Sensex closes marginally higher

Backed by positive trend right through the day, Indian equity markets closed higher today. The surprise announcement from the country's Central bank on Monday evening to improve liquidity conditions in the banking system helped boost the sentiments. Sectors such as metal, oil and gas and IT faced the maximum selling pressures while realty and capital goods fared well. Tata Power, Larsen & Toubro (L&T) and Bharti Airtel were the biggest gainers today. The BSE-Sensex closed higher by 89 points and the NSE-Nifty was up by 22 points. Also, the BSE Mid Cap and the BSE Small Cap closed on a positive note and were up by 0.5% and 0.2% respectively.

The global markets fared mixed with most of the Asian indices closing on a firm note whereas the European indices have opened on a weak note. The rupee was trading at Rs 61.90 to the dollar at the time of writing.

Except ADC India Comm, AGC Networks and Mahanagar Telephone Nigam Limited (MTNL), most of the Telecom shares closed the day on a firm note. Idea Cellular and Tata Comm were the top gainers. A leading financial daily states that the government is all set to issue detailed guidelines for sharing spectrum for the telecom sector. It is also likely to announce the in-principle approval for trading in airwaves before the next round of bandwidth auctions. This move is expected to bring a major relief to the debt-laden telecom sector.

This move will pave way for the operators to sell rights to unutilized spectrum and share airwaves with each other. This will enable spectral efficiency and in turn will improve the delivery of services over the networks of the operators. Moreover, trading in spectrum will also allow operators to exit the sector by selling spectrum. This move from the government is expected to transform the dynamics of the telecom industry. The telecom industry has been plagued by spectrum issues of sharing and trading for quite some time now. Also, this move would bring cheer to the foreign investors who have been demanding a road-map for consolidation. And finally, the guidelines on sharing spectrum are also expected to resolve the long-standing battle between the government and the telecom operators over the 3G intra-circle roaming arrangements.

Automobile shares today closed on a mixed note. While few stocks such as Tube Investments and Bajaj Auto closed in red, others such as Mah. Scooters and Escorts were the gainers today. As per a leading business daily, Tata Motors today launched the CNG variant of its small car - Nano. Delivery of these vehicles will start from tomorrow. It may be noted that this is the first gas run product of the company. This vehicle - termed as the Tata Nano CNG emax - runs on both CNG as well as petrol. As per reports, the car would be providing mileage of about 36 km per litre. This vehicle will now be available in the key CNG markets such as Delhi, Gujarat, Maharashtra as well as Lucknow. The vehicle is priced at Rs 2.52 lakhs (ex-showroom Mumbai). This would be a big step for the vehicle considering that a good chunk of the cars in India run on gas. It may be noted that the company sold 55,000 Nanos in FY13. In the first half of the current year, the company has sold 18,000 units.

Indian share markets remain buoyant
01:30 pm

Indian share markets continued to trade well above the dotted line in the post-noon trading session. Barring metal and IT, all the sectoral indices are trading in the green with capital goods, realty and banking stocks being the biggest gainers.

BSE-Sensex is up 81 points and NSE-Nifty is trading 18 points up. BSE Mid Cap is trading up 0.3% and BSE Small Cap index is trading up 0.4%. The rupee is trading at 61.6 to the US dollar.

Majority of power stocks are trading in the green, with Torrent Power and GVK Power being the major gainers. However, JSW Energy and National Thermal Power Corporation (NTPC) are among the few stocks trading in the red. As per a leading financial daily, Tata Power has entered a Memorandum of Understanding (MOU) with the government of Myanmar for setting up a power plant fueled by imported coal. The project is part of the company's drive to expand its overseas portfolio and is expected to be commissioned in 2019-20. The company has commenced feasibility studies and the capacity of the coal-fired power station will be based on the same. Tata Power's other overseas projects include hydro-electric projects in Bhutan, Georgia and Zambia and two wind power projects in South Africa. In the quarter ended June 2013, Tata Power's consolidated revenues grew by 29% YoY on the back of commissioning of all units of the Mundra and Maithon plants as well as more business from the trading segment. The company, however, reported a loss on account of forex losses as well as higher depreciation and interest charges arising from full commissioning of plants. Tata Power's stock is currently trading up by 1.5%.

Most of the Automobile stocks are trading in green with Escorts and Tata Motors being the top gainers. As per the financial daily, the domestic automobile sales for the month of September witnessed a positive trend for both car and bike segments. According to data released by Society of Indian Automobile Manufacturers (SIAM) for the month of September, domestic car sales grew by 0.73% YoY while motorcycle sales have increased by 17.4% YoY. Total two wheeler sales grew by 18.39% YoY for the month of September. However, commercial vehicles witnessed a decline in sales. This segment was down by 26.95% YoY during the month. Total sales across all the categories registered growth of 11.6% in September.

RBI rate cut boosts bank stocks
11:30 am

After a positive start, the Indian stock markets are trading firm in the morning session. The up move is largely due to gains seen in the banking stocks and engineering stocks. Banking stocks have been in favour today due to the cut in short term lending rates.

The BSE-Sensex is up 180 points and the NSE-Nifty is trading up 50 points. The BSE Mid Cap index is trading up 0.6% and the BSE Small Cap index is trading up 0.7%. The Rupee is trading at 61.64 to the US dollar.

