Volatility plagues Indian indices

Indian equity markets began the day's proceedings on a cautious note and barely managed to stay afloat in the morning session. Selling pressure across index heavyweights intensified post noon thereby pushing the indices into the red. The final trading hours saw buying gain momentum as a result of which the indices closed barely into the positive. While the Sensex today closed higher by 7 points, the NSE-Nifty today closed higher by 6.5 points. The BSE Mid Cap and the BSE Small Cap, however, closed marginally lower. Gains were largely seen in FMCG and healthcare stocks, while auto and metal stocks were at the receiving end.

As regards global markets, most Asian indices closed in the red today while European indices have also opened weak. The rupee was trading at Rs 54.61 to the dollar at the time of writing.

Most FMCG stocks closed firm today with the key gainers being Marico, Colgate and Dabur. Marico announced results for the second quarter ended September 2012. Riding on a strong volume growth of 14%, Marico reported a 19% rise in revenues. The organic volume growth excluding the turnover of acquired Youth brands (Set Wet, Zatak and Livon) was 9%. These brands reported a top line growth of 28% during the quarter. The domestic consumer business, forming 69% of overall revenues, grew by 19% led by 17% rise in offtake. All the three main product categories namely Parachute coconut oil, value added hair oils and Saffola refined edible oil clocked double-digit growth. The International Business grew by 16% aided by robust growth in Vietnam and MENA. The Kaya business segment grew by 38% led by same store growth of 10% in India and Middle East. On the back of controlled raw material costs, the company was able to overcome the steep rise in ad spends and clock a 70 basis points expansion in operating margin. The steep jump in the company's operating profit did not percolate at the net level due to rise of over 40% in interest and tax charges.

Power Grid Corporation also announced results for the second quarter ended September 2012. Net sales grew by 34% YoY in 1HFY13 on the back of 35% YoY growth in transmission income. Revenues from transmission business continue to comprise more than 95% of the company's turnover as the consultancy business saw a drop in contribution. However, the company has over 40 consultancy projects in hand valued at over Rs 155 bn. Hence the consultancy business pipeline is expected to recover. Operating margins improved to 85.9% in 1HFY13 from 82.6% in first half of FY12. Despite almost 25% fall in other income, net profits grew by 41% in 1QFY13. The cumulative transmission network stood at 95,846 ckms at the end of August 2012 as against 93,000 ckms at end of March 2012. The company is targeting to achieve 1 lakh ckms by March 2013. The stock closed lower today.

Markets hover around the dotted line
01:30 pm

The Indian equity markets continued to hover around the dotted line during the post non trading session. Barring stocks from the FMCG and healthcare spaces, selling activity is being witnessed across with auto and metal stocks leading the pack of losers.

The Sensex today is trading lower by about 45 points (down 0.3%), while the NSE-Nifty is trading lower by about 10 points (down 0.3%). Stocks from the midcap and smallcap spaces are also trading weak with the BSE Mid Cap and BSE Small Cap indices down by about 0.3% and 0.1% respectively. The rupee is trading at 54.24 to the US dollar.

FMCG stocks are currently trading firm with United Breweries, Marico and Dabur leading the pack of gainers. Godrej Consumer Products (GCPL) has announced its September 2012 quarter results. The company has reported a 35% YoY rise in consolidated sales driven by 19% YoY growth in the domestic business and 32% YoY organic growth in the international business. In the domestic market, all the three product categories registered double-digit growth with the household insecticides business growing 1.5 times ahead of the category. All the four geographical regions in the overseas market clocked robust growth during the quarter. GCPL saw its operating margin decline by 2.2% YoY to 15.6% due to a steep rise in staff costs arising from consolidation of the Darling Group as well as the Chilean operations. Even ad-spends and other expenses have risen, offsetting input cost savings from softening price of vegetable oil. At the net level, earnings grew by a relatively faster 25% YoY on the back of lower tax incidence and forex loss incurred along with 32% YoY rise in other income.

Stocks forming part of the BSE-Auto Index are currently trading weak with Bajaj Auto, Exide Industries and Bharat Forge leading the pack of losers. Bajaj Auto announced its results for the quarter ended September 2012 recently. The company reported a decline of 4% YoY during the quarter on the back of a 10% YoY decrease in volumes. Operating profits declined by 6% YoY as operating margins contracted by about 0.4% YoY to 18.4%. This was largely due to higher staff costs and other expenditure (as a percentage of sales). The company's profits increased by 2% YoY during 2QFY13. However, on excluding the extraordinary expense in 2QFY12, net profits fell by 10% YoY. As for the six month period ended September 2012, revenues were down by 0.5% YoY while profits were higher by about 2% YoY (profits not adjusted for extraordinary items).

Healthcare stocks outperform
11:30 am

Indian equity markets continued to trade flat during the last two hours of trade. Sectoral indices traded mixed with healthcare and consumer durables stocks witnessing maximum gains while power and metal stocks were the top losers.

The BSE-Sensex is trading higher by 24 points and NSE-Nifty is trading flat. BSE Mid Cap and BSE Small Cap indices are trading up by 0.3% each. The rupee is trading at 54.07 to the US dollar.

Automobile stocks are trading mixed with Force Motors and Tata Motors leading the gains while Tube Investments and Escorts are the top losers. As per a leading daily, scooter sales have witnessed rise in a slowing Indian market. The domestic sales grew 21% in the first 6 months of the fiscal. This is as against 0.79% decline in the sales of motorcycles. The rise in demand is attributed to growing urban infrastructure, rising number of women scooter riders. Looking at such growth prospects, two-wheeler companies are hiking up their capacities. Suzuki Motorcycle will be adding 10,000 scooters to its monthly production by March next year. Also, Honda Motors and Bajaj Auto have decided on their respective fresh strategies to cater to the growing scooter segment in the country and increase their presence in the same.

