A flat end to the day

Indian share markets had a volatile outing today. After opening firm, the key indices slipped in the red for most part of the day but recovered in the closing hours to end the day marginally positive. BSE-Sensex closed higher by 6 points and NSE-Nifty closed higher by 7 points. BSE Mid Cap ended 0.1% up and BSE Small Cap index closed higher by 0.2%. FMCG and consumer durable stocks were the major gainers today.

On the global front, the Asian markets largely ended the day on a positive note. The rupee is trading at 61.48 to the US dollar.

Majority of the energy stocks ended the day in the green. MRPL and Indraprastha Gas were the major gainers today. According to a leading financial daily, the Oil Ministry has sought cash subsidy of Rs 81.8 bn from the government to compensate 33% of the losses suffered by retailers like Indian Oil Corporation (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL) for selling diesel and cooking gas at subsidized rates for the September 2014 quarter. The three companies reported a revenue loss of Rs 245.6 bn in the quarter. Upstream oil and gas producers such as ONGC, Oil India and GAIL will contribute the balance Rs 163.8 bn towards the losses suffered by retailers.

Most of the foreign pharma companies ended the day on a mixed note. Sanofi and Fulford India were the biggest gainers. As per a leading financial daily, Sanofi's vaccine division Sanofi Pasteur has launched a paediatric pentavalent vaccine Shan5 in India. The vaccine has been developed and manufactured by Sanofi's affiliate Shantha. The vaccine provides protection to children against five diseases namely diphtheria, tetanus, pertussis, Hib and hepatitis B. The World Health Organization has given prequalification status to the launch of Shan5 vaccine. This criterion will help the company secure the market for such vaccines in 50 emerging and low-income countries.

Energy, engg stocks not in favour today
01:30 pm

After starting the day on a firm note, the Indian stock markets slipped into the red and continued to trade below the dotted line thereafter. At the time of writing, the BSE-Sensex was trading lower by about 85 points or 0.3%, while the NSE-Nifty was trading lower by about 24 points. Stocks from FMCG and pharmaceutical spaces were in favour today, while those from the capital goods and oil & gas sectors were not in demand. Midcaps and smallcaps were trading flat with the BSE Mid Cap and BSE Small Cap indices trading higher by about 0.1% to 0.2%.

Stock markets in other parts of Asia ended the day on a mixed note with Japan closing lower by 0.6% while Hong Kong and China were up by about 0.8% and 2.3% respectively. The rupee was trading at Rs 61.45 to the dollar at the time of writing.

Auto stocks were trading weak led by Tata Motors, Mahindra & Mahindra and Maruti Suzuki. The Society of Indian Automobile Manufacturers (SIAM) announced official total sales volumes for the month of October 2014 recently. As per the agency, domestic passenger car sales declined by 3% YoY during the month of October 2014. Total sales for the month stood at 159,036 units, as compared to 163,199 units in same month last year. The story was the same for motorcycle sales as well, with volumes coming down by about 9% YoY; a little over 1.1 m units were sold during the month gone by. However, when it came to overall sales of two-wheelers, the volume decline stood at a lesser figure of 3.6% YoY, thereby indicating that the scooter sales volumes remained strong in the month gone by. Sales of commercial vehicles came in lower by about 4%YoY. On an overall basis, total volumes (across categories) were lower by 3.8% with the industry clocking in volumes of 1,787,146 units as compared to 1,858,594 units in same month last year.

Stocks of power companies were trading mixed with Adani Power and NTPC leading the pack of gainers, while CESC and NHPC were trading weak. As reported by a leading business daily, Tata Power will have wait for some more time to get clarity on its compensatory tariff decision on account of Justice M Karpaga Vinayagam, Chairperson of the Appellate Tribunal for Electricity, expected to retire this month, thereby delaying the entire process. It may be noted that while APTEL had approved the compensatory tariff, the Supreme Court stayed the order asking the former to re-hear the matter. As per an APTEL executive, there has been no replacement yet for the retiring head of the panel. This delay will only add to the uncertainties surrounding Tata Power's Mundra plant and was infact one of the key reasons for the stock to correct from levels of about Rs 110 to about Rs 80, before moving back up to levels of Rs 91 currently.

Indian equity markets slide
11:30 am

After opening firm, the Indian Indices are witnessing broad based selling pressures during the morning trading session. Stocks from Capital goods sector and oil and gas sector are the leading losers. FMCG stocks are leading the pack of gainers

The BSE-Sensex is trading down 44 points. The NSE-Nifty is trading down 16 points. Both mid cap and small cap stocks are in favour today. The BSE Mid Cap index is trading up 0.2% and the BSE Small Cap index is trading up by 0.1%%. The rupee is trading at 61.52 to the US dollar.

