Persistent selling hits indices

Indian indices languished in the red for a larger part of the trading session today. Although, there were some attempts made in the afternoon session to push above the dotted line, these proved futile and the markets closed into the red in the final trading hour. While the BSE Sensex closed lower by around 47 points (down 0.2%), the NSE Nifty lost around 16 points (down 0.3%). Selling was more pronounced in midcap and smallcap stocks as the BSE Midcap and the BSE Smallcap racked losses of 2% and 1% respectively. Banking stocks were the worst hit while metals and oil& gas stocks managed to buck the trend.

As regards global markets, Asian indices closed mixed today while European indices have opened in the green. The rupee was trading at Rs 44.74 to the dollar at the time of writing.

Pharma stocks closed mixed today. While Piramal Healthcare, Sun Pharma and Glenmark found favour, Cadila Healthcare and Biocon closed into the red. As per a leading business daily, pharma major Glenmark and its partner Lehigh Technologies (LVT) have jointly received approval from the US FDA to market a line of controlled substance products containing ‘Oxycodone Hydrochloride.' As per IMS, for the twelve month period ending September 2010, ‘Oxycodone Hydrochloride' had total market sales of US$ 13 m. These products will be launched in the US both in the generic as well as branded forms. While Glenmark will market the product in the generic form, LVT will retain exclusive marketing rights for the branded form. This news comes as positive for Glenmark and will augment its revenues from the highly competitive US generics market. The added advantage is that controlled substances is a niche area and so the competition and price erosion will be lesser.

The Indian government expects India's GDP to grow at around 8.75% in FY11 and could even breach the 9% mark. The headline inflation is expected to ease to 6.5% by the end of December. In the review, food inflation has been pegged at 19.9% in the review, fuel inflation stands at 10.3%. The mid-term review sees budget deficit at 5.5% of GDP for the current fiscal. The RBI has been tightening its policy measures to keep inflation in check and is likely to do so till the same eases within the central bank's comfort range. The mid-term review has also talked about the pushing reforms which in turn would attract long-term investments from foreign investors.

Banking, realty lead the losses
01:30 pm

Persistent selling activity led the Indian markets to decline sharply during the previous two hours of trade. Pressure is led by losses in stocks forming part of the banking, realty and capital goods spaces. On the other hand, stocks from the oil and gas and IT spaces are amongst the top performers.

The BSE-Sensex is currently trading lower by about 130 points (down 0.7%), while the NSE-Nifty is trading lower by about 40 points (down 0.7%). Stocks from the midcap and smallcap spaces are not in favour today as well. While the BSE-Midcap Index is lower by 1.4%, the BSE-Smallcap Index is trading lower by 1.9%. The rupee is trading at 44.82 to the US dollar.

Stocks of two-wheeler manufacturers are trading firm led by Hero Honda, Bajaj Auto. Inspired by Tata Motor's effort to produce the cheapest car in the world, the Nano, Venu Srinivasan, the Chairman and Managing Director of TVS Motors is looking at doing something similar in the two-wheeler space. Mr. Srinivasan is hoping to manufacture cheaper bikes in order to gain higher share of the two-wheeler market as well as boost volumes by catering to the small towns and rural markets of India. At present, the cheapest vehicle being offered by the company is the 100 cc TVS Star Sport, which carries a price tag of around Rs 32,000.

As per Mr. Srinivasan, the company will be developing products that are specific to rural areas and are affordable. His belief is strengthened by the significant growth shown by small towns in the last financial year. According to the company, towns having population of less than 1 m accounted for nearly three-fourth of the industry's sales. And these are believed to have grown by about 30%. This is despite the restricted availability of retail finance. Sales of TVS' mopeds grew by about 30% YoY during FY10.

Energy stocks are trading mixed with Reliance Ind, Essar Oil and Cairn India witnessing decent gains. However, HPCL, IOC and Chennai Petro are trading weak. According to a leading daily, state-run BPCL will shortly file an execution petition against Vijay Mallya's Kingfisher Airlines (KFA) to claim jet fuel dues. KFA owes BPCL Rs 2.2 bn. The deadline to pay expired on November 30. The company has requested BPCL to defer the case as they may pay them through the money they raise from the GDR (global depository receipts) issue they are planning.

BPCL had, in November 2009, sued KFA in the high court to get Rs 3 bn of dues. It also withdrew credit, saying KFA could lift fuel only after paying cash on delivery. Later, in an out-of-court settlement with KFA, BPCL granted it a year's time to pay the dues, including interest.

Flat with a negative bias
11:30 am

After starting today’s session on a negative note in the morning Indian indices are still lingering in the red. However, other key Asian markets are trading mixed with Hang Seng registering marginal gains. Currently, heavyweights in the Sensex are trading weak with stocks from realty and banking space bearing investors brunt. However, stocks from the oil & gas and metal’s space are trading strong.

Currently, the BSE-Sensex is trading down by around 53 points, while the NSE-Nifty is down by about 21 points. Buying interest amongst the mid and small cap stocks is muted as well with the BSE-Midcap and BSE-Smallcap indices trading lower by 0.8% and 1.0% respectively.

