Pharma and auto save the day

Indices in the equity market of India came to life during the closing stages of the day as they moved in the positive territory after spending some time below the breakeven point. Consequently, BSE-Sensex edged higher by around 75 points whereas gains on the NSE-Nifty came in at around 22 points. BSE Mid Cap and BSE Small Cap indices also closed higher, gaining 0.9% and 0.5% respectively. Nearly two stocks gained for every one that closed the day in the red on the Sensex.

While Asian indices closed mixed today, Europe is trading mostly in the positive currently. The rupee was seen trading at Rs 53.9 to the dollar at the time of writing.

It wasn't a co-ordinated effort today as the gains were mostly due to selective buying in the healthcare and auto counters. Banking heavyweights too performed well. With the RBI policy review being a non-event, investors are now looking forward to another big-ticket event, mostly from the west perhaps. However, any such news is likely to be short lived as per us as there seems to be hardly any structural change in place. Companies with strong balance sheets and competent management team are likely to be investor's best friends in the current uncertain environment.

Bharat Forge, one of India's largest auto ancillary companies, announced its quarterly results today. The company put up a lacklustre show with its bottomline falling 3% YoY on the back of a 5% decline in topline. Operating profits fell 11% YoY on the back of a 1.6% contraction in margins. Domestic revenues declined 16% YoY due to sluggish auto demand and weakness in industrial sectors. Export revenues on the other hand registered a small rise of 8% YoY. The company's half yearly bottomline grew 2% YoY on the back of a similar rise in topline. The stock closed lower by around 1% on the bourses today.

Tata Motors, India's largest manufacturer of commercial vehicles, has entered into an agreement with US-based Westport Innovations Inc to develop natural gas engines for the former's medium-duty trucks and buses. Westport is a global leader in natural gas engines and Tata Motors is looking to successfully complete the development phase which will result in Westport supplying key natural gas engine components based on proprietary technology developed in the platform. This agreement assumes importance in the backdrop of India developing a national infrastructure for CNG and LNG fuelling. Tata Motors closed higher by nearly 3% on the bourses today.

Indian share markets stagnate
01:30 pm

Indian share markets continued to trade in a narrow range above the dotted line in the last two trading hours. Majority of the sectoral indices are trading positive with pharma, auto and IT stocks leading the pack of gainers. Oil and gas, capital goods and realty are among the losers.

BSE-Sensex is up 16 points and NSE-Nifty is trading up 1 point. While BSE Mid Cap Index is up 0.35, BSE Small Cap index is up marginally. The rupee is trading at 54.0 to the US dollar.

Most of domestic pharma stocks are trading in positive led by Glenmark Pharma and Dr. Reddy's. Biocon has announced its September 2012 quarter results. The company posted a 18% YoY growth in topline led by growth in both its Biopharmaceuticals and Contract research businesses. Operating margins declined by 3.1% largely due increase in R&D expenses by 40%. Bottomline increased marginally by 5% YoY during 2QFY13, resulting in a fall in net margins by 1.9%. According to the company, GE Equity International Mauritius, a subsidiary of GE Capital, will make a private equity investment of Rs 1.2 bn in its research services arm Syngene International. Biocon stock is up 1.9%.

The Gems & Jewellery Export Promotion Council (GJEPC) expects the third and fourth quarter to be better for the diamond industry. According to the GJEPC data, exports of cut and polished diamonds in the first half of FY13 declined by 29% to Rs 427.4 bn. GJEPC has projected a 15-20% growth in both domestic and export markets over the first half. The only concern is the volatile rupee that can impact the revenue model of the industry. Gitanjali Gems is also expecting an improvement in diamond jewellery demand on the back of the upcoming wedding season and recovery in demand from the international markets.

Indian equity markets trade flat
11:30 am

Indian equity markets continued to trade flat over the last two hours of trade. Auto and pharma stocks witnessed maximum buying interest while oil and gas and capital goods stocks witnessed maximum selling pressure.

The Sensex today is up by 19 points, while the NSE-Nifty today is up by 2 points. BSE Mid Cap index and the BSE Small Cap index are up by 0.32% and 0.25% respectively. The rupee is trading at 54.14 to the US dollar.

Engineering stocks are trading weak. Bharat Heavy Electricals (BHEL) and Jain Irrigation are the biggest losers while Shanti Gears and Bharat Electrics are the biggest gainers. According to a leading financial daily, Voltas is planning to sell one of its prime office buildings at Fort in south Mumbai. The building with total built-up space of nearly 27,000 sq ft is constructed on freehold land with marketable title. According to property consultants, the building can fetch around Rs 750 - Rs 800 m given the ongoing property rates in the vicinity and its neo-classical look. The building is suitable for a corporate headquarters or retail outfits and offices of legal firms given the location and the design of the structure.

