Mid and Small Caps steal the show

Indices in the Indian equity markets remained within a narrow range during the final session as well. They thus ended the day nearly flat but with a slight positive bias. While the BSE-Sensex edged higher by around 30 points, gains on the NSE-Nifty came in at around 10 points (up 0.2%). BSE Mid Cap and BSE Small Cap indices however stole the limelight today, edging higher by close to 1% each. Nearly three stocks on the Sensex gained for every two that closed the day in the red.

While Asian indices closed mixed today, Europe is trading mostly in the red currently. The rupee was trading at Rs 55.9 to the dollar at the time of writing.

There wasn't any particular development of note that would account for today's mildly positive closing and also the bias towards Mid and Small Caps. At the same time, there isn't anything too negative either as most of it seems to be already priced into the stocks. We reckon that rather than getting into this positive and negative trend game, investors would be better off buying fundamentally strong stocks at good valuations as long term India does look like the place to be.

Activity in the domestic airline sector has picked up considerably ever since the Government allowed foreign players to have up to 49% stake in a domestic airline company. It is believe that some private airlines in the country are in touch with foreign carriers for sale of stakes and negotiations are at an advanced stage. The way the stock prices are moving, it can be argued that Jet Airways and Spicejet Ltd have emerged as the two top contenders. Their stocks closed higher by 10%-12% today. If any partnership does materialize, it will be a shot in the arm for the beleaguered sector that is going through some tough times on account of soaring fuel and interest expenses. The long term story though in terms of demand remains pretty attractive according to us.

Those who are worried about rupee's further fall should find comfort in the words from C Rangarajan, Chairman of the Prime Minister's Economic Advisory Council. Mr Rangarajan argued that the rupee will continue to remain around its current levels as capital inflows would prevent it from depreciating further. Mr Rangarajan is also of the view that India's current account deficit should come down to around 3.5% by the end of this financial year on account of lower gold imports, better capital inflows and stable oil prices. We do hope that this is the case as higher current account deficit is not good for the country's forex reserves as also its currency. Over the long term, we do want the currency to have a stronger purchasing power and not weaker.

Mid, smallcaps in favour today
01:30 pm

The Indian markets moved higher above the dotted line during the post noon trading session. Buying activity is being witnessed in stocks across the board barring those from the consumer, banking and auto spaces. Stocks from the consumer durables and metal sectors are leading the pack of gainers.

The Sensex today is trading higher by about 40 points (up 0.2%), while the NSE-Nifty is trading higher by about 10 points (up 0.1%). Stocks from the midcap and smallcap spaces are trading firm with the BSE Mid Cap and BSE Small Cap indices up by about 0.8% and 0.9% respectively. The rupee is trading at 55.66 to the US dollar.

FMCG stocks are currently trading firm with GSK Consumer, United Spirits and Britannia leading the pack of gains. As per a leading financial daily, parent company GlaxoSmithKline (GSK) has announced an open offer to buy shares in the listed Indian subsidiary GlaxoSmithKline Consumer Healthcare Ltd (GSKCH). According to the offer, GSK wants to acquire 13.4 m shares at a price of Rs 3,900 per share. Post the offer, parent GSK's stake in GSKCH is set to rise from 43.2% to 75%. The current SEBI regulations require a minimum public shareholding of 25% for a company to maintain a public listing. The offer period is likely to commence in January 2013. GSK has said that this buy-out represents a further step in the company's strategy to invest in the world's fastest growing markets. The stock of GSKCH is up by 20% today.

Auto stocks are currently trading firm with Ashok Leyland, TVS Motor and Tata Motors leading the pack of gainers. A leading business daily has reported that auto maker Mahindra and Mahindra is competing with an Italian buyout firm named Investindustrial for a stake in British luxury sports car maker Aston Martin. The Economic Times has reported that M&M has emerged as a frontrunner to become a strategic investor. It may however be noted that the same was not an official statement from the company. Aston Martin is currently owned by a Kuwait-based finance firm Investment Dar. Investment Dar acquired this company from Ford Motors for US$ 767 m in 2007. As reported, it is believed that M&M may pick up a 40% stake initially at a cost of US$ 190 to 320 m, and could raise it by another 10% over the next four years. M&M's stock is trading lower by about 2%.

Indian equity markets trade strong
11:30 am

Indian equity markets continue to trade strong over the last two hours of trade. Consumer durable and Pharma stocks witnessed maximum buying interest while Banking and Realty stocks witnessed maximum selling pressure.

The Sensex today is up by 41 points, while the NSE-Nifty today is up by 8 points. BSE Mid Cap index and the BSE Small Cap index are up by 0.6% and 0.7%. The rupee is trading at 55.63 to the US dollar.

Energy stocks are trading in the green led by Essar Oil and MRPL. According to a leading financial daily, Bharat Petroleum Corporation Ltd. (BPCL) has received the environment clearance from the Ministry of Environment & Forests for its integrated refinery expansion project (IREP). The project envisages increasing the capacity of the refinery by 6 million tonnes (mt) per annum to 15.5 mt from the present 9.5 mt. The estimated cost is Rs 142 bn and it is scheduled to be completed by December 2015. The company also plans to modernise the refinery to produce auto-fuels complying with Euro-IV and V specifications, upgrade low value refinery residue stream to value-added products and produce propylene, a major petrochemical feedstock. BPCL plans to utilise propylene to make petrochemical products like acrylates and super absorbent polymer that are predominantly imported into the country.

