Mid and smallcaps buck the trend

The early cheers in the Indian stock market spurred by the expectations from the new telecom policy were short-lived today. After strong gains witnessed during the earlier part of the session, the indices failed to retain momentum. Profit booking in heavyweights particularly those in FMCG, IT and energy sectors ahead of the result season saw the indices close below the dotted line. While the BSE-Sensex ended lower by around 21 points, losses on the NSE-Nifty came in at 5 points. The BSE Mid Cap and BSE Small Cap indices however bucked the trend and closed higher.

Most other Asian indices also closed on a positive note whereas Europe too is trading mostly in the red currently. The rupee was trading at Rs 49.36 to the dollar at the time of writing.

Tight liquidity scenario in domestic markets and enhanced borrowing limits from FIIs are expected to prompt infrastructure firms to be dominant issuers in India's corporate debt market. However, the cost of capital for private companies is expected to remain steep especially after the government increased its borrowing target to Rs 2.2 trillion from the budgeted Rs 1.67 trillion in FY12.

Infrastructure Devlopment Finance Company (IDFC) and Rural Electrification Corp (REC) are some of the firms that have announced issuances to take advantage of the new found demand from FIIs. Fears that the (RBI) may continue to raise policy rates to tame inflation despite domestic growth worries may however keep interest costs from slipping lower. This may impact margins in the near term until the firms pass on the interest costs to customers.

Zee Entertainment is planning to launch 3-4 high definition (HD) channels in next financial year, adding to its total of regular 29 channels. Further, the company expects the business to break even between 2013 and 2014.

Zee Entertainment Enterprises (Zee) is one of India's leading television media and entertainment companies. It is amongst the largest producers of aggregators of Hindi programming in the world, with an extensive library housing over 80,000 hours of television content. Zee has gotten into a distribution alliance with Star for distributing the channels of both these media companies. A new company has been formed by the name of MediaPro Enterprise India Pvt Limited and it is a 50:50 joint venture between Zee Turner Ltd and Star Den. This alliance is expected to mutually benefit both Zee and Star in earning better revenues and gaining better bargaining power while dealing with cable operators, multi system operators and direct to home operators.

Indian stock markets continue in green
01:30 pm

The Indian stock market continued to trade in the green on account of buying interest in heavyweights. Stocks from the capital goods, consumer durables, power, and auto sectors are leading the pack of gainers while those from software and FMCG space are trading weak.

The BSE-Sensex is trading up by 81 points while NSE-Nifty is trading 22 points above yesterday's closing. The BSE Mid Cap and BSE Small Cap indices are trading up by 0.9% and 0.6% respectively. The rupee is trading at 49.10 to the US dollar.

Energy stocks have been trading mixed with Petronet LNG, Mangalore Refinery and Petrochemicals Ltd (MRPL) and Cairn India leading the pack of gainers. However, Oil and Natural Gas Corporation (ONGC), Hindustan Petroleum Corporation Ltd (HPCL) and Essar Oil are trading weak. As per a leading financial daily, ONGC has expressed concerns over its bottomline declining by over 47% to less than Rs 100 bn if government increases the company's share to compensate for the under recoveries of state run oil and marketing companies (on selling fuel products at government controlled prices). Traditionally, the upstream companies led by ONGC bear one third of the losses. However, this year, their share would not be based on the actual under recoveries but on the projected notional under-recoveries that existed before the June fuel price increase and duty cuts. At US$ 110 per barrel of crude price, the projected notional under-recoveries prior to June price hike are estimated at Rs 1,711 bn while at today's prices, they stand at Rs 1,211 bn. The company's burden as per prior estimates comes to Rs 474 bn versus a burden of Rs 335 bn as per current estimates. This will imply a realization of US$ 41.27 per barrel for the company versus a realization of US$ 55 per barrel as expected by the company, thus dragging bottomline below Rs 100 bn. This will have an adverse impact on its Rs 300 bn planned capital expenditure and its plan to provide financial support of Rs 75 bn to its overseas subsidiary.

Engineering stocks have been trading mixed as well with Praj Industries Ltd, Crompton Greaves, Jain Irrigation Systems and Welspun Corporation leading the pack of gainers. However, Cummins India and Honeywell Automation are trading weak. As per a leading financial daily, Bharat Heavy Electrical Ltd (BHEL) has bagged over Rs 40 bn contract for setting up a 1,200 (2x600) MW thermal power plant of Singareni Collieries Company (SCCL)in Andhra Pradesh. The plant will be for SCCL's upcoming super thermal power project at Adilabad. The company has established the capability to deliver 15,000 MW per annum. It is being augmented to 20,000 MW. It has also bagged a Rs 38 bn order from Dainik Bhaskar Power Ltd recently, for setting up a 1,320-MW thermal power plant in Madhya Pradesh. The stock of the company is trading in the green.

FMCG, realty stocks lead gains
11:30 am

The benchmark indices in Indian stock market continued to trade firm over the last two hours of trade. All sectoral indices are trading firm except for IT. Consumer Durable and Realty stocks witnessed maximum buying interest.

The BSE-Sensex is up by 113 points, while the NSE-Nifty is up by 36 points. BSE Mid Cap and BSE Small Cap indices are up by 1.17% and 0.96% respectively. The rupee is trading at 48.91 to the US dollar.

