Profit booking takes toll

Indian equity markets began the day's proceedings on a very shaky note and the early hours saw them barely stay afloat. Selling activity intensified thereafter and pushed the indices into the red. There was no respite in the final trading hour either and the indices closed well below the dotted line. While the BSE-Sensex closed lower by 114 points, the NSE-Nifty closed lower by 36 points. The BSE Mid Cap and the BSE Small Cap were not spared either as they closed marginally lower. Losses were largely seen in auto, banking and metal stocks.

As regards global markets, Asian indices closed mixed today while European indices have opened firm. The rupee was trading at Rs 53.20 to the dollar at the time of writing.

Engineering stocks closed mixed today. While Elgi Equipments, Larsen & Toubro (L&T) and ABB closed in the red, Thermax Ltd and Voltas closed firm. Bharat Heavy Electricals Limited (BHEL) announced results for the third quarter ended December 2012. Sales declined by 4.7% YoY in 3QFY13 as revenues from both the power and industry segment declined 4.6% YoY and 5.5% YoY respectively. Operating profits declined by 19.8% YoY during the quarter. Operating margins also fell from 19.1% in 3QFY12 to 16% in 3QFY13. In line with operating profits, net profits declined by 17.5% YoY during the quarter. Rise in interest expenses (up 251% YoY) and depreciation expenses (18.1% YoY) impacted the profitability. The order book at the end of the quarter stood at Rs 1,137 bn. The company declared an interim dividend of Rs 2.1 per share during the quarter.

Tube Investments also announced results for the third quarter ended December 2012. Sales for the quarter fell by 13% YoY on a standalone basis due to fall in revenues across business segments. The bicycles division witnessed a 23% YoY drop in sales on account of lower trade and institution volumes. The revenues from the engineering division fell by 7% YoY during the quarter as subdued conditions in the automobiles sector impacted the demand for tubes and cold rolled steel strips. Revenues from the metal formed products division fell by 2% YoY on account of drop in doorframe volumes and a delay in the tender process for railway wagons. Operating margins declined by 1.4% to 7.9% in 3QFY13 leading to the 26% YoY fall in operating profits. Net profits plunged by 72% YoY. Even on excluding the extraordinary expense during this quarter, the fall in net profits was steep at 58% YoY. The stock closed lower by 1.5% today.

Indian stock markets slip into the red
01:30 pm

Indian stock markets, lost the initial gains and fell below the dotted line during the post noon trading session. Majority of the sectoral indices are trading in the negative territory with realty, banking and IT stocks being the biggest losers.

BSE-Sensex is down by 78 points and NSE-Nifty is trading down by 25 points. While the BSE Mid Cap is trading up by 0.03%, BSE Small Cap index is trading up by 0.03%. The rupee is trading at 53.29 to the US dollar.

Most of the pharma stocks are trading in the green with Lupin Ltd and Aurobindo Pharma being among the top gainers. Sun Pharma has announced that its shareholders have given the green signal to spin off its domestic formulations operations into a new entity called Sun Pharma Laboratories Ltd. The new entity will be a wholly owned subsidiary of Sun Pharmaceuticals Industries Ltd (SPIL). Reportedly, both the domestic and international segments of the company are growing well. And Sun Pharma's rationale for spinning off the domestic segment is that it will help the company maintain its growth momentum. Further, it will also help it focus on each of the operations individually. The assets of the domestic formulations business will be transferred to the transferee company. The stock is trading up by 0.5%.

Telecom stocks are trading mixed with AGC Networks and Tata Teleservices being the biggest gainers and Bharti Airtel and ITI leading among the losers. Bharti Airtel has declared its financial results for the quarter ended December 2012. The company recorded a 9.4% YoY increase in sales during the quarter. The growth was brought about by the increase in revenues from all of its segments. However, its operating margins contracted by 170 basis points (1.7%) to 30.5% on account of higher network operating expenses. At the net level, the company's earnings dipped by 72% YoY largely due to increase in the interest expense, by around 69%. Even the tax outgo rose by 19% as a result of higher tax incidence, reducing net profits for the quarter. The stock is trading down by 0.8%.

Indian equity markets remain flat
11:30 am

Indian equity markets have remained flat during the previous two hours of trade. The most noticeable upward movements have been witnessed in the consumer durables and healthcare sectors while banking and realty languished in the red.

The BSE-Sensex is up by 12 points and NSE-Nifty is up by 0.7 points. BSE Mid Cap index and BSE Small Cap index are trading higher by 0.47% and 0.44% respectively. The rupee is trading at 53.32 to the US dollar.

Auto stocks are trading on a mixed note with Bajaj Auto and Eicher Motors leading the gains while Force Motors and Hero Motocorp are facing the most selling pressures. According to a leading financial daily, Maruti Suzuki, India's largest carmaker is working on a strategy to become India's largest exporter of passenger cars. It intends to build a base for manufacturing 3 million cars in five years, which would include 10 new vehicles across segments. The move to build new capacities would also ensure that Maruti retains its leading market share in India, which has declined to 37.8% in 2012 from 44.6% in 2010. Maruti contributes to more than a third of Suzuki's total sales across the globe and around 40% to Suzuki's total profitability. Suzuki in collaboration with Maruti is also coming up with a world class R&D facility in Rohtak, Haryana. That would be the largest R&D facility outside Hammamatsu, Japan. Many of the 10 new vehicles across segments would be developed as global models targeting the ASEAN, Middle East, Africa and Latin American markets. Maruti's share is trading up by 1.3%.

