Stock markets see no respite

Indices in Indian stock markets opened today's session on a flat note. However the situation got worse as the day progressed. Announcements of the government increasing its borrowing target contributed to the fall. This announcement threatens to throw India's fiscal position further out of balance. Indices traded in the negative throughout trade today and could not recover from the day's lows towards the closing session. While BSE-Sensex edged lower by around 173 points, decline on the NSE-Nifty came in the region of 45 points. The BSE Mid cap and BSE Small cap indices also displayed closed lower by 1.1% and 1.2% respectively. Realty and metal stocks closed the day deep in the red. Consumer durables however saw some gains.

While most Asian indices closed in the mixed, Europe is trading mostly in the green as of now. The rupee was trading at Rs 53.34 to the dollar at the time of writing, continuing to remain weak.

Inflation may be slowing, but still we are not immune to price hikes. Post a stellar year in FY11, auto makers are seeing volumes dip sharply so far in FY12. Input costs and rupee depreciation is forcing the Indian auto industry to hike prices. They are set to hike prices by 2-10% in the first quarter of FY13 according to a study by industry body Associated Chambers of Commerce and Industry of India (ASSOCHAM). Other issues have also affected the auto industry including rising interest rates and labour woes as seen by Maruti. Profit margins of various players in the industry may see shrinkage going forward. Customer sentiments are also negative on account of high fuel costs and the high interest rate environment.

Public sector bank IDBI has approached the Reserve Bank Of India (RBI) to launch infrastructure debt funds (IDFs). It plans to launch this separately as an Non Banking Finance Company (NBFC) and plans to hold a 30% stake in it. Banks are currently allowed to hold a minimum of 30% and a maximum of 49% in IDFs. This new entity could be launched in 2-3 months time depending on the projects available.

India has pledged to spend US$ 1 trillion on upgrading its aging and inadequate infrastructure in the five years to 2017. The government finalised the structure of IDFs in June. It believes that this debt instrument can help source long-term funds to finance India's infra needs. These IDFs can also be set up as mutual funds, however in this case IDBI prefers to set up a separate company to take care of the same.

Banking and metal lead the fall
01:30 pm

Indian stock markets indices slipped further due to selling activity being witnessed across sectors. All sectoral indices are trading in the red, led by banking and metal stocks.

The BSE-Sensex is trading down by 197 points and NSE-Nifty is trading weak by 53 points. BSE Mid Cap and BSE Small Cap indices are trading down by 1.2 % and 0.8% respectively. The rupee is trading at 53.26 to the US dollar.

Barring Coal India, the stocks in the mining sector are mainly trading in the red led by Gujarat NRE Coke. As per a leading financial daily, Coal India has revised target production for FY12 to 440 million tonnes (MT) from 447 MT. The official estimate for FY 13 production is 464 MT. The management expects the current quarter to report better results. The management has stated that the dispatches in the current quarter are higher and it expects peak production from November to March. The company is loading an average of 16 rakes per day. The management has stated that it has made some progress on a few proposals for acquisition. Regarding buyback, the Government has not yet asked and the company plans to use Rs 530 bn of cash for capital investments.

The stocks in the Power sector are trading mainly in the negative. Tata Power and National Thermal Power Corporation (NTPC) were the prominent gainers. As per a leading financial daily, Reliance Power has commissioned 900 MW of the 1200-MW Rosa project in Uttar Pradesh. The balance 300 MW of the project is expected to be commissioned in March 2012, ahead of schedule as per the company. The Rosa plant, once fully commissioned, will reportedly meet 15% of the power requirement in Uttar Pradesh. The stock was trading in the red.

Indian stock markets fall further
11:30 am

Indian stock markets indices have been trading in the red due to selling activity being witnessed across sectors. All sectoral indices are trading in the red, led by banking and realty stocks.

The BSE-Sensex is trading down by 143 points and NSE-Nifty is trading weak by 43 points. BSE Mid Cap and BSE Small Cap indices are trading down by 0.8 % and 0.4% respectively. The rupee is trading at 53.23 to the US dollar.

Automobile stocks are trading in the red led by Eicher Motors and Ashok Leyland. As per a leading daily, Hero MotoCorp is planning to launch its own range of two-wheelers by 2014. The Indian automobile company has an agreement with their former partner Honda for sourcing technology and two-wheeler models from them. It may be recollected that the joint venture between the Munjal group and Honda Motors was discontinued a year ago. Hero had been on the lookout for other potential partners globally and seems to have started working on its new model without any help from Honda. Hero presently is the leader in the two-wheeler market with 45% share while Honda has 13.8% market share.

