All sectors close in green

After trading in the positive territory during post noon trading session, the Indian equity markets failed to extend their gains but closed the day in the green. While the BSE-Sensex today closed higher by 380 points, the NSE-Nifty closed higher by 111 points. Midcaps and Smallcaps too closed in the green today. While the BSE Mid Cap index was up by 0.86%, the BSE Small Cap index closed higher by 0.74%. Banking and capital goods stocks were the biggest gainers today. All sectoral indices closed in the green in today's trade.

As regards global markets, the Asian pack closed strong today. The rupee was trading at Rs 63.26 odd levels to the dollar at the time of writing.

Auto stocks have ended the day on a weak note. The monthly volume figures for the auto industry are out. And the performance has been not good so far for two wheeler maker Bajaj Auto. The volumes fell 3% in December to 2.89 lakh units. However, three wheeler sales and exports registered a growth during the month. Management also stated that volumes will pick up in the month of January. As far as competition is concerned, sales volumes for HeroMoto Corp increased by 0.2% to 5.26 lakh units while that for the TVS Motors increased 20% to 1.59 lakh units in the month of December.

Engineering stocks closed mixed today. The stock of BHEL ended strong today after the company won orders worth Rs 38.1 bn from the state of Telangana for setting up a thermal power EPC project. It is an 800 MW super critical thermal power project which is expected to be commissioned in 36 months. BHEL's scope of work here includes everything right from designing to commissioning the project.

Engineering & banking in limelight
01:30 pm

Backed by strong buying in index heavyweights, Indian share markets continued to soar higher in the post-noon trading session. All the sectoral indices are trading in the green led by engineering and banking stocks.

BSE-Sensex is up 381 points and NSE-Nifty is trading 113 points up. BSE Mid Cap is trading 1.4% up and BSE Small Cap index is trading up by 1.3%. The rupee is trading at 63.22 to the US dollar.

All the steel stocks are trading firm led by Adhunik Metaliks and Jindal Steel. As per a leading financial daily, Tata Steel would resume mining in its Naomundi mine in Jharkhand in a couple of days on getting support from the new state government. The mine had been closed since September due to issue of renewable of lease. As a result the century-old company for the first time had to import 5 m tonnes of iron ore since the closure of the mine. Tata Steel stock is presently trading up by 0.95%.

Automobile stocks are trading mixed with Ashok Leyland and Tata Motors being the biggest gainers. However, Hero MotoCorp and Mahindra & Mahindra are trading weak. As per a leading financial daily, the auto industry ended the year on healthy note. Traditionally, year-end is a lean phase for auto manufacturers as buyers look out for new model year vehicles. But this year has been different as the Finance Ministry decided to roll back excise concessions on automobiles and consumer durables beyond 31st December 2014. Discontinuation of excise duty benefits led to car manufacturers producing more vehicles whereas customers advanced purchase on anticipation of increased prices in 2015. Consequently, companies such as Maruti Suzuki and Hyundai Motors recorded domestic sales growth of 13% and 15%, respectively in December. Even Toyota saw a 10% rise in car sales for the month. However, going ahead growth may slow down as car manufacturers hike prices to pass on the increased excise duty. According to Maruti Suzuki, prices are expected to rise by 4% due to rollback in duty. In case of two-wheelers, TVS Motors and Royal Enfield registered sales growth of 19% and 48%, respectively in December.

Markets gain momentum
11:30 am

After opening in the green, the Indian Indices have added to the early gains and are trading well above the dotted line currently. Banking and consumer durables stocks are leading the gainers. Mid and small cap stocks too are witnessing buying interest.

The BSE-Sensex is trading up by 330 points. The NSE-Nifty is trading up 97 points. The BSE Mid Cap index and the BSE Small Cap index is trading up 1% each. The rupee is trading at 63.32 to the US dollar.

As per a leading business daily, coal major Coal India will see senior IAS officer S. Bhattacharya assume charge as its new full time chairman and managing director by the 5th of January. It may be noted that the company has been without a fulltime head since S. Narsing Rao resigned from the post in May 2014. A better performance as far as meeting coal production targets is likely to be top on the agenda of the new management head of the company.

In a sign of a pick-up of manufacturing activities, the HSBC purchasing managers' index (PMI) rose to a 2 year high in December due to a rise in output and order flows from both domestic and overseas markets. The PMI was up at 54.5 points in December compared to 53.3 points in November.

Indian stock markets open firm
09:30 am

The major Asian stock markets have opened the day on positive note with China (up 2.1%) and Hong Kong (up 0.7%) leading the gains. However, Japan (down 1.6%) and Singapore (down 0.01%) are in the red. The Indian stock markets have opened on a firm note. All the sectoral indices have opened in the green with power and capital goods stocks leading the pack of gainers.

The Sensex today is up by around 165 points (0.58%), while the NSE-Nifty is up by about 48 points (0.0.57%). The mid cap and small cap stocks have also opened in the green with BSE Mid Cap index and BSE Small Cap index up by 0.59% and 0.49% respectively. The rupee is currently trading at Rs 63.32 to the US dollar.

As per a financial daily, the government has raised excise duty on petrol and diesel by Rs 2 per litre each. However, the retail pump rates will not be increased. Reportedly, this is the third excise duty hike by the government since November and will help to raise revenues of approximately Rs 60 bn during the remaining three months of the current fiscal. The government has taken the advantage of sharp fall in the global oil prices. This will help in shoring up some revenues without stoking inflation.

As reported in a financial daily, the Reserve Bank of India has liberalised norms on external commercial borrowings (ECBs). The new norms will increase the choice of security that companies can provide while taking forex loans. Companies can provide immovable and movable assets, financial securities and personal guarantee to overseas banks while borrowing ECBs. Reportedly, the said decision by RBI was taken with a view to liberalizing and expanding the options of securities and further consolidating various provisions related to creation of charge over securities for ECB at one place.

Growth at the cost of fiscal prudence

The year 2014 has been a year of turn around for stock markets and overall sentiments in the economy. And while the Modi Government has shown some resolve towards reforms, the risk to reward ratio seems to be skewed in the favor of the former. This is because most of the expected growth in the earnings has already been accounted for in the current valuations.

As far as top down approach is concerned, we believe there is a reason for investors to be cautious. Much of the optimism in the markets is based on expectations of an infrastructure revival. However, disappointed by the past experiences, the Government this time is averse to rely on private sector for the same. The latter has already earned a bad name for stalled projects in the infra space. To make matters worse, huge amounts have been borrowed by private sector to fund these projects. This has put under pressure the balance sheets of not just private entities, but those of banks' as well.

Since the PPP model has seen little success, the Government expects public expenditure to lay the foundation of infra growth. As reported in an article in Moneylife, it is now pushing for a higher public investment. While the intentions seem noble, considering the fiscal squeeze, the Government has limited means to achieve this. In order to be at the driving seat of this investment, it may go for huge debt. As per the recent official estimates, the fiscal deficit for the first eight months (April 14- November 14) has already reached 99% of the target set for FY15. If the Government does act on this plan, India's fiscal health may take a severe blow even as the recovery remains on a very slippery ground.

Also, huge debt by the Government may lead to an upward pressure on interest rates,something that is being seen as a huge road block in the way of economic growth. Last but not the least; public projects hardly have any reputation of meeting deadlines and quality standards. Hence, while the plan does not ensure efficiency and desired outcomes, it is more likely to be negative for the fiscal health. We hope the Government will not be rash with its decisions and will manage to strike the right balance between fiscal health and growth targets.