Lower food inflation aids recovery

The Indian stock market started off on a weak note, mirroring a dismal performance in the Asian markets. However they managed to recover from the day's lows towards the latter half of the session. This was on account of a sharp drop in food inflation numbers. While the BSE-Sensex closed lower by around 45 points (down 0.3%), the NSE-Nifty closed lower by around 17 points (down 0.4%). The smaller indices saw a worse performance today. The BSE Mid Cap and BSE Small Cap also lost around 1.1% and 1.5% respectively. Stocks from the engineering and consumer durables space were the top losers. However FMCG and power stocks were in the positive today.

As regards global markets, Asian indices closed in the red today while the European indices have opened in the green. The rupee was trading at Rs 53.86 to the dollar at the time of writing.

The recovery in the indices in today's trade was mostly on the back of lower food inflation numbers. Food inflation eased to 4.35% in the year to December 3. This is the country's lowest reading since February 2008, according to government data. This is also a sharp fall from the 6.6% reading seen last week. This fall in inflation leads to hope that the RBI will maintain a dovish stance with regards to its interest rate policy in its meeting tomorrow.

Coal mining major Coal India Limited's (CIL) board has approved a proposal for it to acquire stakes in unlisted overseas firms. This development has come in post the Finance Ministry approval for the company to go-ahead with a buyout of unlisted firms overseas. The company is expected to take up three offers - in Australia, Indonesia and the United States. The PSU major has put together a cash hoard of Rs 60 bn for the acquisition of mines in these countries.

Mahindra & Mahindra recently announced that it will raise prices of its entire range of vehicles by up to 3% from the beginning of the calendar year 2012 to protect itself from rising input costs. Besides higher raw material costs, the company's margins are also under downward pressure due to the sharp depreciation of the rupee against the US dollar. The rupee once again breached another all time high today, briefly touching the Rs 54 to a dollar mark. To mitigate the similar impact, other car-makers such as Renault, Nissan Motor, Hyundai Motor, Ford, General Motors and Toyota Kirloskar have also announced price hikes by up to 3% from January 1, according to a leading business daily.

Other Indian car manufacturers, including Maruti Suzuki, are also contemplating a price increase. Domestic car sales grew for the first time in four months in November, according to data from Society of Indian Automobile Manufacturers (SIAM). But, this could still not revive car sales for the year. In the current fiscal year till November, car sales are down 3.5% to 1.2 m units. A further hike in car prices may not help sales this year.

Indian markets recoup some losses
01:30 pm

Indian stock markets indices recovered some losses during the last two hours of the trade but are still trading in the red. All sectoral indices are trading in the negative led by stocks from capital goods and consumer durables sectors.

The BSE-Sensex is trading down by 128 points and NSE-Nifty is trading down by 45 points. BSE Mid Cap and BSE Small Cap indices are trading weak by 1.6% and 1.9% respectively. The rupee is trading at 54.18 to the US dollar.

Power stocks are mainly trading in the red led by Power Trading Corporation India (PTC) and CESC Ltd. As per a leading financial daily, Power Grid Corporation of India Ltd. (PGCIL), the country's leading Electrical Power transmission company has signed a memorandum of understanding (MOU) with Rashtriya Ispat Nigam (RINL), a holding company of Visakhapatnam Steel Plant (VSP) to set up a joint venture company (JVC) for manufacturing of transmission line towers and their parts. The JV will undertake research and development of high end products and bring synergy between RINL and PGCIL that share the producer and user relationship. Besides, it will address the issue of import of quality tower transmission lines. The venture includes installation of a unit at Vizag with an initial capacity of 0.2 million tonnes per annum (mtpa) at a cost of around Rs 3 bn to Rs 3.5 bn. The unit is expected to enhance faster transportation that includes the sea route and will help to tap markets in South East Asia. The stock was trading in the green.

Retail stocks are mainly trading in the red led by Zodiac Cloth and Titan Industries. As per a leading financial daily, Tanishq the flagship line of jewellery from Titan is planning to expand its retail presence in India. Currently operating 131 stores in 76 cities, the company aims to open 25-30 large format retail stores every year across the country. It is likely to launch new products and invest more in marketing and designing innovation to increase its market share. The company has recently entered into partnership with World Gold Council for the new collection.

Indian stock markets move further south
11:30 am

Indian stock market indices traded in the negative during last two hours of trade due to heavy selling witnessed across sectors. All sectoral indices were trading weak led by capital goods and consumer durables.

The BSE-Sensex is trading down by 240 points and NSE-Nifty is trading down by 78 points. BSE Mid Cap and BSE Small Capp indices are trading weak by 1.8% and 1.9% respectively. The rupee is trading at 54.21 to the US dollar.

Software stocks are mainly trading in the red led by Moser Baer India and Info Edge. As per a leading financial daily, Tech Mahindra is looking to expand its reach in the Middle East and Africa. This, the IT company wants to do by venturing into newer markets and industry verticals. It also wants to get into partnerships with key businesses in these regions to drive its revenues. With this aim in mind, Tech Mahindra is focusing on its leadership. In fact, it recently appointed Mr Girish Bhat as the new Vice- President of Sales and Operations for the Middle East and African region specifically.

