Defensives not in favour today

The Indian markets traded well below the dotted line throughout the day. The BSE-Sensex closed lower by about 265 points or 1.3%, while the NSE-Nifty ended lower by about 65 points or 1%. Barring stocks from the realty and power spaces, losses were seen across the board with FMCG, pharmaceuticals and information technology stocks leading the pack. Mid and smallcap stocks closed the day on a firm note with the BSE Mid Cap and BSE Small Cap indices ending higher by 0.9% and 0.5% respectively.

Asian indices ended the day on a mixed note, with China and Japan closing higher by about 0.4% and 0.2% respectively, while Hong Kong closed higher by about 0.7%. The rupee was trading at Rs 61.66 to the dollar at the time of writing.

Stocks of automobile companies ended the day on a weak note with Maruti Suzuki, Mahindra and Mahindra and Bajaj Auto leading the pack of losers. Commercial vehicles manufacturer Ashok Leyland reported a 18% YoY decline in sales of medium and heavy commercial vehicles (M&HCV) units during the month of October 2013. As for the light commercial vehicle volumes, the same declined by about 11% during the month. In the year till date, the total volumes are lower by 21% YoY as compared to the corresponding period last year. The stock of Ashok Leyland has declined by over one-third in the year till date on the back of overall weakness in the auto industry, especially the commercial vehicle segment. Having said that, the stock price has increased by over 55% over the past two months. While there does not seem to have been a drastic improvement in the company's financial performance in the past few quarters, the stock's outperformance is seemingly on the back of the it being price quite attractively in terms of valuations. Not to mention the expectation of the auto sector's numbers to improve from here on, given the long stretch of declining volumes on a consecutive basis. The stock of Ashok Leyland ended the day with gains of about 2%.

Telecom stocks ended the day on a weak note with Reliance Communications, Idea Cellular and Bharti Airtel leading the losses. The telecom service provider, Bharti AIrtel is all set to acquire Warid Group's Congo operations and strengthen its foothold in Africa. This is the second-in-line acquisition post the acquisition of Warid's Uganda operations early this year. With around 2.6 mn customers, this latest acquisition is expected to make Airtel the largest mobile operator in Congo-Brazzaville belt. Currently, Bharti Airtel is the second largest operator in the country with over 1.6 m customers and Warid is the third largest with around 1 m customers. Combining the strengths of Airtel and Warid, this deal is expected to benefit customers in the form of affordable tariffs, superior 2G or 3G network, affordable voice and data services and superior customer care. Moreover, this will also enable Bharti Airtel to strengthen its market position and build a world-class network for the overseas customers. The share closed down by 1.6%.

Midcap & smallcap buck trend
01:30 pm

Indian share markets regained some lost ground but continued to trade in the negative territory in the post-noon trading session. Majority of the sectoral indices are trading in the red with FMCG, pharma and IT stocks being the biggest losers. Realty, banking and auto are among the stocks trading in the green.

BSE-Sensex is down 136 points and NSE-Nifty is trading 29 points down. BSE Mid Cap is trading up 1% and BSE Small Cap index is trading down 0.8%. The rupee is trading at 61.7 to the US dollar.

FMCG stocks are trading in the green with Lakshmi Energy and Paper Products being the biggest gainers whereas Dabur and Godrej Consumer Products are among the major losers. As per a leading financial daily, Marico is planning to expand the smaller retail format of Kaya Skin Bar to metropolitan cities. Kaya Skin Bar, that occupies less than half the space of Kaya Skin Clinic, sells skincare products. Presently there are three such stores in Bangalore as compared to 83 Kaya Skin Clinics that offer technology-intensive cosmetic dermatological services. The company wants to become an end-to-end solution provider in the skincare business. Currently skincare products contribute only 20% to overall Kaya revenues with the balance coming from services. Earlier, Marico demerged its Kaya skincare division into a separate entity Marico Kaya Enterprises (MAKE) to consolidate its FMCG business in India and overseas. Kaya currently contributes 7% to Marico's consolidated sales. Marico's stock is currently trading marginally down.

Most of the Indian pharma stocks are trading in green, with Orchid chemicals and Indoco remedies being the leading gainers. As per the financial daily, Department of Pharmaceuticals (DoP) has rejected the review petition filed by Cadila healthcare. The company had filed petition challenging the price fixation done by the National Pharmaceutical Pricing Authority (NPPA) in case of its eight formulations. Recently, the DoP had rejected the petition on the ground that it lacked any merit. Reportedly, Cadila challenged the ceiling price fixed on eight drugs viz; for folic acid tablet (5 mg), losartan potassium tablets (25 mg), losartan potassium tablets (50 mg), pantoprazol injection (40 mg), norethisterone tablets (5 mg), atenolol tablets (50 mg), atorvastatin tablets (10 mg), and omeprazole capsules (20 mg). It should be noted that several companies have filed similar litigations, challenging the new prices on various drugs. However, the department has rejected several such petitions. Cadila is trading up by 1.86%.

FMCG,Consumer Durables lead losses
11:30 am

After opening in red Indian Indices have further extended their losses in the last two hours of trading session. All indices except Realty are trading in the red. FMCG and consumer durables indices are witnessing maximum profit bookings.

BSE-Sensex is trading down by 228 points and NSE-Nifty is trading down by 64 points. Both the BSE Mid Cap index and BSE Small Cap index is trading flat. The Rupee is trading at 61.9 to the US Dollar.

