No respite for Indian indices

Indian equity markets began the day's proceedings on a weak note and languished in the red throughout today's session as selling activity persisted across index heavyweights. There was no respite in the final trading hour either and indices closed well below the dotted line. While the BSE-Sensex today closed lower by 84 points, the NSE-Nifty closed lower by 25 points. While the BSE Mid Cap closed weak, the BSE Small Cap bucked the trend and gained marginally. Losses were largely seen in metals and oil & gas stocks.

As regards global markets, most Asian indices closed weak today while European indices have opened mixed. The rupee was trading at Rs 61.31 to the dollar at the time of writing.

Pharma stocks closed mixed today. While Lupin and Ranbaxy closed firm, Biocon and Wockhardt led the pack of losers. As per a leading business daily, Lupin has received US FDA approval to market generic version of ViiV Healthcare's Trizivir tablets in the US market. This drug is indicated for the treatment of HIV-1 infection. Because the company was the first-to-file (FTF) for this product, it will be entitled to 180 days market exclusivity. According to IMS MAT September 2013 sales data, Trizivir tablets has US sales of around US$ 111.6 m. This is a positive for the company and will enhance its sales from the highly competitive US generics market. Because of the exclusivity period, the revenue and profit potential will be higher because it will be the only player in the market besides the innovator. Lupin has been doing well in the US, which can be gauged by the fact that it is the market leader in 26 products out of the 57 that have been launched in this market.

Auto stocks also closed mixed today. While Ashok Leyland and Bajaj Auto found favour, Tata Motors and Hero Motocorp closed into the red. There was no respite for the Indian auto industry in the month of November 2013 as volumes across most segments saw a decline. While passenger cars were down 8% YoY during the month, the fall in commercial vehicles (CV) volumes was even steeper at 29% YoY. Utility vehicles, which were the star performers in FY13, also saw volumes fall by 9% YoY. Slowdown in the economy coupled with firm interest rates and fuel prices have taken its toll on demand. Much hope was pinned on the festive season, which failed to live upto expectations. The outlook for the rest of FY14 remains tepid. However, there are hopes that if the economy displays signs of recovery in FY15, this should rub off positively on the beleaguered auto industry as well.

Banking & engineering top losers
01:30 pm

After opening in the red,Indian share markets widened losses in the post-noon trading session. Barring consumer durable, all the sectoral indices are trading in the red with banking, capital goods and realty stocks being the biggest losers.

BSE-Sensex is down 152 points and NSE-Nifty is trading 45 points down. BSE Mid Cap is trading down 0.3% and BSE Small Cap index is trading down 0.1%. The rupee is trading at 61.3 to the US dollar.

Majority of the mining stocks are trading in the red with Hindustan Zinc and National Mineral Development Corporation (NMDC) being the major losers. Only Gujarat NRE Coke and Ashapura Minechem are trading in the green. As per a leading financial daily, Coal India Ltd (CIL) is expected to earn additional revenues to the tune of Rs 21.2 bn in FY14 from revision in coal prices, as per Minister of State for Coal. In May 2014, CIL revised the prices of all grades of non-coking coal barring G1, G2 and G5 for all its eight subsidiaries. CIL is the largest coal producer with over 80% market share. However, in another development the Competition Commission of India has imposed a penalty of Rs 17.7 bn on CIL and its subsidiaries for following unfair trade practices in Fuel Supply Agreements with power producers. CIL stock is currently down by 0.5%.

Stocks of consumer durables companies are trading mixed with Symphony, Titan Company and Bajaj Electricals leading the pack of gainers while VIP Industries and Videocon Industries are trading weak. As per a leading business daily, Bajaj Electricals' management is aiming to double its exports to levels of Rs 1 bn by FY15. In FY14, it expects to clock export revenues of about Rs 500 m. The company has increased its reach to 50 countries from 33 earlier. The same however contributed to a very small portion of 1% to the overall revenues in FY13. Export revenues stood at about Rs 330 m during the year. As for the overall business, company's management is aiming to touch revenues of Rs 50 bn by FY15. In FY13, it clocked revenues of Rs 32 bn and is aiming to report a top line of about Rs 43 bn in FY14. As for the overall business, company's management is aiming to touch revenues of Rs 50 bn by FY14. In FY13, it clocked revenues of Rs 32 bn. The company will be increase turnover by improving the availability of products. The management believes that the gap between the brand recall and the product availability needs to be narrowed and this will allow higher sales and in turn better product market share.

Indian markets slide further
11:30 am

After opening in red, the Indian Indices continued the downward trend in the last two hours of trading session. All indices except FMCG are trading in red.

The BSE Sensex is trading down by 122 points and NSE-Nifty is trading down by 32 points. The BSE Mid Cap index is trading down 0.05%; while the BSE Small Cap index is positive and trading up by about 0.11%. The Rupee is trading at 61.3 to the US Dollar.