Steel stocks are trading in the red led by Tayo Rolls and Adhunik Metaliks. According to a leading financial daily, Steel Authority of India Limited (SAIL) is planning to invest US$ 8 bn in Chhattisgarh. The steel company has already invested US$ 12 bn in the state and another US$ 8 bn is in the pipeline. SAIL is in an expansionary phase and is ramping up production capacity at its Bhilai steel plant too. Post the development, capacity will increase from 4 m tonnes per annum to 10 m tonnes per annum. Initially the capacity will expanded to 7.5 m tonnes per annum and later on to 10 m tonnes per annum. Overall, SAIL plans to expand capacity to 18 m tonnes per annum by fiscal end. Earlier the management had announced its aim to increase its market share up to 30% by 2020 and expand its capacity to 45 MT by then.

Indian share markets open flat
09:30 am

The major Asian stock markets have opened the day on a weak note with stock markets in Hong Kong(down 0.4%) , South Korea (down 0.7%) and Taiwan(down 0.6%) leading the losses in the region. The Indian share market indices have opened the day on a flat note. Stocks in the pharma and capital goods are leading the gains. However, stocks in the energy and consumer durables sector were facing selling pressure.

The Sensex today is up by around 20 points (0.1%), while the NSE-Nifty is up by around 5 points (0.1%). Mid and small cap stocks have opened in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.4% and 0.2% respectively. The rupee is trading at Rs 54.13 to the US dollar.

Steel stocks have opened the day on a mixed note with Tayo Rolls and Tata Steel leading the losses. However, Adhunik Metaliks and Maharashtra Seamless Ltd have opened in green. As per a leading financial daily, the Odisha government has imposed a penalty of over Rs 500 bn on the leading steel and iron ore companies for alleged illegal and excess mining activities. These companies include the likes of Tata Steel, Essel Mining (an unlisted Aditya Birla company), Sarada Mines , MidEast (Mesco Steel) and firms belonging to KJS Ahluwalia, MC Rungta and the state's own Orissa Mining Corporation. Tata Steel which is setting up a greenfield plant at Kalinganagar has been asked to pay around Rs 90 bn, an amount little short of its investment in the project so far. The company has planned investments worth Rs 490 bn in the state. It is important to note here that Odisha produces one third of country's iron ore. The proposed one time recovery exceeds the amount that the Central Government expects to make from auction of the spectrum and the disinvestment target for the current fiscal year. The state has decided to ban all private non-captive mining. The Union mines ministry has expressed its disagreement with the state government's move.

FMCG stocks have opened mainly in green with Paper Products and Archies Ltd leading the gains. As per a leading financial daily, leading FMCG major Dabur India is planning to acquire the Kolkata-based GD Pharmaceuticals-controlled Boroline's Eleen and Dey's Medical-owned Keo Karpin. The move is in line with its strategy to acquire niche regional brands to boost its presence in the domestic personal care market, especially the hair care and health care segment in eastern and southern parts of India. As per the management, the company could spend upto Rs 5 bn on domestic acquisitions, with minimum size of the acquisition pegged at Rs 500 m. However, valuation is an important parameter for the company. Dabur is eyeing companies that are value based on the sales multiples instead of operating profits. The company also has plans to boost its presence in the over-the-counter (OTC) category, either organically or through acquisitions.

Fiscal deficit served with some fudge

Prime Minister Manmohan Singh cautioned about the high fiscal deficit levels as they actas a deterrent for domestic and foreign investment. He opined that respective ministers should help inresolving issues related to aspects that are 'dragging' the economic and infrastructural growth. These drags include fuel supply arrangements, security & environment clearances and financing issues.

As reported by the Business Standard recently, the fiscal deficit - the difference between the government receipts and spending - during the six month (April to September) period ended September 2012 reduced by 65.6% of the budget estimate.

However, what is interesting that this figure is 'believed' to be lower by 0.1% as compared to the figure of 65.7% of budgeted deficit during the first five months (April to August) of the year. This indirectly indicates that there was no deficit in the month of September 2012.

If this continues to be the trend for the rest of the year, then the government does not really have areason to worry. But as reported by firstpost.com, the figures are seemingly fudged! This is because the government has held back overdue subsidy payments. The expenditure part of the fiscal deficit has beena lower figure there by keeping the overall fiscal deficit as a percentage of the budgeted target lower. It is believed that the finance ministry has not paid the oil marketing companies (OMCs) dues of about Rs 700 bn (excluding of what subsidies other energy companies would be needed to pay up) of subsidies that were due to them for the first half of the current year.

OMCs - Indian Oil Company, Bharat Petroleum Corporation Ltd. and Hindustan PetroleumCorporation Ltd - have reported under-recoveries of about Rs 856 bn during 1HFY13. The government would mostly likely be pressurized to pay these dues soon, else the OMCs would report massive writeoffs from their books, similar to what has taken place in the quarter ended June 2012.

Keeping all the above in mind and after including the payments of Rs 700 bn in the calculation of subsidies, the fiscal deficit figure comes to Rs 4,060 bn, which is about 79% of the budgeted estimate of fiscal deficit target of 5.3%. Given that we are only six months in the financial year, it is anyone's guess what it would be at year end.