Most of the IT stocks are trading lower today. HCL tech and Tech Mahindra are among the top losers. Indian mid-tier IT company MindTree has announced that it has taken a big step forward in its endeavor to establish itself as a premier service provider in the rapidly growing area of cloud computing. MindTree has been selected by Microsoft Corporation as a partner in its elite program 'Windows Azure'. Windows Azure is an open and flexible cloud platform that enables companies to quickly build, deploy, and manage applications across a global network of Microsoft-managed data centers. Companies can build applications using any language, tool, or framework and then seamlessly integrate those public cloud applications in to their current IT environment. The platform used by corporations all over the world and has been appreciated for its efficiency, speed and ease of use. The Microsoft partnership will position Mindtree as a leading systems integrator for the Windows Azure Platform. MindTree is trading down 2% today.

Engineering stocks are trading mixed today. Sanghvi Movers and Punj Lloyd are leading the gainers; while Finolex Cables and Bharat Earth Movers are leading the losers. Larsen and Toubro (L&T) is trading up by 3% today. The company has secured orders worth Rs27 bn in hydrocarbon and construction segments. In hydrocarbon, the company has received two EPC orders. The first order is received from Takreer - a subsidiary of state-owned Abu Dhabi National Oil Company (ADNOC). This is an EPC project for a new Aviation Fuel Terminal at Abu Dhabi International Airport. The project is scheduled to be completed in 30 months. Another order has been received from Dolphin Energy Ltd in Qatar for third party gas interconnecting facilities in Ras Laffan. The execution period for the project is about 20 months. In addition, L&T's construction division has won orders worth Rs16.1 bn across Buildings & Factories, Metallurgical & Material Handling and Power Transmission and Distribution (T&D) segments.

L&T's announced order inflow in 2QFY14 has been approximately Rs 249 bn. In FY14 so far, including the above orders, the company has achieved an order inflow of about Rs 528 bn. This indicates that L&T is well on track to meet its full year guidance of an order inflow of about Rs 900-1000 bn.

Indian share markets open firm
09:30 am

Asian stock markets have opened the day on a mixed note with Indonesia (up 0.9%) and China (up 0.5%) leading the gains. However, markets in South Korea (down 0.3%) and Malaysia (down 0.1%) are facing selling pressure. The Indian share market indices have opened the day on a positive note. Stocks in the banking, capital goods and realty space are leading the gains.

The Sensex today is up by around 181 points (0.9%), while the NSE-Nifty is up by around 64 points (1.1%). Mid and small cap stocks are also trading in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.7% and 0.4% respectively. The rupee is currently trading at Rs 61.78 to the US dollar.

Auto stocks have opened the day on a firm note with Tata Motors, Ashok Leyland, Bajaj Auto and Escorts leading the gains. As per a leading financial daily, India's leading passenger vehicle maker Maruti Suzuki is mulling over a plan to develop its own family of diesel engines to power vehicles across segments. Currently, the company relies on Italian automaker Fiat's 1.3 multi-jet-diesel engines. Maruti has been unable to deliver a wider product portfolio of diesel cars to its customers. Now it is aiming to build its own family of diesel engines, besides the 1.3-litre engine. It is reported that the diesel engines will be built with key inputs from its Indian subsidiary's R&D.

Steel stocks have also opened the day on a firm note with JSW Steel, Tata Steel and Jindal Steel leading the gains. As per a leading financial daily, World Steel Association (WSA) which released its short-range outlook yesterday has lowered its growth projection for India's steel demand to 3.4% for the current year. This is significantly lower than its earlier forecasts of 5.9% steel demand growth. As per the industry association, India's steel demand is expected to grow to 74 million tonnes (MT) in 2013, a growth of 3.4% over the previous year. In 2012 too, the growth rate was mere 2.6%. The main reasons for the poor growth have been high inflation and structural roadblocks faced by the major consumer industries of steel. The demand growth projection for 2014 has also been slashed from 7% to 5.6%.

Rising royalty payments hurting India Inc

Royalty payments are made by one party for allowing the other the right to use its intellectual property. The intellectual property could be anything ranging from a brand to technical knowhow. There are many companies in India that pay royalty fees to their parent's located overseas. As long as the local subsidiaries are making decent profits royalty payments is not an issue. However, once the local profitability comes under pressure increasing royalty payments becomes challenging to honor.

As per an article in Livemint, roughly 25 local companies saw their royalty payments increase at a pace faster than their growth in sales and net profits in FY13. Royalties are important source of income for the foreign parents. However, increasing royalties when the local subsidiaries are suffering does not bode well for the domestic shareholders. And this is what has happened with quite a few Indian companies in the past few years. Though domestic profitability has been under pressure their royalty commitments to foreign parents has increased. And this has been a major cause of concern amongst domestic shareholders.

Increasing royalty payments during downturn when the local subsidiaries need cushion from their parent is worrisome. It is not that reducing royalty payments or keeping it constant would have changed the fortune of all the domestic subs. The domestic environment is so weak that even if the royalty payments were waived few companies like ABB would have not fared any better. However, increasing royalty payments during such times certainly does not help either. It hurts the profitability at the domestic level and thus minority shareholders.

While there is no harm in increasing royalty it should benefit the domestic subs in the form of increased knowhow from the parent. However, this is not happening. On the other hand, foreign parents are increasing royalty rates just to increase their income. This has led to a debate whether there should be a cap on royalty. This would ensure that there is no blatant increase in rates.

Also, it may be noted that there have been quite a few companies like 3M India, Whirpool India etc who have increased their royalty rates in the last few years but have not paid dividends excluding one off instances. This means that the foreign parent enjoyed increased income while minority shareholders were aloof of dividend income. It appears that if the royalty rates keep on increasing disregarding the profitability aspect of the local subs some sort of cap should come into place. If that is not feasible then there has to be some kind of a voting mechanism which shall allow the minority shareholder to vote against such a provision. If not, foreign parents will keep on extracting more money from their local subs in the form of royalty payments.