A rangebound day of trading

Indian equity markets traded firm throughout today's trading session on the back of sustained buying across index heavyweights. However, trading remained largely within a range. While the BSE Sensex today closed higher by 115 points, the NSE-Nifty closed higher by 35 points. The BSE Mid Cap and the BSE Small Cap also did well and gained around 1% each. Gains were largely seen in metals, IT and healthcare stocks.

As regards global markets, Asian indices closed mixed today while European indices have opened in the green. The rupee was trading at Rs 62.34 to the dollar at the time of writing.

Steel stocks closed firm today and the key gainers were Maharashtra Seamless and Tata Steel. As per a leading business daily, the first phase of Tata Steel's greenfield steel plant at Kalinganagar in Odisha is expected to become operational by the second half of 2015. The total cost of the project has been pegged at Rs 400 bn out of which the first phase accounts for Rs 250 bn. In 2004, the total cost of the project was pegged at Rs 154 bn but this considerably escalated since then on account of delays. In addition to this, the company's proposed 50,000 tonnes per annum ferroalloys plant at Gopalpur will also be commissioned in FY15. Going forward, the domestic business is expected to be the key growth driver for Tata Steel while earnings for Corus would remain under pressure in the near term. But from a longer term perspective, capacities coming on stream and revival in demand in Europe are expected to bolster the company's fortunes.

As per a leading business daily, the US market is expected to become a key growth driver for Dr.Reddy's backed by a strong product pipeline. What is more, large part of this pipeline consists of limited competition, high margin products. According to the company, 51-52% of its FY14 and FY15 estimated sales in the US will come from such products. This proportion stood at 15% in FY10 and surged to 43% in FY13. For starters, Wockhardt's inability to supply Toprol on account of the import alert on its Chikalthana plant will benefit Dr.Reddy's, Actavis and Mylan. The size of this product has been pegged at over US$ 130 m. Other products which Dr.Reddy's is expected to benefit from include Lamictal (epilepsy) as well as Prevacid (heartburn), Vidaza (cancer) and Dacogen (cancer). Dacogen had US sales of around US$ 260 m for the 12 months ending July 2013 according to IMS. The stock closed higher today.

Indian share markets remain buoyant
01:30 pm

After a firm opening, Indian share markets continued to trade well above the dotted line in the post-noon trading session. All the sectoral indices are trading in the green with realty, capital goods and power stocks being the biggest gainers.

BSE-Sensex is up 133 points and NSE-Nifty is trading 42 points up. BSE Mid Cap is trading up 0.8% and BSE Small Cap index is trading up 1%. The rupee is trading at 62.4 to the US dollar.

All the automobile stocks are trading in the green with Eicher Motors and Ashok Leyland being the major gainers. As per a leading financial daily, Ashok Leyland has launched intermediate commercial range of vehicle 'Boss' in Andhra Pradesh market. The new range will be launched across the country in a phased manner after operations are consolidated in the southern and western regions. Ashok Leyland wants to increase its presence in the rapidly growing intermediate range of commercial vehicles that have carrying capacity of 8 to 16 tonnes. Currently the company has a single offering in this segment and plans to acquire a bigger share through the launch of Boss for haulage in 9.6, 11.9 and 12.9 tonnes. The Boss range is manufactured in the company's Pantnagar facility in Uttarakhand. Ashok Leyland's stock is currently trading up by 3.2%.

Most of the Indian pharma stocks are trading in green with Indoco Remedies and Glenmark Pharmaceuticals witnessing maximum buying. Recently, Wockhardt Ltd announced that the company's second facility has also received import alert on its Chikalthana facility. It is important to note that company's key product Metropolol succinate was also manufactured in this facility. The ban on this product will be quite negative for the company. This was an important contributor to the company's US revenues. Company had around 20% market share in this product. There are just 4-5 players who have launched this product. By nature this product has high entry barriers and thus better margins. Among these 4-5 players, even <>Dr Reddy's sells the generics of this drug in the US market. It is likely that the ban on Wockhardt's facility might impact its market share with Dr Reddy's and other players expected to gain. In our view, Dr Reddy currently has 12% market share in Metropolol succinate and might gain some share from Wockhardt's exit.

Capital Goods, Energy stocks lead the gains
11:30 am

After opening in green Indian markets continued to trade firm in the last two hours of trading session. Capital goods and Oil & Gas indices have been leading the gains in the markets.

BSE Sensex is trading up by 153 points and NSE-Nifty is trading up by 47 points. The BSE Mid Cap index is trading up by 0.88% and BSE Small Cap index is trading up by 0.77%. The Rupee is trading at 62.4 to the US Dollar.

Automobile stocks are trading positive today. Ashok Leyland and Bajaj Auto are leading the gainers. TVS Motors and Tube Investments are leading the losers. According to a leading business daily, Maruti Suzuki has announced that the company will recall 1492 vehicle units of Ertiga, Swift, Dzire and A-Star models. These models were manufactured between 19th October and 26th October, 2013. The models are supposed to have a problem with steering column. The company has said that if the steering column is found defective, it will replace the steering column for free. It has already dispatched new steering columns to dealer workshops.

According to a business daily, in February 2010, Maruti had recalled about 100,000 A-Star cars, its flagship export model in order to replace a faulty fuel pump gaskets. Maruti Suzuki also recalled 13,157 diesel variants of Swift, DZire and Ritz cars in April 2011. Overall, many Indian automakers such as Ford, Renault, Honda and Yamaha have recalled more than 300,000 vehicles in last one year. The recalls have increased ever since the Society of Indian Automobile Manufacturers (Siam) announced a voluntary recall code in July 2012. Maruti Suzuki is trading 0.6% up today.