Cement stocks are also trading on a mixed note with Birla Corp and India Cements leading the gains while Mangalam Cement and Shree Cement are leading the losses. Grasim has reported its 3QFY13 results. While the net sales have risen by 7% YoY, net profit has declined by 18%. Grasim has been facing higher costs on logistics and raw materials. The results of 3QFY13 are not comparable with the results of 3QFY12 as financial result of Ultratech Cement, the cement subsidiary, consolidated in Grasim included Rs 860 m of subsidies relating to earlier periods. Besides, Grasim' proportionate share amounting to Rs 250 m in the loss incurred by the recently acquired pulp JV, Terrace Bay, Canada has also been reflected in 3QFY13. Grasim's capex plans involve Rs 140 bn of investments in the cement and VSF businesses and they are on track. Further, the Company which has an investment portfolio comprising of stakes in various listed and unlisted Aditya Birla Group companies has also begun to rationalise it with an intention of moving away from unrelated businesses. Grasim's share is trading down by 0.06%

Pharma boosts Indian share markets
09:30 am

The major Asian stock markets have opened the day on a mixed note with stock markets in Japan (up 0.4%) and Indonesia (up 1.2%) leading the gains. However, the stock markets in Hong Kong (down 0.4%) and South Korea (down 0.5%) faced selling pressure. The Indian share market indices have also opened the day on in the green. Barring FMCG and banking, all sectoral indices have opened in the green with stocks in the pharma and consumer durables leading the gains.

The Sensex today is up by around 46 points (0.2%), while the NSE-Nifty is up by around 9 points (0.2%). The mid cap and small cap stocks have also opened in the green with BSE Mid Cap index and BSE Small Cap indices up by around 0.4% each. The rupee is trading at Rs 53.32 to the US dollar.

Banking stocks have opened the mainly in the red with Allahabad Bank and Indian Bank leading the losses. However, Punjab National Bank (PNB) and Union Bank have opened in the green. Punjab National Bank (PNB) has announced its results for the third quarter of financial year 2013 (3QFY13). The total income for the quarter grew by 10.4% on a year on year (YoY) basis. The operating profits for the quarter grew marginally by 0.22% YoY. The net profit for the quarter registered a growth of 13.5% YoY. The growth in the bottomline was mainly driven by decrease in provisions against non-performing assets, higher cash recovery and reduction in cost of funds. The net interest margin (NIM) of the bank stood at 3.47 % at the end of the quarter. The gross nonperforming assets (NPAs) for the quarter increased to 4.61% versus 2.42% in 3QFY12.The net NPAs also rose to 2.56 % from 1.11 % in the 3QFY12. The Capital Adequacy Ratio (CAR) of the bank stood at 11.66 % at the end of the quarter.

Indian Pharma stocks have opened the day mainly in green with Panacea Biotech Ltd and Wockhardt Ltd leading the gains. The leading pharma company Lupin Ltd has announced its results for the third quarter of financial year 2013 (3QFY13). The sales for the quarter grew by 38% on a year on year (YoY) basis. This was mainly on account of robust growth in the sales in the US market. The operating profits for the quarter grew by 64.5% YoY with operating profit margins at 23.1%. The net profits for the quarter were up by 43% YoY. The growth in the bottomline was moderated due to the surge in tax expenses. Effective tax rate for the quarter stood at 38% as compared to 23% seen during the same period last year

Focus on reforms rather than rate cut

The Reserve Bank of India (RBI) has finally blinked. Expectedly, India Inc, markets and analysts have given a thumbs up to the RBI for lowering its benchmark repo rate by 25 basis points in its January policy review, and cutting the cash reserve ratio (CRR) by another 25 bps. In fact, given the policy guidance from the central bank, analysts expect RBI to effect another 25 basis points cut in the repo rate, come March.

A rate cut, theoretically, will help revive consumption and investment demand. But for growth, it has been reasoned enough that a rate cut alone will not do much. India needs reforms at various levels that will make growth lot more sustainable and also help boost exports. This will also allow RBI to focus on inflation and reduce the burden with respect to anchoring growth and managing currency.

Although the government has initiated a host of market interventions, such as MGNREGA and microfinance for betterment of the poor, the truth is, much of the cash transfers do not reach them, because of corruption and the high administrative cost of implementing these social welfare programmes. To plug leakages in the system, an important reform push is direct cash transfer scheme. Direct cash transfer will initially focus on scholarships and pensions but later will be used for subsidies on cooking gas and payouts for MGNREGA.

The implementation of the FDI in retail and issuing of new bank licenses will also help attract new investment. The government proposed to bring in reforms in insurance and pension sector. The insurance Bill proposes to increase the FDI cap to 49%. The government is considering a cut in the base price of another round of spectrum auctions in March 2013, which should bring in more money to the exchequer and give telecom firms more radio waves.

The debate on returning to a sustainable higher rate of growth, therefore, needs to broaden. While interest rate cuts by themselves do not immediately translate into investments, they bring down corporate expenses and allow them room to plan expansions and investments, but it is still a necessary but not a sufficient condition for attaining growth and prosperity.