Bank stocks party

After trading in the positive territory during post noon trading session, the Indian equity markets gathered steam and closed the day in the green. While the BSE-Sensex today closed higher by 267 points, the NSE-Nifty closed higher by 75 points. However, Midcaps and Smallcaps closed weak today. Both BSE Mid Cap index and BSE Small Cap index closed lower by 0.08% and 0.1% respectively. Banking stocks were the biggest gainers today.

As regards global markets, Asian pack closed strong today. The rupee was trading at Rs 61.83 to the dollar at the time of writing.

Auto stocks ended the day on a strong note. Tata Motors and HeroMoto Corp were the biggest gainers. Auto major, Tata Motors is planning to treble its CV exports by 2018-19. It is targeting key regions like Russia and ASEAN so as to increase its share of exports. The medium and heavy commercial vehicle segment is already showing signs of recovery. In the last 2 months it has grown in excess of 20%. The company is aiming for a 15% growth in this space in the current fiscal. If the growth indeed materializes and export markets also pick up, volumes of the company in the CV space are likely to show strong improvement over the coming years. This shall help Tata Motors gain market share and tide competition.

As per the new mining law, companies will be allowed to sell their mines henceforth. At present, the law does not permit companies to sell mines. Hence, whenever acquisitions happen in the mining space the mining leases get transferred to the acquirer. As per the new law, companies will be free to sell mines from now on. At the time of sale, the seller will have to pay some fee to the government. And the state government will check if the buyer meets all the criteria before transfer happens. This shall bring in more transparency into the sector.

Indian Share markets remain firm
01:30 pm

Indian share markets continued to trade high in the post-noon trading session. Majority of the sectoral indices are trading in the green led by banking and consumer durable stocks. Only IT and metal stocks are trading in the red.

BSE-Sensex is up 225 points and NSE-Nifty is trading 67 points up. BSE Mid Cap is trading 0.4% up and BSE Small Cap index is trading up by 0.2%. The rupee is trading at 61.86 to the US dollar.

Most of the domestic pharma stocks are trading in the red with Orchid Chemicals and Natco Pharma being the biggest losers. Cipla and Biocon are among the few stocks trading positive. As per a leading financial daily, Dr Reddy's Laboratories (DRL) has launched over the counter (OTC) drug for allergy and congestion in the US markets. The OTC drug Fexofenadine Hydrochloride and Pseudoephedrine Hydrochloride Extended Release tablets 60 mg /120 mg is a bioequivalent generic version of Allegra-D@12 Hour Allergy & Congestion brand that has annual sales of around $49.8 m in the US as per IRI. DRL stock is currently trading down marginally.

Majority of the FMCG stocks are trading in the green with Jyothy Consumer and Pidilite Industries being among major gainers. However Dabur and Kokyo Camlin are among biggest losers. As per data released by data agencies IMRB and GfK, urban markets are witnessing revival in demand for FMCG and white goods. The FMCG consumption in value terms was up by 7% in the urban markets in the September 2014 quarter as compared to 2% growth in the corresponding year-ago period. Growth in rural demand in value terms remained flat at 3% in the September 2014 quarter. Companies like Britannia and Parle have launched premium brand of cookies to capitalize on the demand upturn. According to Godrej Consumer Products Ltd (GCPL), since the urban markets were hit more by the slowdown, their pick-up is faster than the in the rural markets. However, the company expects incremental demand in rural markets over the next two quarters due to a good rabi crop harvest in the North. Apart from FMCG goods, consumer durables such as microwave ovens and refrigerators are recording double-digit volume growth after a flat offtake in the last two years. Therefore white good companies such as Videocon Industries, Whirlpool, Samsung, LG and Godrej Appliances are launching premium products such as fully automatic washing machines, multiple-door refrigerators and microwave ovens.

Banking stocks lead the gainers
11:30 am

After opening in the red, the Indian Indices have bounced back strongly and are trading well above the dotted line during the morning session. Banking stocks leading the gainers while IT and pharma stocks are trading in the weak.

The BSE-Sensex is trading up 227 points. The NSE-Nifty is trading up 72 points. The BSE Mid Cap index is trading up 0.8% and the BSE Small Cap index is trading up 0.7%. The rupee is trading at 61.95 to the US dollar.

Engineering stocks are currently trading mixed with the gainers being led by Voltas and Alstom T&D. As per a leading business daily, the government yesterday approved a spending of Rs.430 bn to fund an initiative to supply electricity through separate feeders for agricultural and rural domestic consumption. It has done this with and the aim of providing 24 hour power supply to village households, which have hereto faced extremely erratic power supply. Further, the government has also approved spending Rs 326 bn on an integrated power development initiative. This will encompass strengthening the sub transmission and distribution systems. Among others, an industry which is bound to benefits is capital goods sector, especially those companies catering to the power and transmission and distribution space.

