Policy actions boost sentiments

The buying momentum continued unabated during the closing stages of the day and as a consequence, indices in the Indian stock markets closed the day strongly in the positive. Gains on the BSE-Sensex came in the region of 470 points (up 3%) while NSE-Nifty witnessed gains of the magnitude of 140 points. While BSE Mid Cap and BSE Small Cap indices witnessed lower gains, they were still up a decent 1.6% and 1.9% respectively. Only two stocks edged lower from amongst the Sensex stocks.

Buoyancy was seen across Asian indices as well. Europe too is trading in the positive currently. The rupee was trading at Rs 51.95 to the dollar at the time of writing.

Favourable developments in both the international as well as local markets helped markets shed its pessimism of the past few weeks and rise significantly today. While news of a new bailout package in Europe improved investor sentiment, the same also got a boost on account of Indian Government's decision of last week to open up the retail sector to FDI. The fact that investors resorted to short covering in Indian markets also added to the magnitude of gains. However, there is still no guarantee that this trend will continue but this should not bother long term investors as decent returns can be had from fundamentally strong Indian stocks for those willing to overlook near term factors.

Infrastructure financing major Infrastructure Development Finance Company (IDFC) is of the opinion that its most recent infrastructure bonds issue will fetch good retail investor participation from smaller towns. It believes that since financial awareness is rising, the interest of the salaried class in the capital markets has grown a great deal. The company is also of the view that since stock markets are quite volatile currently, investors will take greater interest in bonds than equities. IDFC bonds offer opened for subscription on November 21 and would close on December 16. The tax-saving bond comes with a coupon rate of 9 per cent with a lock-in period of 5 years for buy-back. The stock outperformed the broader market and closed higher by 7% today.

It is believed that one man's poison is another man's food and the movement of the Indian rupee against the dollar in recent times is perhaps the best example of this. Thus, while the record low of rupee against the dollar is making most sectors sweat, IT and textile are amongst the industries that seem to be rejoicing the most. This is because a lower rupee will directly translate into higher revenues for these companies without expending even an iota of extra effort. However, with quite a few companies resorting to hedging, the gains from such a move may not be 100%. It is still a welcome development at a time when organic growth is proving difficult to come by. Stocks from both the sectors thus closed higher on the bourses today.

Metal, realty stocks lead gains
01:30 pm

The Indian stock markets extended gains on account of sustained buying interest in heavyweights during the last two hours of trade. All sectoral indices are trading in the grren. Stocks from the metal, realty, Oil and gas, and Public Sector Units (PSU) sectors are leading the pack of gainers.

The BSE-Sensex is trading up by 357 points while NSE-Nifty is trading 109 points above Fridays's closing. The BSE Mid Cap and BSE Small Cap indices are trading up by 1.2% and 1.3% respectively. The rupee is trading at 51.97 to the US dollar.

Auto stocks have been trading mixed with Tata Motors, Maruti Suzuki and TVS Motors leading the pack of gainers. However, Bajaj Auto Ltd and Escorts are trading weak. As per a leading financial daily, considering the rising import costs of raw materials in the midst of weakening rupee, car companies are all set to pass the cost to the customers. Companies such as Maruti Suzuki, Toyota, General Motors, Honda and Skoda Auto are planning to increase prices by up to Rs 10,000 for small cars and up to Rs 25,000 for sedans.

This upward revision would add to the woes of already sliding demand for cars. In October, car sales suffered the worst year-on-year fall in a decade, slumping 24% to 1.38 lakh units. However, the car makers are left with no choice. Due to severe competition in this space, they have already cut the prices to the lowest possible levels. Therefore, there is no further room left to absorb the rising import costs.

Most of the shipping company stocks have been trading in the green with Mercator Lines, Essar Ports and Shipping Corporation of India Ltd (SCI) leading the pack of gainers. However, Chowgule Steamships is trading weak. As per a leading financial daily, according to shipping ministry estimation, the private investment in the port sector would be Rs 510 bn in the 12th five year plan (2012-17), a 6% drop as compared to Rs 544 bn during the 11th five year plan. During the current 11th five year plan, the private investments in the port sector were huge as compared to mere Rs 104 bn during the 10th five year plan. Investments were made during the 11th plan to create new capacity of 485 million metric tons (mmt) in major ports and 345 mmt in minor ports.

According to a leading rating agency, growth at non-major ports is expected to outpace that at major ports, with the former commanding a 51 per cent share of the total cargo in a decade. Indian ports are expected to handle one billion tonnes of cargo in 2011-12, two billion tonnes by 2016-17 and 2.4 billion tonnes by 2019-20. Coal and containers are supposed to me the major drivers in this sector for the growth, going forward.

Stock markets march northwards
11:30 am

Indian stock market indices have been trading in the positive on back of buying in index heavyweights over last two hours of trade. All sectoral indices are trading firm, led by metal and realty stocks.

The BSE-Sensex is trading up by 316 points and NSE-Nifty is trading firm by 87 points. BSE Mid Cap and BSE Small Cap indices are trading up by 1.4% and 1.5% respectively. The rupee is trading at 51.98 to the US dollar.

Power stocks are trading strong today. The gains are led by Neyveli Lignite and Torrent Power. As per a leading financial daily, National Thermal Power Corporation (NTPC) is in talks with Coal India and Shipping Corporation of India (SCI) to join the proposed joint venture of coal logistics. Coal India wants to deliver imported coal at the doorsteps of customers. This will be done through a Special Purpose Vehicle which would be a joint venture between associated parties. For this, it has signed a Memorandum of Understanding with SCI and Indian Railways. NTPC majorly imports coal and thus Coal India is banking on the participation of NTPC in this JV. NTPC aims to import 16 m tonnes to meet its requirement. To keep the coal prices from rising, the power generating companies want to limit their imports to 10% of total consumption.