Indian pharma stocks are trading mixed today. While Ranbaxy Laboratories and Dishman pharmaceuticals are the leading gainers; Glenmark Pharma and Piramal Enterprise are among the leading losers. Sun pharmaceuticals subsidiary, Taro pharma has declared September quarter results. The company reported 22.2% increase in net sales. However, company witnessed some decrease in sales volumes. The gross margins for the quarter stood at 79% vs 77.7% in 2QFY14. The company's other operating expenses to declined during the quarter. On the bottom line, the net profits were up by 48% YoY. Sun pharma is trading up by 4% at the time of writing.

Most of the Mining stocks are trading weak with MMTC and Hindustan Zinc being the leading losers. As per the financial daily, Coal India board has ratified the first 1600 MW pithead thermal power project by its subsidiary Mahanadi coalfields at a capital expenditure of Rs 110 bn. Through this the company will foray into electricity generation by the world's biggest coal producer. Reportedly, yesterday the management, without any independent directors on the board five other mining projects were cleared which would generate 30 m tones of coal. The Government is yet to appoint any of the seven independent directors out of total board strength of 14. The independent director berths have been vacant since September 11, 2014.

Indian stock markets open in the green
09:30 am

Barring Japan (down 0.5%), the major Asian equity markets have opened the day on a positive note with markets in Hong Kong (up 1.7%) and Taiwan (up 1.4%) leading the gains. The Indian share markets have opened the day on a positive note. The sectoral indices have opened mixed with the stocks in the FMCG and healthcare space leading the gains. However, stocks in capital goods and software segment were leading the losses.

The Sensex today is up by around 49 points (0.2%), while the NSE-Nifty is up by about 17 points (0.2%). The mid cap and small cap stocks have opened in the green as well with BSE Mid Cap index and BSE Small Cap index up by around 0.3% and 0.4% respectively. The rupee is currently trading at Rs 61.48 to the US dollar.

Energy stocks have opened the day on a mixed note with Oil and Natural Gas Corporation Ltd (ONGC) and Essar Oil Ltd leading the losses. However, Gujarat State Petronet Ltd (GSPL) and MRPL were leading the gains. As per a leading financial daily, the subsidy on domestic LPG has been fixed at Rs 568 per cylinder to be borne equally by the government and national oil companies (NOCs), thus setting the stage for deregulating the pricing of domestic cooking gas. The proposed subsidy is higher than current under-recovery of Rs 416.35 per cylinder. It has also been decided to keep the consumer price unchanged during FY15, after which the deliverable price could vary with the change in international price. The position of actual subsidy requirement would be reviewed in March 2015. As per the petroleum minister Dharmendra Pradhan, any surplus to the oil marketing companies would be kept in a pool account and would be set off against higher international prices in future.

Mining stocks have opened mixed with Coal India Ltd and NMDC Ltd leading the gains. However, MMTC Ltd and Gujarat NRE Coke Ltd were leading the losses. Coal India Ltd has announced results for the quarter ended September 2014. The company has reported a muted growth of 1.7% YoY in the revenues for the quarter. The coal production for the quarter increased 5% YoY. The consolidated net profit for the quarter declined by 28% YoY. The bottomline registered a decline due to flattish sales growth and around 8% YoY growth in the expenses, most of which were on employee benefits.

Loss making PSUs: The way forward

Readers might be aware that recently, the Finance Minister hinted at the possibility the privatization of loss making PSUs. It's not the first time he has made such a statement. It should not come as a surprise to note that there are 79 PSUs in the country that have been declared sick. The accumulated losses of these entities stood at Rs 55.66 bn in FY13 (the last year for which data is available), according to the Business Standard. The government's data show that the number of sick PSUs had declined steadily from 90 in FY05 to 66 in FY12. However, the trend reversed in FY13.

The reasons are not hard to find. Excessive bureaucracies, corruption, the inability to cope with a rapidly changing economy are just some of the factors. Among the unlisted firms are names like, Air India, Hindustan cables, Hindustan Fertiliser Corporation and Hindustan Photo Films. The business models of these firms have deteriorated over the years. Financially, their business models are no longer viable. For example, Air India has a negative net worth of a little over Rs 15.6 bn! Among the listed names are, Hindustan Fluorocarbons, HMT and ITI.. While there are few factors common to the failure of most of these firms; it is important to note that there are company specific factors as well that plague these firms. If any of these firms are privatized, the acquiring company will have to keep all the risks in mind.

The government has not been able to do much for these firms due to its own apathy. Revival plans have not really worked. Many of these firms have several vacant positions at the senior management level. Even the government's own department which looks into the reconstruction of sick PSUs has many vacant posts. The government should start with filling up these posts and then coming up with a clear plan to either revive or privatize or close down these firms.

It is possible to extract some value from some loss making PSUs. However, shareholders of the acquiring firm must be convinced that the deal will add value. If this is not possible then we believe that closing down the firms would be a better option.