Software stocks are trading mixed today. Datamatics Global and Tata Elxsi are among the stocks leading the gainers; while Tech Mahindra and Infinite Computer Solutions are among the stocks leading the losses. According to leading news daily, India's leading software Company, Infosys will undertake a major change in its software delivery process. The company has begun a process whereby it will completely overhaul its famed Global Delivery Model (GDM). Infosys which had pioneered the GDM nearly 20 years ago is looking to cut down on costs and improve efficiency for both itself as well as its clients. The company hopes to become more competitive in the process. Once the process is complete, Infosys will significantly reduce the number of onsite employees, especially senior staff, to bring down its dependence on such expensive efforts. It will also increase the number of night shifts of its employees in India to increase its offshore effort. Apart from improving competitiveness, this strategy would also help Infosys mitigate the negative effects of the US immigration bill which is due to be passed into law in 2014. Infosys is trading down 0.3 % today.

Indian share markets open in the green
09:30 am

The major Asian stock markets have opened the day on a positive note with stock markets in Japan (up 1.2%) and China (up 1.3%) leading the gains. The Indian share market indices have opened the day on a firm note as well. All sectoral indices have opened in the green with the stocks in the banking and realty space leading the gains.

The Sensex today is up by around 140 points (0.7%), while the NSE-Nifty is up by around 46 points (0.8%). Mid and small cap stocks have also opened 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 currently trading at Rs 62.30 to the US dollar.

Power stocks have opened the day mainly in the green with Indiabulls Power Ltd and PTC India Ltd leading the gains. As per a leading financial daily, Tata Power Ltd has announced that it has generated 22,738 million units (MUs) of power collectively from all its power plants in first half of the financial year 2013-14 (1HFY14). This compares to 14,029 MUs in the corresponding period of the previous year, implying a 61% year or year (YoY) increase in the generation. With the impressive growth in the generation, the company has reinforced its position as the largest integrated power company in India. The total power generation capacity of the company from various fuel sources stands at 8,521 megawatt (MW). As per the management, its subsidiaries - Coastal Gujarat Power Ltd (CGPL) and Maithon Power Ltd (MPL) have contributed significantly to the growth in generation capacity, with 11,574 MUs and 2,930 MUs respectively. The clean energy sources contribution amounted to 1,439 MUs. The company has committed to maintain a 20%-25% share of its generation mix through non- greenhouse gas (non GHG) sources. The non-GHG capacity percentage had come down from the last year because of the large capacity addition through CGPL.

Mining stocks have opened the day on a mixed note with Sesa Sterlite Ltd and NMDC Ltd leading the gains. However, Gujarat NRE Coke Ltd Manganese Ore (India) Ltd (MOIL) were facing selling pressure. The Petroleum Secretary Mr. Vivek Rae in his address at the Energy Security Conference 2013 has said that Coal India Ltd (CIL) would soon be authorized to explore coal bed methane (CBM) gas in its mines. The petroleum ministry has auctioned 30 CBM blocks while three others have been allocated on nomination basis. Mr Rae also stated that India has better prospects for CBM than shale gas and oil. Being the fourth largest coal producer in the world, India holds significant prospects for CBM exploitation. As per the Directorate General of Hydrocarbons (DGH), the country's CBM reserves have been estimated to be around 4.6 trillion cubic metres.

Has China lost its low cost hub status?

China is a manufacturing hub. Ample presence of low wage laborers has made Chinese products competitive. In addition to that, artificially keeping the value of Yuan low makes the dragon nation an export hub. As a result, Chinese products have flooded the global markets. And India is no exception. Most low end manufacturing products are being imported from China. And this has affected the small & medium enterprises (SMEs) in India. Products manufactured by SMEs are in direct competition to the ones that are being imported from China. Thus, most SMEs are suffering and have gone into losses. This has impacted the livelihood of unskilled laborers.

Many are of the view that quotas or tariffs should be levied on Chinese imports. This may avoid dumping and protect the domestic industries. However, this may result in trade barriers amongst nations. Thus, Mr Nair, advisor to PM, is of the view that instead of spinning a regulatory web Indian units should increase their competitiveness. It may be noted that competitiveness comes not only from pricing but also from product differentiation. So, if Indian counterparts can manufacture products that are superior in quality it may find takers even if the pricing is slightly on the higher side. Something similar seems to be already happening in the Indian power equipment space. While the Chinese equipments are cheap and their turnaround time is also low, quite a few power producers prefer to stick with domestic counterparts for the want of quality.

As highlighted earlier, the main reason for Chinese competitiveness is low wage rates and artificially low currency. While low wage rates is a natural competitive advantage since it is a populous country; however keeping the currency value low to boost exports is a artificial advantage created by the People's Bank of China. Not to mention the export benefits that companies might be receiving there for earning foreign exchange.

However, it may be noted that Chinese competitiveness is limited to low end products which are labor intensive and not technology intensive. Thus, China is more of a threat to India and other emerging economies and not US which has manufacturing competitiveness in technology oriented products.

As a result, Indian SMEs have been largely impacted. Most workers have lost their jobs. Nonetheless, if the government ensures that there is skill development and better literacy, India can compete with China at least to some extent. This may pose a threat to Chinese supremacy. Another factor which indicates that China's advantage may wipe out in near future is the fact that wages in the dragon nation have been on a rise in recent times. As a result, manufacturing jobs have already started shifting to other low wage nations.

However, it may be remembered that the currency advantage is likely to stay with China as the government is unlikely to remove the peg. And as long as the peg is in place Chinese products will continue to flood global markets including India. Quotas and tariffs are the possible ways through which countries like India can avoid dumping from China.