Sensex brushes off GDP concerns

The Indian stock markets started the day on a weak note, and were trading below the dotted line for a good part of the morning session. However mid-session they started picking up stream despite the fact that GDP growth for the quarter was at a 2 year low. Some volatility was seen close towards the end of the session however they once again picked up steam towards the end of today's trading session.

Gains on the BSE-Sensex came in the region of 115 points (up 0.7%) while NSE-Nifty witnessed gains in the region of 27 points (up 0.6%). The smaller indices however did not see similar movement. The BSE Mid Cap and BSE Small Cap indices were closed in the red; they were both trading 0.7% lower. Oil and gas and FMCG stocks saw a strong finish. Consumer durables and realty on the other hand saw some selling pressure.

Asian indices were trading mixed. Europe is mainly trading in the negative currently. The rupee was trading at Rs 52.37 to the dollar at the time of writing.

Fears about India's growth slowing down have come to the fore. India's economy grew at its weakest pace in over 9 quarters in the three month period ended September 2011. GDP growth fell to 6.9% in the second quarter of the 2011-12, slipping below 8% for the third straight quarter. The euro zone crisis, slowdown in western economies, stubborn inflation and the 13 rate hikes by the RBI continued to take a toll on Asia's third largest economy.

The manufacturing sector, contributing nearly 16% of the country's GDP, grew at 2.7% in the second quarter. This compares unfavorably with the 7.8% growth seen a year ago. Farm output rose an annual 3.2% for the same period and mining activity fell by 2.9% on account of the illegal mining ban in a few states. Taking into account the trajectory over the past two quarters, the Finance Minister Pranab Mukherjee expects GDP growth to be 7.3% in the current financial year. This is an over 1% contraction from the 8.5% growth seen in 2010-11.

Lack of coal availability is one of the major issues dogging power companies and now Mother Nature is playing its part. Excessive rains and strike by Coal India's workers union has led to shortfall in coal production by 17.95 million tonne (MT) in the last two months. Against a target of 87.68 MT, the actual coal production amounted to just 69.73 MT in the months of September and October. During the two month period, dispatches of coal and products by Coal India to thermal power plants declined by 9% from 48 MT during the corresponding period last year to 43.60 MT. However Coal Minister, Sriprakash Jaiswal said that efforts were being made to make up this shortfall in other months of the year.

FMCG, energy stocks buoy indices
01:30 pm

The Indian stock markets gained on account of returned buying interest in heavyweights during the last two hours of trade. Stocks from the FMCG, software, oil & gas, and banking sectors are leading the pack of gainers while those from consumer durables and capital goods are trading weak.

The BSE-Sensex is trading up by 100 points while NSE-Nifty is trading 26 points above yesterday's closing. However, the BSE Mid Cap and BSE Small Cap indices are trading down by 0.6% and 0.5% respectively. The rupee is trading at 52.31 to the US dollar.

Energy stocks have been trading mixed with Indraprastha Gas, Castrol India and Oil and Natural Gas Corporation (ONGC) leading the pack of gainers. However, Bharat Petroleum Corporation Ltd (BPCL), Hindustand Petroleum Corporation Ltd (HPCL) and Indian Oil Corporation Ltd (IOCL) are trading weak. As per a leading financial daily, Reliance Industries (RIL) has closed four wells in its flagship KG-D6 gas fields off the east coast. This has been done because of high water ingress led to output dipping to 41 million standard cubic metres per day (mmscmd). Of the 22 wells planned in Phase-I of D-1 and D-field development, 18 wells have been drilled and completed so far. Of these, while 14 wells are on production, four wells have been closed due to high water cut and sanding issues. As per the Government, the output from KG-D6 is short of the 70.39 mmscmd level envisaged by now as per the field development plan approved in 2006. However, the stock of the company is trading in green.

Telecom stocks have been trading mixed as well with Bharti Airtel, Reliance Communications and Idea Cellular leading the pack of gainers. However, AGC Networks, ADC India Communications and ITI Ltd are trading weak. As per a leading financial daily, the Department of Telecommunications (DoT) is in a dilemma regarding the third-generation (3G) roaming arrangements among Bharti Airtel Ltd, Vodafone Essar Ltd and Idea Cellular Ltd. DoT is of the view that the agreements should be deemed illegal. However, it is looking at legalizing spectrum sharing by January. This would allow a licensed operator in a telecom zone to lease the airwaves to a company that doesn't have spectrum in the same area. As per an official source, DoT is in a predicament how to impose Rs 500 m penalty (deeming the arrangements illegal) and then legalize it the very next month. The heads of three companies have sought the Prime Minister's intervention in the dispute over the 3G roaming pact and have threatened to surrender spectrum if the roaming arrangements are deemed illegal.

Markets down on Asian cues
11:30 am

Indian stock market indices have extended their opening losses over the last two hours of trade. All sectoral indices are trading in the red led by consumer durables and realty stocks.

The BSE-Sensex is trading down by 113 points and the NSE-Nifty is trading weak by 38 points. BSE Mid Cap and BSE Small Cap indices are trading down by 1% and 0.6% respectively. The rupee is trading at 52.14 to the US dollar.

