially since players such as Wipro, Hindustan Unilever and sports brands such as Reebok and Nike already corner a significant chunk of this market.

As per a leading business daily, Hindalco Industries has outlined an investment of Rs 100 bn in FY12 in its ongoing projects Mahan Aluminium in Madhya Pradesh, Aditya Alumina and Aluminium and Utkal Alumina in Orissa. The company will also invest Rs 7 bn this fiscal to enhance capacity at the Dahej unit of its subsidiary Birla Copper. The latter produces cathodes, continuous cast copper rods and precious metals. The funding for this capex is expected to be through internal accruals given that the company has cash reserves to the tune of Rs 295 bn. That said, there had been a delay in the commissioning of both the Mahan Aluminium and Aditya Alumina projects due to delay in obtaining environment clearances and procuring land. Availability of skilled and semi-skilled labour was also an issue.

On an overall basis, the sovereign debt crisis in Europe and downgrade of USA may lead to more risk aversion in the financial markets and can have adverse impact on investment flows in commodities sector. This could lead to lower aluminium and copper prices on the London Metal Exchange (LME). High input costs and an uncertain regulatory environment as well as subdued profitability of the copper business are likely to keep margins under pressure. The stock closed lower today.

Markets recover from day's lows
01:30 pm

Indian stock market indices recovered in the last two hours of trade but are still trading below the dotted line. All sectoral indices are trading in the red. Consumer Durable and Metal stocks witness maximum selling pressure.

The BSE-Sensex is down 118 points and NSE-Nifty is down 32 points at the moment. BSE Mid Cap and BSE Small Cap indices are down by 1.64% and 1.74% respectively. The rupee is trading at 49.62 to the US dollar.

Software stocks are trading weak with Tech Mahindra and Computer Manufacturing Company Ltd (CMC Ltd.) witnessing maximum selling pressure. As per a leading financial daily, Wipro is likely to sell data centers and other computer hardware assets of its US unit Infocrossing. Wipro had acquired the unit in August 2007 for around Rs 30 bn. The company has obtained initial offers from several US telecom firms for sale of five data centers. The data centers could be worth between US$ 300-400 m.

Energy stocks are trading in the red led by Essar Oil and Petronet LNG. As per a leading financial daily, the compressed natural gas (CNG) prices are expected to rise. Indraprastha Gas (IGL) is already mulling over a price hike of up to six or seven per cent (Rs 2 per kg) in the coming week. The price rise will be on account of higher share of the imported gas (RLNG) coupled with a depreciating rupee. This is expected to be the fifth and the biggest rise in CNG prices over the past year. Once IGL does this, other players like Mahanagar Gas in Mumbai and Adani Gas in Ahmedabad are expected to follow.

Indian stock markets trade weak
11:30 am

Indian stock market indices continued to trade weak over the last two hours of trade. All sectoral indices are trading in the red. Consumer Durable and Metal stocks witness maximum selling pressure.

The BSE-Sensex is down by 269 points and NSE-Nifty is down by 84 points at the moment. BSE Mid Cap and BSE Small Cap indices are down by 1.96% and 1.65% respectively. The rupee is trading at 49.48 to the US dollar.

Banking stocks are trading in the red. Yes Bank is the biggest loser. India's largest public sector bank, State Bank of India (SBI) is unlikely to come up with a retail bond issue this year. This is because the bank will be forced to lock in a higher coupon rate at a time when interest rates are high. The environment for Issuing long term retail bonds is not conducive at the moment because the bank will be stuck with high coupon rates if interest rates start falling. Last fiscal, the bank had floated two retail bond issues, both of which were oversubscribed. The government clearance for SBI's Rs 200 bn rights issue is also being delayed, thus curbing the bank's ability to lend.

Power stocks are trading weak. All stocks in the sectoral index are trading in the red except for Tata Power which is the only stock trading in the green. A government panel formed to look into the issues relating to both raw material availability and infrastructure linkages steel sector for the 12th Plan has suggested that since coking coal production has almost come to a halt under Coal India, the PSU's mines for coking coal should be taken away and a separate entity should be formed for handling the production of the commodity. The new entity can continue to be under the government to begin with and to remain fully responsible for coking coal mining development. India has 33 bn tonne of coking coal reserves out of which Coal India accounts for 90% of share. There are several coking coal assets lying underdeveloped with Coal India who have no plans of developing them in the 12th five year plan. As a result, steel production could be hit severely.

