Smallcaps in demand today

The Indian markets ended the day on a flat note today, with the BSE-Sensex closing lower by about 1 point and the NSE-Nifty ending higher by about 12 points or 0.2%. Barring stocks from the information technology space, gains were seen across the board with realty and automobile stocks leading the pack of gainers. Midcaps and smallcaps were in favour today with their representative indices closing higher by about 1.4% and 1.6% respectively.

Stock markets in other parts of Asia ended the day on a firm note, while sentiments in Europe seemed to be buoyant at the time of writing. The rupee was trading at Rs 61.89 to the dollar at the time of writing.

Auto stocks closed the day on a weak note today with Mahindra and Mahindra and Maruti Suzuki leading the pack of gainers. Rs 100 invested in the BSE-Auto index a year ago would have been worth close to Rs 160 today. Same amount put in the Sensex at the same time would have been worth a little less than Rs 140. Clearly, auto stocks have been the preferred lot. And within this, stocks of commercial vehicles manufacturers have seen a strong jump in recent times. While the low base effect - back to back decline in volumes of about 25% in each year in FY13 and FY14 - sales volumes of medium and heavy commercial vehicles have been strong in recent months. For the month of November 2014, sales volumes of the top three M&HCV players rose by 54% YoY. It was only since August this year that the growth figures have become positive. And the outlook is expected to remain firm given the declining fuel prices coupled with improving IIP numbers in recent times. Not to mention the improving trend in freight rates, which have been on the rise in recent months on the back of improving fleet utilisation levels.

In other news from the auto space, the Business Standard recently reported that there is a possibility of Tata Motors stopping production of its sedan - Tata Manza - given the dwindling sales volumes of the model in recent times. The average monthly sales volumes of this model this year stood at 130 units only in recent times. Honda's mid size sedan, Honda City - the market leader in this segment - on the other hand has been selling about to 5,840 units a month, with volumes having growth by 200% in the first six months of the current year. As per the business daily, the share of the Manza stands at about 1% within this segment. Also, with the entry of relatively newer models such as Hyundai Verna, Skoda Rapid and Volkswagen Vento, the pressure on the sales volumes of Manza have been increasing. While there has been no official statement from the company regarding this, as per a source of the business daily who is employed at the plant of the auto major, production of the vehicle has been on the decline. However, it is quite possible that the company may be looking to focus its efforts on the prospects of the newer vehicle launched in the segment - Zest.

Indian share markets remain volatile
01:30 pm

Indian share markets slipped back in negative territory in the post-noon trading session. Most of the sectoral indices are trading in the green led by power and realty. Only FMCG and IT stocks are trading in the red.

BSE-Sensex is down 18 points and NSE-Nifty is trading down marginally. BSE Mid Cap is trading 1.5% up and BSE Small Cap index is trading up by 1.6%. The rupee is trading at 61.91 to the US dollar.

Most of the automobile stocks are trading in the green led by TVS Motor and Eicher Motor. As per a leading financial daily, Tata Motor's Jaguar Land Rover (JLR) has started building its fully-owned factory in the Brazilian town of Itatiaia, near Rio de Janerio. The state-of-the-art complex, the first outside the United Kingdom, is being built at a cost of $ 290 m and will have a production capacity of 24,000 vehicles. The plant will employ 400 workers and will also have an education and business centre. Tata Motors stock is trading up by 0.4%.

Majority of the energy stocks are trading in the green with Essar Oil and ONGC being the major gainers whereas Gujarat State Petronet and Hindustan Petroleum Corporation Ltd (HPCL) are trading in the red. As per a leading financial daily, Petronet LNG received the biggest shipment of 2.6 lakh cubic metres of liquefied natural gas (LNG) by ship at its Dahej terminal in Gujarat. Reportedly, this receipt of LNG from Qatar's Ras Laffan is the biggest shipment to date for India as the country embarks to derive economies of scale benefits to meet the growing energy demand. Petronet presently has a long term contract of 7.5 m tonnes of LNG a year from RasGas. In April, the company signed a short term contract to import 8 lakh tonnes of LNG over a 12 months period for supply to refineries. After South Korea, India is the largest importer of LNG from RasGas. Petronet LNG stock is trading up 1.6% presently.

Midcap & small cap, major gainers
11:30 am

Indian share markets recouped early losses and are trading positive in the post-noon trading session. Barring IT and FMCG, all the stocks are trading in the red. Realty and power stocks are the biggest gainers today.

BSE-Sensex is up 35 points and NSE-Nifty is trading 18 points up. BSE Mid Cap is trading 1.6% up and BSE Small Cap index is trading up by 1.7%. The rupee is trading at 61.91 to the US dollar.