Power stocks are trading in the red led by Power Trading Corporation (PTC India) and Tata Power. As per a leading financial daily, the Indian power sector has the potential to create around 0.6 m jobs in the next 5 years. The sector that is expected to see a capacity addition of about 0.1 m megawatt during the 12th five year plan (2012-2017) will be requiring investments of about US$ 300-400 bn for this addition. At present the capacity is 0.16 m megawatt. The sector will require minimum 0.4 m people for operation and maintenance, generation, transmission and distribution. However, with increased automation and technical upgrades, the demand for manual labour may come down in the power sector in the future.

Banking stocks are trading weak today led by UCO Bank and Allahabad Bank. As per a leading financial daily, the Reserve Bank of India (RBI) has allowed banks to open branches in Tier 2 cities even without its permission. These tier 2 cities are cities with a population of more than 50,000 but less than a lakh. The decision was taken to speed up the opening of branches and thereby the development of the banking sector in the tier 2 cities. It has been observed that the banks in tier 2 cities are not growing as per the desired pace. It may be noted here that for tier 3- 6 cities, banks already have such relaxation.

Asian markets continue downhill ride
09:30 am

Most Asian stock markets have opened the day on a weak note with stock markets in China (down 2.3%), Hong Kong (down 1.8%) and Taiwan (down 1.3%) leading the losses. However, markets in Malaysia (up 0.7%) and Indonesia (up 0.3%) are trading firm. The Indian stock market have opened the day in the red. Stocks in the consumer durables and capital goods space are leading the losses.

The BSE-Sensex is trading lower by 85 points (0.5%), while the NSE-Nifty is down by around 25 points (0.5%). Mid cap and small cap stocks are also trading in the red, with the BSE Mid Cap and BSE Small Cap indices down by 0.3% and 0.1% respectively. The rupee is trading at 52.15 to the US dollar.

Auto stocks have opened the day on a mixed note with Maruti Suzuki and Hero MotoCorp trading firm. However, Tata Motors and Ashok Leyland are facing selling pressure. As per a leading financial daily, India's leading passenger car manufacturer Maruti Suzuki has finalised a deal with Italian carmaker Fiat. As per the deal, Maruti will source up to 1 lakh diesel engines per year from Fiat. With this deal Maruti plans to increase the production of Swift hatchback from January 2012. A significant rise in petrol prices has boosted the demand diesel cars. While on the one hand the company is having a surplus capacity of petrol cars, it does not have enough capacity to meet the rising demand for diesel models. During the early part of November, 2011, Maruti hiked prices of diesel cars by up to Rs 10,000.

Pharma Stocks have opened the day on a weak note with Ranbaxy Laboratories, Aurobindo Pharma and Opto Circuit leading the losses. Pfizer's Lipitor, the largest selling drug in the world will lose its patent in the US today as the expiry is due. However, the big question is: Will Ranbaxy Laboratories be able to get a slice of that pie? Generic pharma company, Ranbaxy, has six-month exclusivity on the product, but with the company yet to resolve regulatory problems related to the manufacturing facilities in India, uncertainty remains over its exclusivity. Ranbaxy and its Japanese parent Daiichi Sankyo have in the past been confident of being able to launch their generic version of Lipitor in 2011. However, the company has not given any road map for the same yet.

Will the govt. deliver on infrastructure?

India represents much opportunity. However, until it gets its infrastructure in order, that potential will be muted. The Indian government has finally gotten serious about upgrading the roads, electrical grid and waterways, and in that spending, investors can profit. However, India is likely to narrowly miss its target of investing US$ 500 bn in infrastructure under the five year plan ending in 2012. Provisional estimates have indicated that India would have spent around US$ 480 bn in the 11th five year plan which will be more than a doubling of investment compared to the previous plan.

The planning commission of India has set an ambitious target of spending US$ 1 trillion in the 12th five year plan. However there are many problems which need to be addressed before this target can be achieved. India ranks 51st overall in the World Economic Forum competitiveness index, but for infrastructure it fell to 86th this year. Inadequate supply of infrastructure was ranked as the most problematic factor for doing business in the country. India's infrastructure deficit acts as a brake that knocks an estimated 2% points off growth.

In order to hasten the process of infrastructure building the government needs to adopt a holistic approach to infrastructure for sustained development of the economy. Infrastructure related to health, information, water, housing, education, energy and logistics require equal focus to sustain the 8% plus growth in the long run.

Most of the infrastructure projects are held back or delayed due to land acquisition issues, lack of funding and execution delays. The Indian government has stepped up infrastructure spending in recent years, but the slow pace of reforms and a lack of long-term funding options constrain the sector's growth. The government in order to boost funding has also allowed setting up of infrastructure debt funds which are aimed at mobilizing the long term capital needed to improve the country's outdated infrastructure. The Reserve Bank of India (RBI) has also allowed foreign investors to invest in these funds provided they stay invested in them for minimum 3 years. This move by RBI will help raise funds for building infrastructure.

The 12th five-year plan focuses on removing some of these roadblocks and creating a sustainable framework for private-sector participation. Nevertheless, the fate of the infrastructure sector over the next few years will depend on the ability of India's leaders to execute these plans.