Textile stocks are trading weak led by Pioneer Embroideries and Vardhman Holdings. As per a leading financial daily, textile manufacturers are facing pricing pressure and shrinking bottom line as a result of cotton shortages. This is in spite of a consistent order flow and higher cotton output this year. Internationally cotton is ruling at higher prices as a result of supply crunch due to lower output. However, the situation in India is better. The country is seeing an increase of 12% YoY in cotton production. Nevertheless, the country is facing a shortage. This is because traders, particularly multinational trading houses book large quantities of cotton through forward contracts even before the crop hits the markets. This reduces the availability of cotton for domestic players and gives the traders power to manipulate prices. The domestic players are unable to enter such contracts due to lack of capital as the margin money for cotton purchases is high at 25% and the loan period is limited to six months. It may be noted that the current market prices of cotton is around 90% higher than the MSP of cotton which is Rs 23,500 per candy.

Auto stocks are trading strong led by Maruti Suzuki and Bajaj Auto. However, Tata Motors and TVS Motors are trading weak. Amidst rising input cost car makers are set to raise prices from next year onwards. Although Hyundai Motors and General Motors have already announced hikes others such as Maruti Suzuki, Tata Motors, M&M are likely to follow the suit soon. Price increases are likely to be in the range of 1.5-2% as prices of major inputs like steel, rubber and other metals have witnessed an increase over the past few months. It may be noted that until now many companies were absorbing these rising input costs by enhancing operational efficiencies. However, considering the doubling of rubber prices in recent months and a substantial rise in copper prices as well it is evident that most of the companies now are likely to pass on the burden to the consumers in order to evade margin pressures.

Banking stocks lead the weakness
09:30 am

Asian markets have opened today on a mixed note. While China and Japan are trading weak, stocks in Hong Kong are up currently. As for the Indian markets, these have opened marginally in the red. Banking and realty stocks are leading the losses. Metal stocks are however trading amidst gains.

The BSE-Sensex is trading lower by around 30 points (0.1%), while the NSE-Nifty is down about 5 points (0.1%). Mid and small cap stocks are also trading weak, with the BSE-Midcap and BSE-Smallcap indices down by 0.1% and 0.4% respectively. The rupee is trading at 44.82 to the US dollar.

Telecom stocks have opened on a mixed note. While gains are seen in Bharti Airtel and MTNL, selling pressure marks trading in Tata Comm and Reliance Comm. A new controversy has erupted in the sector, with a couple of existing players firing a salvo against their peers for unethical business practices. We are talking about GSM mobile service providers Bharti Airtel and Idea Cellular accusing CDMA plus GSM operators Reliance Comm and Tata Teleservices of overstating subscriber numbers. This follows a recent allegation from the Tata camp that GSM operators were hoarding spectrum. While this controversy over subscriber number over-statement isn't anything new for the Indian telecom sector, it is the first time that almost all the leading players have come out in the open with the blame game. It just goes to show the level of cut throat competition that these companies are facing against each other for the prized Indian telecom customers, which currently have a count of more than 600 m.

The RBI governor's diktat seems to have started working on the banking industry. This is suggested by reports that India's largest bank, SBI has raised its deposit rate by 1.5% across various maturities of deposits. This move will provide better returns to depositors who have generally shirked bank deposits in favour of other better yielding assets like government bonds, gold, and stocks. While deposit rates in India are still not as competitive as these other asset classes, it is heartening to know that a small beginning towards making them attractive has been made. All thanks to the RBI, which recently asked banks to raise deposit rates and reduce lending rates to raise the savings and investment rate in the economy! Anyways, SBI's rate hike will be effective today, and is likely to add to pressure on the bank's net interest margin going forward. This move is also expected to prompt other banks to raise their deposit rates.

Will India's population do any good?

India has a lot going for it at present. While the developed world is still grappling with recession, India's GDP growth is moving at a fast pace. And one of the contributing factors to this growth going forward will be the rise in working age people in the country. As reported in a leading business daily, over the next two decades, India's working-age population will increase by 240 m. This is four times the entire population of Britain. Indeed, India's demographic dividend is expected to yield benefits in the form of higher savings and investments. This is expected to go a long way in bolstering economic growth of the country. At present, over half of India's population of 1.2 bn is below 25. And by 2020, the average age of an Indian is expected to reach 29 years.

That said, although there is a lot of optimism being displayed over the rise in the young working population, there are many concerns too with respect to the same. For starters, India's young population might be increasing. But how much of this young workforce is skilled? For India to grow its GDP on a sustained basis, it will have to move up the value chain and offer specialized expertise in both the manufacturing and services field. For this to take place, India's education system needs to be hauled up. How soon this will happen is anybody's guess. Especially since the government's finances at the current juncture are already stretched.

Then India has to deal with the problem of poverty. Already 800 m people are living on under Rs 20 (45 cents) a day. Not just that, the Maoist revolt in poor areas has cut of these regions from the economic boom that is being witnessed elsewhere.

Jobs will also have to grow if this rise in young population is to be absorbed. And an improvement in the standard of living in most of its people will ensure that the country enjoys the fruit of its working population for some time to come.

Thus, while the benefits are visible, challenges are also plenty. Will India's growing young population be a boon or a curse in the longer run? Only time will tell.