Global indices continue to fall
09:30 am

Asian stock markets have opened yet another day with significant losses. Stock markets in Japan (down 1.6%), Singapore (down 1.2%), Indonesia (down 1.1%), South Korea (down 0.8%), Honk Kong (down 0.5%), and China (down 0.4%) are leading the losses. The Indian stock market have opened the day on a weak note. Capital goods, metal and consumer durables stocks are leading the losses. However, Power stocks are trading firm.

The BSE-Sensex is trading lower by around 116 points (0.7%), the NSE-Nifty is down by around 34 points (0.7%). BSE-Midcap and BSE-Small cap stocks have opened on a flat note with BSE Mid Cap index down by 0.1%. However, BSE Small Cap index is marginally up by 0.1%. The rupee is trading at 49.30 to the US dollar.

Oil & Gas Stocks have opened the day on a weak note with Reliance Industries and Hindustan Petroleum Corporation Limited (HPCL) in the red. Hindustan Petroleum Corporation (HPCL) has announced plans to incur a capital expenditure of Rs 450 bn in next 5 to 6 years. Around Rs 320 bn will be used to expand existing refineries and set up of new refineries. Another Rs 120 bn will be used for exploration & production (E&P) and other activities. The Chairman and Managing Director of HPCL said that they are planning to increase the refining capacity to 42 m tones in next 5 to 6 years. The current capacity stands at 14.8 m tones and comes from the Mumbai and Vizag refineries.

Auto stocks have opened the day on a mixed note with Ashok Leyland and Maruti Suzuki trading firm. However, Bajaj Auto and Hero Motocorp are facing selling pressure. Despite disruption of production at its strike-affected Manesar plant, Maruti Suzuki has been able to increase production of its best-selling Swift hatchback. The auto major rolled out 700 units from its Manesar and Gurgaon plant on Saturday, as against 670 a day earlier. At this level of production, Maruti can roll out over 17,500 units of Swift per month. The rise in production of the Swift model was attributable to recruitment of more workers at the Manesar plant and commencement of production of the car at Gurgaon. Over the last few days Maruti has moved 90 engineers from its Gurgaon plant to Manesar. It has also recruited over 800 workers to augment production. Currently, over 1,300 workers are working at the two Manesar plants. Maruti plans to commence production of the A-Star hatchback and SX4 sedan at Manesar soon.

Are developed economies left with any option?

These days recession rather than double dip recession has become the talk on the streets. Uncertainties in the global economy are looming large after the recent debt crisis in the US and some European countries. The concerned governments and central banks are taking measures to avoid the imminent crisis in their economies. But the effectiveness of those actions has been increasingly called into question. These stimulus packages were introduced to stimulate growth and employment. But rather than deliver on that front, all that it has done is make the developed nations highly indebted. So acute has this crisis become that it appears that these economies are left with no alternatives to get away.

According to New York University economist Mr Nouriel Roubini, known for predicting the recent recession well before it happened, there is not much that the US and Europe can do to stimulate their economies. Therefore, their economies would contract and finally would fall into recession. As a matter of fact, Mr Roubini believes that these economies are already into recession. Please note that the US Federal Reserve has already rolled out many stimulus measures to get the growth momentum on track and to curb rising unemployment rates in the US. However, unemployment in the US continues to remain persistently high. The problem for the US is compounded by the fact that there has been an increasing political deadlock at the centre and so even noted financier George Soros believes that this coupled with the government's tax policies has veered the economy towards recession.

And it is not just in the medium term, but there is the possibility of economies remaining paralysed by sluggish growth and high unemployment for years. Big organisations such as World Bank and IMF have been uttering words of concern in this regard.

There is no doubt that economies around the world are in trouble now. But the real question to be asked is how severe would this recession be? Will it manifest in the form of a debacle for some big institutions like we witnessed during the 2008 meltdown? Or even worse, would there be a default by sovereign countries? Only time will tell.