PSU Banking stocks are trading firm led by State Bank of India (SBI) and UCO Bank. As per a leading financial daily, the Finance ministry has set some targets based on financial parameters that have to be achieved by the PSU banks. These have to be achieved over the next 4 years. The targets are on current and savings account deposits, return on asset, net profit per employee, cost to income ratio, market share etc. The PSU banks are finding this a deterrent in their growth plans. They feel that such a diktat is unprecedented and not required.

Indian stock markets open firm
09:30 am

After a week of heavy losses, the Asian stock markets have opened this week in the green with stock markets in Japan (up 1.8%), South Korea (up 1.7%) and Hong Kong (up 1.7%) leading the gains. The Indian stock market have also opened the day on a firm note. Stocks in the metal and realtyspace are leading the gains.

The BSE-Sensex is trading higher by 271 points (1.7%), while the NSE-Nifty is up by around 83 points (1.8%). BSE Mid cap and BSE Small cap stocks are also trading in the green, with the BSE Mid Cap and BSE Small Cap indices up by 1.2% and 1.1% respectively. The rupee is trading at 52.12 to the US dollar.

Aluminium stocks have opened the day on a firm note with National Aluminium Company (NALCO) and Hindalco Industries trading firmly in the green. As per a leading financial daily, state-owned aluminium producer NALCO is expecting a three-fold jump in alumina exports to about 2.7 million tonnes per annum (mtpa) by the financial year 2014-15. To facilitate the same, the company is planning to overhaul its port handling facility at Visakhapatnam which currently has an alumina handling capacity of 1 mtpa. The company has already invited expression of interest (EOI) from reputed global players by January 15, 2012, for replacement of ship loader. After installation, the new system will not only be able to handle higher capacity but will also improve the dust mitigation measures. This will help in meeting the emission norms set by Andhra Pradesh Pollution Control Board (APPCB).

Oil & gas stocks have opened the day on a firm note with Essar Oil, GAIL India, Reliance Industries and Cairn India leading the gains. In the recent past, Oil and Natural Gas Corporation (ONGC) has failed in its CBM (coal-bed methane) development. To mitigate the problems, ONGC is planning to sell out equity interests in its four CBM assets. These assets are located in West Bengal and Jharkhand. ONGC has received proposals from more than 4 players in the private sector. It is also said that Australia-based Dart Energy, Great Eastern Energy Corporation (GEECL) and Essar Oil have a good track record of developing CBM assets. The company also confirmed that they have received preliminary proposals to acquire equity stake in these 4 CBM assets.

India opens up to Walmart

From the start of the winter session, the Indian parliament has been witnessing a complete logjam on account of various burning issues such as inflation and corruption. Amidst all this, the cabinet approved a new policy for Foreign Direct Investment (FDI) in retail.

What is this policy all about? Why is the government so keen to bring this policy now? On what grounds is it facing so much opposition, not only from the opposition party but also from its allies?

Well, the history of FDI in retail goes back to 1993 when the then finance minister had changed the law to permit FDI in retail trade. Since then, the policy witnessed several changes. At present, FDI in single-brand retail is allowed up to 51% with Government approval. However, FDI in multi-brand retail is totally restricted. In the new policy, approved by the cabinet, complete restriction on FDI in multi-brand retail was lifted. According to the new policy, foreign players can own a 51% stake in multi-brand retail. At the same time, the new policy allows 100% FDI in single-brand retail.

This move would certainly attract foreign retail giants such as Walmart, Carrefour and Tesco to invest in the Indian retail sector. After all, as a fast emerging economy, India presents a huge opportunity on account of its 1.2 bn population. As per estimation, Indian retail market is worth US$ 450 bn a year.

But the moot question remains why we need FDI in the retail sector. Who will gain from all this? It is no secret that India lack in terms of infrastructure and needs a good amount of investment to boost the utilisation of its existing resources. Development in infrastructure would enable the farmers to sell their agricultural produce directly to the big retailers, not to the local mundi. This is likely to fetch them better pricing for their produce. At the same time, due to abolishment of several intermediaries, retailers would be able to offer the products to the final consumers at lower prices. Hence, both farmers as well as consumers would be benefited. That is the key underlying rationale for FDI in retail. Another point is that this move would generate a good amount of employment across the country. It will help existing Indian retail companies to expand with the technical as well as financial support of foreign retail giants.

If all is well with this policy, then why so much hue and cry! Well, this is a definitely a bad news for smaller family-managed businesses (kirana shops). They will not be able to withstand the competition from the big players. They would be forced to shut down their shops. In turn, there would a loss of a large amount of employment opportunity as well. This policy would also hurt the micro, small and medium domestic industries. They fear that after some time, big retailers would start displacing the entire supply chains of the products. And, if not properly checked by the government, their businesses may get severely hurt. According to industry experts, to keep things in balance, the provision for 30% compulsory sourcing from Small and Medium Enterprises (SMEs) in the draft policy should also be gradually increased.

In the policy, the government has allowed FDI in multi-brand retail in cities only with population of 1 million, and for the rest of the country, the current policy regime will apply. Only 53 cities out of nearly 8,000 towns and cities in the country meet such a requirement. Hence, at present, it is not going to affect all kirana stores across the country.

The biggest threat of this policy may prop up in the long run. After the forced extinction of existing retail system to a large extent, big retail players may start abusing their dominant positions in the market. They may not offer good prices to the farmers and lower prices to the consumers, which are being advertised by the promoters of the new policy.

Policy makers have been debating this for more than 15 years. And all these concerns definitely demand a good discussion. However, considering all the reforms this new policy can bring, it would be unfair to oppose it just for the sake of opposing. With proper checks and balances, this policy may go a long way in the development of the Indian retail sector.