Telecom stocks are trading strong. All stocks in the sectoral index are trading in the green. ITI and Idea are the biggest gainers. The telecom ministry on Monday unveiled the new draft telecom policy. One of the major highlights of the new telecom policy is the abolition of roaming charges. This could be bad news for telecom companies like Bharti Airtel and Idea as their margins could be hit severely. Currently GSM operators like Airtel get around 8% of their revenue from roaming charges. According to Ernst and Young (E&Y) a global consultancy firm, the net revenue loss from scrapping of roaming charges on telecom operators could be around USD $400 m.

Steel stocks are trading strong. All stocks in the sectoral index are trading in the green. Jindal steel and Adhunik Metaliks are the biggest gainers. According to a leading financial daily, Steel Authority of India (SAIL) has sought gas allocation of 5 million standard cubic metres per day (MSCMD) from the central electricity board for its proposed 1,050 mega watt (MW) independent power plant at Jagdishpur, near Amethi in Uttar Pradesh. SAIL is planning to make an investment of Rs 50 bn for the project. In 2009 SAIL had purchased loss making Malvika Steel, at whose site in Jagdishpur the power plant is proposed to be constructed. Attempts are being made to turnaround the loss making company. Earlier SAIL had planned to make an investment of Rs 100 bn to set up a steel plant of 2 million tonnes per annum (MTPA) capacity, along with a 1,050 MW power plant for the revival of Malvika Steel. The steel ministry has written to power ministry to pitch for gas allocation.

Indian markets up on Asian cues
09:30 am

Asian stock markets have opened the day on a firm note. Stock markets in Hong Kong (up 2.9%), Indonesia (up 2.4%), South Korea (up 2.0%), Japan (up 1.9%), Singapore (up 1.9%) and China (up 0.7%) are in the green. The Indian stock market have opened the day on a firm note. Stocks in the Metals and Banking space are leading the gains.

The BSE-Sensex is trading up by 150 points (1%) and the NSE-Nifty is up by around 50 points (1%). Mid and small cap stocks are trading in the green, with the BSE Mid Cap and BSE Small Cap indices up by 1% and 0.6% respectively. The rupee is trading at 48.88 to the US dollar.

Banking stocks have opened the day on a firm note with Bank of Baroda and State Bank of India (SBI) in the green. India's leading public sector lender, SBI is planning to raise Rs 50 bn through a rights issue of shares by December 2011. The aim of this initiative is to prop up the bank's Tier-I capital to above 8% for the financial year 2011-12. The move has come in response to the downgrade of SBI's standalone rating by Moody's Investors Service. The rating agency had cited concern over capital and rapid deterioration in asset quality. As on 30th June, 2011, SBI had Tier-I capital of 7.6%. Though the regulator mandates Tier-I capital higher than 6%, the Indian government insists public sector banks maintain minimum Tier-I capital of 8%.

Steel stocks have opened the day on a firm note with Tata Steel and JSW Steel in the green. India's largest steel maker, Tata Steel has planned to invest GBP 2 m in making a new facility to manufacture jacket foundation structures for wind turbines. This facility will be created at its Hartlepool tube plant in the UK. This move will help in increasing the company's presence in the renewable energy market. Tata steel said that the traction in the renewable sector will create a huge demand for jacket fabrications for wind tower structures. The facility is expected to be read by early 2012. These jackets are used for fixing the wind turbine to the seabed and are typically used in deep water for larger turbines. The new facility will create the structures and will then be prepared for welding into the finished product. It will further be sent to fabricators in the UK and mainland Europe.

Impact of Anna's movement on India Inc

Recently, India's anti-corruption crusade led by Anna Hazare received a huge nationwide response. The Lokpal Bill proposed by Anna Hazare has already had huge political ramifications. However, it appears that the movement may also have some unintended outcomes for India Inc. More importantly for companies that are dependent on government for their businesses.

After the recent mass movement, whistle-blowing could gain prominence amongst employees who are privy to illegal confidential information. While earlier they were a bit hesitant in voicing their opinion, the Anna movement may have re-instilled their faith in the system. These whistle-blowers could affect the business prospects seriously as new skeletons can get uprooted from the cupboard soon.

Secondly, corporate governance practices are likely to gain further importance. Companies with strong governance standards have always garnered a premium as compared to the ones with opaque practices. And in such an environment the importance on transparency has increased considerably. If not, the fund raising plans of the corporates may run into trouble impacting their long term growth prospects. Thus, the importance of disclosure standards is bound to increase amongst the corporates after the anti-corruption movement.

Over time, corporates may be lured to shift their focus from government businesses due to heightened political and bureaucratic interferences. The recent policy paralysis has also increased the risk perception towards businesses with government involvement. Infrastructure and mining are classic examples where the businesses have been suffering due to policy inaction. Unless the decision making process improves from the government side corporate interest in government oriented businesses would continue to wane.

Political ownership in businesses (can lead to a probe on disproportionate assets) is likely to reduce over time as it is easily traceable unlike other asset classes like real estate. Although the business ownership is camouflaged by creating layers of fictitious companies any significant probe into the matter can reveal the true ownership structure. This may jeopardize political aspirations of the parties. Hence, one can expect the political ownership in corporate entities to come down gradually.

It can be said that while Anna's movement was political in nature it did have an impact for corporate India by laying down a new foundation of ethics and corporate governance. Although it was by fear and not by choice.