Indian Pharma stocks are trading mixed today. Dishman Pharma and Orchid Chemicals are leading the gainers; while Dr. Reddy's Laboratories and Ranbaxy Lab are leading the losers. According to a leading business daily; Dr. Reddy's is planning to launch its generic drug-Fondaparinux sodium injection in Canada as well as two other emerging markets. Fondaparinux is used in the prevention as well as treatment of deep vein thrombosis. It is sold under the brand name Arixtra by GlaxoSmithKline. According to an Australian pharmaceutical company- Alchemia Ltd, which has marketing tie up with the company; Dr Reddy's is likely to file for its approval in the aforesaid regions. As per Alchemia's annual report of 2013, the net sales of Fondaparinux by Dr Reddy's were a total of US$ 45.3m. Dr Reddy's has already launched Fondaparinux in India in April 2013. Dr Reddy's is trading down 1.6% today.

Most Information technology (IT) stocks are trading lower today. Tata Consultancy Services (TCS) and Wipro are among the stocks leading the losers. India's fourth largest software firm HCL Tech has announced the opening of its new global technology center called the Michigan Technology Development Center (MTDC) in Jackson, Michigan USA. The company had tied up with Consumers Energy for setting up this facility. Consumers Energy is the main subsidiary of CMS Energy, the fourth largest electricity and natural gas firm in the US. The new center will employ around 120 people. HCL Tech will provide software support as well as specialized services to Consumers Energy and its customers through this center. It will also act as an onsite center for application development and infrastructure management services for HCL Tech's North and Latin American clients. The Energy and Utilities vertical contributed 7.8% of revenues for HCL Tech in the June 2013 quarter and grew at a pace of 11.2% QoQ. HCL Tech is trading down 1% today.

Indian share markets open weak
09:30 am

Barring Singapore (up 0.3%), major Asian stock markets have opened the day on a weak note with Hong Kong (down 0.6%) and Taiwan (down 0.5%) leading the losses. The Indian share market indices have opened the day on a negative note as well. Stocks in the information technology and power space are leading the losses.

The Sensex today is down by around 125 points (0.6%), while the NSE-Nifty is down by around 34 point (0.6%). Mid and small cap stocks are also trading in the red with the BSE Mid Cap and BSE Small Cap indices up by around 0.1%each. The rupee is currently trading at Rs 61.74 to the US dollar.

FMCG stocks have opened the day on a weak note with Godrej Consumer Products Ltd (GCPL), Hindustan Unilever Ltd (HUL) and Bata India leading the losses. As per a leading financial daily, Dabur India announced the launch of Real Fruit Shakes on Monday, November 4, 2013. With this launch, the company has made a foray into the packaged milk fruit shake market which has an estimated size of Rs 10 bn. Dabur has test-launched its product with a single variant, Mango Shake, in select markets like Delhi and Punjab. The milk fruit shake would be priced at Rs 25 for a 200-ml pack and Rs 105 for a 1-litre pack. The company soon plans to launch the product in other parts of the country. It must be noted that Real is 15-year-old Dabur brand and commands a dominant share of the branded fruit juice market in India.

Auto stockshave opened the day on a weak note with Bajaj Auto, Ashok Leyland, TVS Motor Company and Maruti Suzuki leading the losses. As per a leading financial daily, India's leading passenger vehicle maker Maruti Suzuki may cut down its diesel engine supplies from Italian auto maker Fiat by about 40-45% during the current financial year 2013-14 (FY14). The reasons for this are partly the slump in vehicle demand and partly because Maruti plans to fully utilise its own plant to make the same engine. It must be noted that in 2011 Maruti had entered into a three-year agreement to source 1.3-litre diesel engines from Fiat India's Ranjangaon plant. Fiat's diesel engines are used on its popular models such as Swift, Dzire and Ritz. The decreasing gap between prices of petrol and diesel has adversely impacted demand for diesel vehicles.

Rural push for FMCG companies

The FMCG industry has been the darling of the stock market for quite a few years now. This has been the case because investors were flocking to the relative safety of a resilient consumption industry even as other sectors choked under the strain of high interest rates and rising inflation.

Though the economic growth has slowed down, rural incomes have continued to grow at a decent pace. The rising disposable income bodes well for consumption-oriented sectors like FMCG. The sector tends to attract investors' attention in times of uncertainty because the former's products are purchased throughout the year.

Over the past year, high inflation, lower salary growth and weak job market has hurt the consumption of urban India big time. This has prompted the FMCG companies to change their strategy. Which is why they increasingly betting big on rural areas to increase their sales!

There are several reasons for this. The growth in rural India is outpacing the growth in urban India. This growth is coming from social schemes being run by the government. These schemes have pushed more money in the hands of people, leading them to go out and consume more. Because they are marginal people and there is a lot of pent-up desire to consume. As such, when they get money they don't actually save it, they consume it. That has driven the bottomlines of all FMCG and rural serving companies.

With the population of rural India being twice that of Western Europe, the Indian rural FMCG market is something no one can overlook. The above average rainfall this year is expected to boost rural incomes, hence providing better growth prospects to the FMCG companies. Better infrastructure facilities will improve their supply chain as well. Further, due to the low per capita consumption for almost all the products in the country, FMCG companies have immense possibilities for growth. And if these companies are able to change the mindset of the consumers, i.e. if they are able to take the consumers to branded products and offer new generation products, they would be able to generate higher growth in the near future.