Most telecom stocks are trading higher today. Tata Communications and Mahanagar Telephone Nigam Ltd. (MTNL) are leading the gainers. As per a leading financial daily, the Department of Telecom (DoT) and the defense ministry have reached a partial understanding regarding the issue 3G spectrum held with the latter. The defense ministry has agreed to free up 5 MHz of pan India spectrum for the auctions. Once this is done the government will be able to auction 20 MHZ of 3G spectrum in 17 circles and 15 MHz in the remaining 5 circles. However, the decision to split the auctions into two parts will still cause intense bidding. The government will auction 2G spectrum in February 2015 while the 3G spectrum will be auctioned in May 2015.

Indian stock markets open in the red
09:30 am

The major Asian stock markets have opened the day on a mixed note with markets in Japan (down 0.5%) and Malaysia (down 0.5%) leading the losses. However, stock markets in Singapore (up 0.7%) and China (up 0.6%) were trading in the green. The Indian share markets have opened the day on a weak note. Barring capital goods and software, all sectoral indices have opened in the green with the stocks in the banking and healthcare sector leading the gains.

The Sensex today is down by around 16 points (0.1%), while the NSE-Nifty is down by about 1 point (0.01%). The mid cap and small cap stocks have opened in the green with BSE Mid Cap index and BSE Small Cap index up by around 0.2% and 0.4% respectively. The rupee is currently trading at Rs 61.85 to the US dollar.

Software stocks have opened the day on a mixed note with HCL Infosys and Info edge Ltd leading the gains. However, Infosys Ltd and Wipro Ltd were leading the losses. As per a leading financial daily, Tech Mahindra Ltd has acquired Virginia based Lightbridge Communications Corporation (LCC) for an enterprise value of approximately US$ 240 m. It is noteworthy that LCC is one-of-the world's largest independent global providers of network engineering services provider with more than 5000 employees in over fifty countries. The company's annual revenue stands at nearly US$ 400 m. The deal has been funded via internal accruals and the acquisition is likely to be completed by fourth quarter of FY15.

Indian Pharma stocks have opened mixed with Panacea Biotech Ltd and Cipla Ltd leading the gains. However, Ranbaxy Laboratories Ltd and Orchid Chemicals Ltd were leading the losses. As per a leading financial daily, Cipla Ltd has announced an agreement with Serum Institute of India (SII) for distribution of paediatric vaccines in Europe. As per the agreement, SII will develop and manufacture paediatric vaccines and Cipla will seek European Medicines Agency approval. Cipla will also market the products in Europe. The arrangement thus will allow Cipla to enter into the vaccines segment. It is noteworthy that in the past six months, Cipla has strengthened its presence in Europe and launched respiratory products such as Salmeterol/Fluticasone in Germany, Sweden, Czech Republic, Slovakia and Croatia. In July, it had signed an exclusive partnership with BioQuiddity regarding regional anaesthetic applications for post surgical pain management. As per Cipla's new strategy, the company is entering into various partnership deals to establish its front end presence in various markets

Will this sector be ever out of woods?

We at Equitymaster wouldn't touch aviation stocks with a bargepole. This sector just does not fit in the bill, due its poor fundamentals.

Even while the Indian aviation sector is witnessing reasonable volume growth, the domestic airlines continue to incur huge losses. Rising price war is a permanent matter for the aviation stocks. In fact, this has been one of the reasons for the airlines witnessing huge losses in their books.

Among the other things, problems plaguing the industry are high fuel costs (aviation turbine fuel - ATF), high cost of capital and steep taxes. Among all these, ATF costs take the largest chunk of its operating costs. Over and above that, currency depreciation too has impacted these carriers.

We came across an interesting article on Economic Times which states why India's aviation companies haven't been able to benefit from crude oil prices, which have plummeted sharply in last one month. When we compare this with the US-based airlines, the impact of falling crude oil prices is positive. But, the scenario for the Indian carriers is quite different - stocks of Indian airline companies move down (not up) when crude prices soften. That means, there is hardly any correlation between the crude prices and the stock prices of Indian aviation companies.

Challenges and steep losses accompanied by weak balance sheet have been the key characteristics of the Indian airline companies. While, the airlines have been adopting various cost control measures, very little development has been witnessed in the financial health of these companies.

More recently, SpiceJet's quarterly result came as shock. The company has reported losses, and now has negative net worth of Rs 14,597 million. Not only that even the company's auditors have raised concerns over such a performance of this airline. This indicates, the company's financial health is not sound and thus this airline might become financially unviable to continue its business operations. Also, we are aware of the errant ending of the King of good times

The government's step to allow FDI (Foreign direct investment) in the Indian airlines will be certainly quite beneficial since the FDI has paved the way for much-needed equity infusion into Indian airlines. These initiatives are likely to help airlines which are tiding over high costs and negative profits. The Jet Airways and Etihad deal, for instance, is expected to bring down the operating cost and subsequently cushion up profits.

However, there is other side of the coin too. Competition will also intensify with more FDI entering the Indian aviation sector, indicating increased price war.

In crux, we believe that Indian airlines still have a very long way to go. In order to restructure their debt heavy and loss making businesses various smart initiatives are required. Else days will not be far when most of our Indian carriers will go the the Kingfisher way.