Private sector banking stocks are trading weak today led by J&K Bank and Yes Bank. As per a leading financial daily, ICICI Bank may have to reduce its stake in Firstsource Solutions. This would follow the Reserve Bank of India (RBI) directive that restricts equity investments by banks in non-financial subsidiaries. Firstsource Solutions is a global business process outsourcing (BPO) firm in which ICICI Bank has about 18% stake. This will now have to be reduced to 10% to comply with RBI norms. As per the new norm, banks are allowed to have 10% of the capital of the investee company or 10% of its paid-up capital and reserves whichever is less. The banks have 3 months time in hand to inform RBI about their existing investments. With this RBI aims to ensure that banks are not excessively exposed to a particular business.

Asian markets continue downslide
09:30 am

All major Asian stock markets have opened yet another day in the red with stock markets as fears of a global slowdown gripped the investors. Stock markets in Indonesia (down 2%), Hong Kong (down 1.8%), South Korea (down 1.7%) and Taiwan (down 1.7%) are leading the losses. The Indian stock market have also opened the day on a weak note. Stocks in the metal and power space are the biggest losers.

The BSE-Sensex is trading lower by 147 points (0.9%), while the NSE-Nifty is down by around 47 points (1%). BSE Midcap and BSE Small cap stocks are trading in the red as well, with the BSE Mid Cap and BSE Small Cap indices down by 1.1% and 0.8% respectively. The rupee has sunk further and is trading at 54.12 to the US dollar.

Engineering stocks have opened the day on a weak note with Larsen & Toubro (L&T), Suzlon Energy and Punj Lloyd trading in the red. Engineering company Siemens Ltd has announced that it will venture into engineering, construction and procurement (EPC) business for solar photovoltaic plants in India. So far, Siemens has already executed 160 MW (Mega Watts) solar projects across the world. In addition, it has also supplied equipment for more than 1,200 solar projects. The company considers the Indian market significant as it is one of the fastest growing renewable energy markets in the world. India has plans to build an initial capacity of 1 GW (Giga Watts) of solar power by 2013. This capacity can power about 1 million homes. There are plans to add 3-10 GW by 2017, and an aim to reach 20 GW by 2022. India has so far commissioned solar projects with capacity of about 186 MW, of which 40 MW worth of off-grid projects were commissioned in 2011.

Oil & gas stocks have also opened the day on a mixed note with Cairn India, Essar Oil and Gas Authority of India Ltd (GAIL) leading the losses. However, Bharat Petroleum Corporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL) and Indian Oil Corporation (IOC) are trading in the green. State-owned firm IOC is deliberating with Dhamra Port Co Ltd for setting up a 5 million tonne per annum LNG (liquefied natural gas) terminal in Orissa. This facility will be used to meet the demand in Orissa and West Bengal. Dhamra Port Co Ltd is a 50-50 joint venture between L&T and Tata Steel. It has been awarded a concession by Government of Orissa to build and operate the port. The port at Dhamra will be one of the deepest ports of India with a depth of 18 meters. As per IOC's management, the LNG import and regassificiation facility at Dhamra port will be in addition to the Rs 43.2 bn terminal that the company is planning to set up at Ennore in Tamil Nadu.

Time to raise funds in domestic mkt?

The last few days have seen the rupee falling to all time lows against the dollar. The fall of the rupee could be partly attributed to the European debt crisis that led to relative appreciation in dollar against the Euro and the rest of the damage was done by weak domestic fundamentals - rising inflation, interest rate hikes, high fiscal deficit and FII outflows.

The falling rupee is also adding to the concerns of the corporates, as they fear higher repayment burden. It has also led to increase in hedging costs as cost of raising funds from abroad has become more expensive. In fact cost of raising funds via dollar bonds is almost equal to domestic cost of fund-raising. Earlier due to high interest rate in India and low interest rate overseas, it was cheap and easy to borrow money from abroad. However in the light of the lingering Euro zone debt crisis, all European banks have less surpluses to lend to overseas corporate houses and in addition to this the rupee depreciation has made fund raising more expensive and difficult.

The total cost of raising funds overseas has shot up to 9% which is nearly the same as domestic corporate bond yields of 9%-9.5%.The total cost of raising money abroad is equal to the sum of the Mumbai interbank forward offer rate (MIFOR) which is the an indicator of the hedging cost and cost to company. One year MIFOR rate has more than doubled during the September-December period. This extreme volatility in the forward markets has increased hedging cost from 2% to 4.3% which has discouraged companies from hedging. If the rupee declines further the hedging cost is expected to go up.

In the coming months the rupee bond market is likely to witness more activity. With inflation slowly coming down, the Reserve Bank Of India (RBI) might lower interest rates which will result in more institutions and corporates tapping the local bond market, making the Indian bond market cost effective compared to offshore borrowings.