Majority of the energy stocks are trading in the green with Essar Oil and Castrol India being the major gainers whereas Gujarat Gas and Indian Oil Corporation (IOC) are trading in the red. As per a leading financial daily, oil marketing companies (OMCs) have cancelled the procurement tender for 1,200 m litres of ethanol. In the light of the falling price of crude, the OMCs are demanding a cut in the price of ethanol contracted earlier. OMCs had made a tender in July to procure 1,560 litres of ethanol from sugar mills. But sugar mills made an offer for only 620 m litres out of which OMCs accepted 350 m litres at a price of Rs 47.50 a litre. But since crude prices have fallen by 37% to $72 a barrel, OMCs are demanding a re-negotiation in the procurement price for the balance 1,200 m litres. In January 2013, the government had mandated 5% ethanol blending with petrol across the country with 10% blending in 10 states taking the total ethanol requirement to 1,560 m litres.

Indian stock markets open in the red
09:30 am

The major Asian stock markets have opened the day on mixed note with stock markets in Japan (up 0.8%) and Taiwan (up 1.5%) leading the gains. However, stock markets in Hong Kong (down 0.2%) and Malaysia (down 0.8%) were witnessing selling pressure. The Indian share markets have opened the day on a negative note. Sectoral indices have opened mixed with FMCG and software stocks leading the losses, while stocks in the auto and capital goods segment are leading the gains.

The Sensex today is down by around 45 points (0.2%), while the NSE-Nifty is down by about 5 points (0.1%). However, the mid cap and small cap stocks have opened in the green with BSE Mid Cap index and BSE Small Cap index up by 0.9% and 0.8% respectively. The rupee is currently trading at Rs 61.92 to the US dollar.

Telecom stocks have opened mainly in the green with Himachal Futuristic Ltd and ITI Ltd leading the gains. However, Idea Cellular Ltd and ADC India Communications Ltd were facing selling pressure. As per a leading financial daily, the government plans to conduct 3G spectrum auctions along with 2G radiowaves sale in February 2015. It has asked telecom regulator TRAI to speed up the base price recommendations on the reserve price of 2100 MHz band (used for 3G services) and related issues. As per the regulator, the Department of Telecom is in talks with the Defence Ministry for the vacation of the band and there are three possible scenarios being considered. Both telecom companies and the regulator believe that the auction should take place only when adequate spectrum is made available, and the bidding for both 2G and 3G should happen simultaneously.

Auto stocks have opened the day mainly in the green with TVS Motors Ltd and Eicher Motors Ltd leading the gains. Bajaj Auto Ltd has reported a 6% year on year (YoY) drop in motorcycle sales to 2.61 lakh units in the month of November 2014. Total sales volumes of company's two- and three-wheelers too have gone flat as the company has sold 3.09 lakh units in the month compared to 3.10 lakh units it sold a year earlier. Total exports have increased 24% YoY to 1.64 lakh units. It is noteworthy that exports now account for 53.59% of the company's total volumes. Bajaj Auto's commercial vehicles sales went up 48% YoY to 47,311 units - the highest-ever November sales for the segment. So far, the total sales in FY15 are up 4% YoY, of which motorcycles sales are up by just 2% YoY and commercial vehicle (CV) sales are up 22% YoY. Exports so far in FY15 have grown by 24% YoY.

Is manufacturing bouncing back?

India's manufacturing sector has been in the doldrums for quite a while now. A combination of policy paralysis, infrastructure bottlenecks, red tape, corruption, rising input prices and a stagnant economy had resulted in a fine mess. India ran the risk of missing out on its manufacturing potential. However, things might be slowly on the mend.

The first signs that the worst may be behind us has come from recent data. The manufacturing PMI (a leading indicator) for Nov 2014 came in at 53.3, the highest level in last 21 months. Core sector (which contributes 40% of IIP) growth in October 2014, came in at a four month high at 6.3%. In addition to this, auto sales posted good growth in Nov 2014. This is after two straight months of decline.

These are indeed positive signs. However, it would be unwise to extrapolate these numbers. It must be kept in mind that the recovery is a nascent one and can be derailed if economic reforms don't come in. While the PMI number is a good one, it should be noted that this index has been rising for the last 13 months. Thus, the growth has been incremental in nature and there has not been a big bang pick-up in manufacturing activity.

The auto numbers should be looked at along with the impact of the festive demand in November. If sales don't sustain, then the industry could be looking at a third straight year of decline. That the auto industry is not yet back on its feet can be gauged by the fact that the clamour for excise duty relief continues. The RBI has also not obliged the industry with a rate cut.

Thus, we believe that it will be a long hard journey for India's manufacturing sector without serious reforms. On this front, there is certainly good news. The government has already shown intent to make India a manufacturing power. A few labour reforms have already been announced. However, a lot more remains to be done. While there is every reason to cheer the recent data, we reckon that the wait for 'acche din' for the manufacturing sector will not be a short one.