Indian pharma stocks are trading in the green led by Glenmark Pharma and Fresenius Kabi Onco. Glenmark announced its 2QFY13 results. The company's sales grew by 19% YoY led by growth in both its speciality and generics business. Operating profits were up by 20% YoY and operating margins improved marginally by 0.3%. Interest costs increased by 23.9% YoY and depreciation increased by 29.8% YoY. Net profits were higher by 180% YoY. However, on excluding the extraordinary item during 2QFY12, net profit declined by 16% YoY due to higher tax expenses. The stock is currently trading up by almost 7%.

Indian share markets open weak
09:30 am

Asian stock markets have opened the day on a mixed note with stock markets in Indonesia (down 0.7%) and Taiwan (down 0.3%) leading the losses in the region. However, markets in Japan (up 1.2%), South Korea (up 0.8%) and Hong Kong (up 0.4%) are trading firm. The Indian share market indices have opened the day with marginal losses. Stocks in the realty, capital goods and banking space are leading the losses. However, consumer durables and healthcare stocks are trading firm.

The Sensex today is down marginally by around 16 points (0.1%), while the NSE-Nifty is down by around 5 points (0.1%). Mid and small cap stocks are trading in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.1% each. The rupee is trading at Rs 54.13 to the US dollar.

Indian pharma stocks have opened the day on a firm note with Dr Reddy's Laboratories, Glenmark Pharma and Biocon Ltd leading the gains. Indian pharma company Dr Reddy's Laboratories has announced its financial results for the quarter ended September 2012 (2QFY13). During the quarter, the company's revenue stood at Rs 28,809 m, higher by 27% on a year-on-year (YoY) basis. The growth in the topline was driven by key limited competition products of ziprasidone, tacrolimus, fondaparinux, clopidogrel, strengthening of antibiotics portfolio, apart from products from its Shreveport facility. The company reported a revenue growth of about 47% YoY in North America. Gross profit margins declined marginally by 70 basis points (0.7%) YoY to 53.1%. At the bottomline level, the company reported net profits of Rs 4,074 m, a growth of 32% YoY.

Engineering stocks have opened the day on a mixed note with Shanthi Gears and Welspun Corporation trading firm. However, Jain Irrigation, Bharat Heavy Electricals Ltd and Larsen & Toubro (L&T) are facing selling pressure. As per a leading financial daily, engineering major L&T's wholly-owned subsidiary Larsen & Toubro Infrastructure Development Projects (L&T IDPL) has signed a memorandum of understanding (MoU) with SenSen Networks, an Australian software company. As per the agreement, SenSen Networks will deliver video-based CCTV linked data analytics technology to L&T IDPL. The software provided by SenSen will recognise and capture number plates in any language, in any font, size or configuration with a high level of accuracy and pass the information directly to the billing mechanism. This will help nab toll evaders. The agreement is worth Rs 1 bn, spread over a three year period. It must be noted that currently L&T IDPL handles a portfolio of infrastructure assets worth Rs 450 bn. This comprises 19 road projects, three ports and a metro rail project.

What is holding back the Indian economy?

What is the most productive asset that India has? Being one of the fastest growing developing economies, the Indian economy holds a huge promise because of its favorable demographics. It is one among the countries with the largest young population in the world. And as these better educated and skilled youngsters enter the job market, the factors like productivity, innovations, efficiencies and in turn per capita metrics are bound to grow as well.

However, a young population by itself will not be enough to accelerate the domestic economy that has currently struck a slow phase. What it needs to unleash its potential is a robust infrastructure and job opportunities. And we need a higher involvement of private sector to accomplish the same.

Unfortunately, the climate in India has not been very congenial for private investment. When it comes to fair job and livelihood opportunities for the youth entering the job market, we are worse than what we were five years ago. And the slowdown has pushed us into a vicious cycle. This is how it works. The slowdown in demand leads to contracted sales growth. On the other hand, expenditure is difficult to manage accordingly. This in turn leads to weaker margins. The expectation of weaker margins discourages and defers investment plans and the cycle goes on.

So is there a way out of this cycle? Certainly, there is. The challenge can be overcome through a combined involvement of favourable regulatory scenario, access to finances to raise capital for investments in infrastructure and ensuring better credit quality and lowering credit risks for the financial institutions that will fund these expansions. With more investment in capacities and better access to resources through higher technology, more jobs will be created .This hopefully will revive the demand and bring the much needed turnaround.

With recent announcements to hike power tariffs, debt restructuring plan for state electricity boards, allowing foreign direct investment (FDI) in multibrand retail and increase in diesel prices, we have hit the right note. But these reforms are just the baby steps. We need to go a long way before we can expect to witness the tangible impact such as doubling of per capital income - a milestone that the other Asian peers have already achieved. To conclude, boosting infrastructure is critical to the growth in the economy and though it may seem a difficult task, is not impossible to achieve if the Government shows the grit to undertake and execute reforms well in time.