Finance stocks are trading strong led by J M Financial and Sundaram Finance. According to a leading financial daily, Power Finance Corporation (PFC) and Rural Electrification (REC), have jointly agreed to equally share the funding of expansion project of Odisha Power Generation Corporation ( OPGC), a joint sector company of the Odisha government and AES of USA. OPGC has tied up the funds for 1,320 Mw expansion project at its 420 Mw Ib Valley power station. PFC and REC will equally share Rs 86.6 bn loan component of the expansion plan whose total cost is pegged at Rs 115 bn. The project is being funded on a debt equity ratio of 3:1. The equity component of Rs 28.8 bn will be borne by OPGC. The Odisha government holds 51% stake in OPGC with AES having the rest 49% shares.

Indian share markets open firm
09:30 am

The major Asian stock markets have opened the day on a mixed note with stock markets in China (down 0.1%) and Malaysia (down 0.1%) leading the losses. However, the markets in Japan (up 0.7%) and Taiwan (up 0.8%) have opened on a positive note. The Indian share market indices have opened the day on a firm note. Barring banking, all sectoral indices have opened in the green led by stocks in the consumer durables and software sector.

The Sensex today is up by around 52 points (0.3%), while the NSE-Nifty is up by around 12 points (0.2%). Mid and small cap stocks are also trading in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.5% and 0.4% respectively. The rupee is trading at Rs 55.46 to the US dollar.

Auto stocks have opened the day mainly in the green led by Tata Motors and Force Motors. As per the data available with Society of Indian Automobile Manufacturers (SIAM), Japanese auto major Honda Motorcycle and Scooter India (HMSI) has overtaken Munjals' promoted Hero MotoCorp in the premium motorcycle (between 125 and 150 cc engine segment) category sales. It is important to note here that the both used to be partners earlier and had parted ways nearly two years ago. Between April and October of this fiscal, Hero's sales in the premium segment have declined by a steep 53% to 80,303 units. However, HMSI has registered a strong growth of 76% to sell 134,650 units during the period. This is despite the fact that HMSI has not introduced any new products in the category. In the corresponding period last year, Honda was trailing behind Hero by 92,861 units. The premium category has strong revenue and margin implications since its product prices are 45% -92% higher than that of a model in the entry-level mass segment. Also, HMSI has closed the sales gap with Hero MotoCorp to a mere 3,418 units (April-October 2012) even in the 110-125 cc motorcycle segment. This compares to a gap of 26,542 units in the same period last year.

Steel stocks have opened the day on a mixed note with Adhunik Metaliks and Hindustan Zinc leading the gains. However, Tayo Rolls and Bhushan Steel were trading weak. As per a leading financial daily, due to difficult economic conditions in Europe, Tata Steel will go for restructuring. As a part of this restructuring drive, it is planning to cut 900 jobs in the UK, majority of which will be of administrative and management personnel at its integrated production plant in Port Talbot, South Wales. Tata Steel also intends to revamp its redistribution and processing hubs and reduce the total number from 16 to 6. The company will reduce shifts at its long-products operations in Rotherham, and its tubing business in Hartlepool to adjust production levels to lower demand. It will also re-start a blast furnace at Port Talbot early next year, following a Rs 22 bn investment programme and restart a hot strip mill at its Llanwern site in South Wales.

The primary markets' long dry spell ends

Equities have not been amongst the most favourite asset class for retail participants over the past few years. We say this because the share of retail investors in mutual funds has been on a steady decline mode. While the stagnant market movement may be a reason, alternate asset classes such as gold and real estate have also seen a lot of interest.

However, ever since the announcements of the various reforms have been made, interest levels - especially from the non-retail participants' side - have increased. This is on the back of the broader outlook of equities improving as some much needed reforms, such as the diesel price hike, were announced.

Some revival in the primary markets

The improved sentiments and outlook of the equity markets has led to some activity taking place within the primary markets - the market that deals with issuance of new securities - which have gone through a prolonged dry spell for a while now.

As reported by the Economic Times, merchant bankers have begun meetings with large-sized investors - insurance companies, foreign investors, mutual funds and high net worth individuals (HNIs) - to solicit commitments.

A month from now, nearly a dozen equity issuances are expected to hit the market. These would be spread across initial public offerings (IPOs), offers for sale (OFS) and qualified institutional placements (QIPs).

The government's divestment programmes in companies such as National Mineral Development Corporation (NMDC), Oil India and Hindustan Copper are one side of it. A couple of large ticket IPOs as set to hit the markets early next month as well. These include Bharti Infratel, CARE Ratings and PC Jewellers. While the Bharti Infratel IPO would be sized at a massive Rs 50 bn, the other two would be launching IPOs of about Rs 5 bn.

Further, the end of year target of promoters to lower their stakes to the maximum limit of 75% has led to a handful of promoters offloading their excess stakes through the OFS route. Companies - financial and non-financial - are also believed to want to take this route for raising capital.

While market condition have been tough for most part of this year, seeing some revival in activity in the primary market does give out some positive sign. However, it must be noted and as pointed out by the business daily, December is generally a weak month for primary markets given the holiday season in the West. As such, this phenomenon could also be a possibility of meeting deadlines in some cases. Whether this trend will continue in the months to come is something that needs to be seen.