Engineering stocks are trading mixed today. EMCO Ltd and Finolex Cables are among the stocks leading the gainers. Shanthi Gears and Crompton Greaves are leading the losers. According to a leading financial daily, Crompton Greaves is contemplating to either sell or shut its Canadian power transformer plant. This is because it wants to cut losses in its foreign business. The transformer factory in Canada contributes about 3% to the company's total sales. In FY13, it recorded a loss of US$10 mn. The Canadian facility currently has low capacity utilization levels. The revenues form the factory is approximately US$55 mn and in order to break even the company requires to achieve sales of about US$65-70 mn. In addition, the Canadian market is very competitive and therefore earning high margins is a difficult task. Crompton's Canada plant is a part of its subsidiary Pauwels; which the company acquired in 2005. Crompton Greaves is trading 2.4% down today.

Software stocks are trading mixed today. HCL Tech and Wipro are among the stocks leading the gainers; while Tata Consultancy services (TCS) and Tech Mahindra are among the stocks leading the losses. According to a leading financial daily, Tech Mahindra has opened a new global center for excellence. The center has been developed jointly by the company and Hewlett Packard (HP). The center which is located in Bangalore will mainly focus on application development and Infrastructure management services. The emphasis will be on automation and dynamic management of infrastructure solutions, in addition to improving productivity for clients. The company wants to move towards joint development of innovative solutions with its clients and this center would be a step in that direction. Tech Mahindra is trading down 0.4% today.

Indian share markets open in the red
09:30 am

Barring Malaysia (up 0.1%), major Asian stock markets have opened the day in the red with stock markets in China (down 1.1%) and Hong Kong (down 1.2%) leading the losses. The Indian share markets indices have opened the day on a weak note as well. Barring FMCG and healthcare, all sectoral indices have opened in the red with the stocks in the capital goods and banking space leading the losses.

The Sensex today is down by around 77 points (0.4%), while the NSE-Nifty is down by around 26 points (0.4%). Mid and small cap stocks have also opened in the red with the BSE Mid Cap and BSE Small Cap indices down by around 0.1% each. The rupee is currently trading at Rs 61.36 to the US dollar.

Energy stocks have opened the day mainly in the red with Oil and Natural Gas Corporation Ltd (ONGC) and Chennai Petroleum Corporation Ltd (CPCL) leading the losses. As per a leading financial daily, Oil and Natural Gas Corporation Ltd's (ONGC) overseas arm ONGC Videsh Ltd (OVL) has signed a memorandum of understanding (MoU) with Ecuador for cooperation in identification and possible exploration of oil and gas. Ecuador is a member of the oil cartel Organization of the Petroleum Exporting Countries (OPEC) and produces about 500,000 barrels of crude oil daily. As per the pact, the Coordinating Ministry for Strategic Sectors of Ecuador will make available information regarding oil and gas projects in Ecuador to OVL. Based on the information, OVL will identify projects of its interest and could propose participation through specific definitive agreements.

Mining stocks have opened the day mainly in the red with Ashapura Minechem Ltd and Coal India Ltd (CIL) being the biggest losers. As per a leading financial daily, CIL has been slapped with a penalty of Rs 17.7 bn by the Competition Commission of India (CCI) for allegedly abusing dominant position in supply of the dry fuel. CIL enjoys an undisputed dominance in the market for production and supply of non-coking coal in the country. The ruling has come in response to complaints filed by Maharashtra State Power Generation Company and Gujarat State Electricity Corporation against CIL and its three subsidiaries - Mahanadi Coalfields, Western Coalfields, South Eastern Coalfields. According to the release, CIL and its subsidiaries have been found to be imposing unfair conditions in Fuel Supply Agreements (FSAs) with the power producers for supply of non-coking coal and violating fair trade norms. Besides, CCI has directed modification of FSAs and asked CIL to consult all the stakeholders for making the modifications in the FSAs.

Why is India's growth suffering?

Economic growth is primarily dependent upon 3 factors namely consumption, investment and government expenditure. While consumption has remained strong, India's growth has been struggling due to slowdown in investments. Higher interest rates have slowed the capex cycle. And with inflation remaining high, rates have remained firm and this has further impacted the capex cycle. With monetary tools being ineffective, the government undertook stimulus measures to boost growth. While this had a positive impact initially, this artificial stimulus has now resulted in widening deficits. In short, India's growth has been struggling due to domestic issues which are self inflicted.

And it seems India is in a deadlock of sorts which will make revival all the more difficult. Higher inflation has created a hole in the pockets of rural Indians. This is eating into their purchasing power. Thus, the consumption story has temporarily hit a roadblock. And as explained earlier, the pace of investments is also likely to remain muted due to the rising cost of capital. Lastly, with deficits already in an uncomfortable zone, government expenditure will remain under check.

The only way to revive growth is to create a climate that shall boost infrastructure investments. While cost of capital is an important factor that determines capex spend, it is not the major hurdle at the moment. The major issue is resistance coming in the form of bureaucratic hurdles. Timely approvals and sanctioning of projects will induce corporates to invest more. Right now, most corporates are sitting on the sidelines. In other words, unnecessary red tapism is hurting the execution cycles.

Another way to revive growth is to reduce rates. But this can happen only if inflation is controlled. This can be done if food & fuel inflation is brought down. While the government can do very little to contain fuel inflation since India imports majority of its crude requirements, it can take steps to improve back end infrastructure thereby reducing food wastage. This shall help curtail food inflation. Unnecessary food wastage and hoarding have been the primary reasons for rising food inflation. If these steps are taken and inflation is controlled rates can be lowered. This will revive growth.