Power stocks are trading weak today. Jaiprakash Power and GVK Power and Infra are the top losers. As per a leading financial daily, Tata Power is going to buy out BP Alternative Energy's entire holding of 51% in their joint venture (JV). The joint venture by the name of Tata BP Solar manufactures solar photovoltaic cells and solar modules in India. The JV exports these as well. As per the management of Tata Power, favourable policy environment in India will provide opportunities in the solar module and solar cell market. The power company is currently trading 2% higher.

Weak opening for Indian stock markets
09:30 am

Asian stock markets have opened the day on a mixed note. Stock market in Malaysia (up 0.3%) and Japan (up 0%) is in the green while China (down 0.6%) and Indonesia (down 0.4%) are in the red. The Indian stock markets have opened the day on a weak note. Stocks in the Banks and Capital goods space are leading the losses while Power and Auto stocks are in the green.

The BSE-Sensex is trading lower by 40 points (0.2%) and the NSE-Nifty is down by around 16 points (0.3%). BSE Midcap and BSE Small cap stocks have opened on a mixed note, with the BSE Mid Cap indices down by 0.2% while BSE Small Cap up by 0.1%. The rupee is trading at 53.17 to the US dollar.

Power stocks have opened the day on a firm note with Tata Power, Power Grid Corporation and National Thermal Power Corporation (NTPC) trading in the green. State-owned power producer NTPC is set to invite expressions of interest from next month for procuring coal from foreign coal producers on a 10-15 years contract. The power major is looking forward to commencing such imports within the next financial year. It plans to start with imports of about 15-16 million tonnes (mt). Currently, NTPC consumes about 160 mt of coal per annum of which 16 mt is being imported from international spot markets. With the expected capacity additions in the next couple of years, the total coal requirement will rise to about 240 mt. NTPC intends to procure 10% of its coal requirement through the long-term import contracts. This will not only make coal available at a lesser price than the spot markets, but will also provide some amount of protection against short term fluctuations in coal price.

Energy stocks have opened the day on a weak note with Oil India and Reliance Industries in the red. The eastern offshore KG-D6 gas field production of Reliance Industries has fallen to a new low of 38.66 million cubic metres per day. This is after the company had to shut down 5 of its wells due to the problem of water ingress. Out of the 18 natural gas discoveries in the KG-D6 basin, Dhirubhai-1 and 3 fields block produced 31.83 mmcmd for the week ending December 18. The MA oilfield from the same blocks produced the remaining making a total of 38.66 mmcmd. In the previous week, the total output fell was higher at 39.8 mmcmd. Consider this with the March 2010 figure of 61.5 mmscmd achieved in March 2010. The major reason for such a decline of production can be attributed to the drop in pressure in the wells and increasing water ingress. Out of the 18 wells that were under production, 5 wells were shut due to water cut and sanding issues.

Is debt a better choice for India Inc?

The year 2011 witnessed a drastic change in India companies' fund raising patterns. The year came to be known more for cancellation of public issues worth Rs 320 bn versus those raised (worth just Rs 141 bn, less than half of those cancelled). The public issues that finally managed to hit the markets hardly took off with around 77% of them trading below their issue prices.

By the end of 2011, the market for public offerings (initial and follow-on offers) turned out to be a dampener reporting an average notional loss of 29% since listing. As equity markets dried up across segments - ranging from IPOs, FPOs, and QIPs to ADRs/GDRs, the domestic firms were left with no choice but to tap foreign debt markets for cheaper funds. Even the Foreign Currency Convertible Bonds (FCCBs) that are directly linked to equity markets could not tempt firms during the slowdown and External Commercial Borrowings (ECBs) emerged as the last resort. The funds raised through ECBs thus witnessed a 36% YoY increase, via 20% YoY jump in the number of such issues.

The overall capital (both from debt and equity markets) raised declined 40% year on year (YoY) in 2011, and the share of equity slipped to 13% in 2011 from 67% (of the total capital raised) in the previous year. The increase in the foreign debt was despite the tough conditions in European and American economy. It would have been fine had things stopped there.

Unfortunately, things took a nasty turn as the end of the year approached. The domestic market conditions worsened with companies staring at lower growth and muted profitability in the near term. The comfort of strong currency that fuelled the trend of raising money from abroad in the first half also vanished. Moreover, firms saddled with huge debt burden lost favour amongst equity investors.

Come 2012, we do not see an immediate resurgence in primary markets. There is hardly any catalyst that could turn around the situation, especially as long as the profit outlook remains muted. However, sound business models and attractive valuations may find some takers. Meanwhile if debt costs become more reasonable in domestic markets, companies may continue to resort to leverage to fund their capex plans.