Relentless selling hits indices

Indian stock markets languished in the red throughout today's proceedings on the back of persistent selling activity across index heavyweights. 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 around 136 points (down 1%), the NSE-Nifty closed lower by around 48 points (down 1%). The BSE Mid cap and the BSE Small cap, were not spared either as they closed lower by 1% each. Losses were largely seen in banking, auto and oil and gas stocks.

As regards global markets, Asian indices closed mixed today while European indices have opened in the red. The rupee was trading at Rs 50.90 to the dollar at the time of writing.

Pharma stocks closed mixed today. While Dr.Reddy's and Ranbaxy found favour, Sun Pharma closed into the red. As per a leading business daily, pharma major Sun Pharma has received Abbreviated New Drug Application (ANDA) approval from the US FDA to launch the generic version of 'Seroquel' in multiple strengths. This drug belongs to the innovator AstraZeneca and is used for the treatment of schizophrenia and acute treatment of manic episodes. The drug had annual sales of US$ 4.5 bn in the US. This is a positive for the company and will enhance its sales from the highly competitive US generics market especially at a time when its subsidiary Caraco has yet to resolve issues with the US FDA. Having said that, many other companies have also received approval for this drug and considerable price erosion is likely on the day of launch.

As per a leading business daily, the government is expected to release Rs 150 bn in oil subsidy by the end of March to the government owned oil marketing firms notably Indian Oil, Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL). This is expected to bring down the combined borrowings of the three companies. The delay in grant of cash compensation from the government on capped sale of these three petroleum products drives the borrowings. The debt is used by the three of them for funding working capital requirement. While Indian Oil has borrowings of Rs 780 bn, HPCL's borrowings recently touched an all-time high of Rs 310 bn. BPCL has borrowings of Rs 270 bn. It goes without saying that allowing these firms to raise the prices for diesel and cooking gas (like it was done for petrol) will go a long way in bolstering the financials of these firms. But that does not appear likely in the medium term. While BPCL closed firm, HPCL closed into the red.

Volatility mars market indices
01:30 pm

After a weak opening, Indian stock markets turned positive for a brief period, but slipped below the dotted line in the last two trading hours as selling intensified. Barring FMCG and capital goods, all the sectoral indices are trading negative. Consumer durables, realty and banking stocks are the biggest losers.

The BSE-Sensex is trading down 73 points and NSE-Nifty is trading down 24 points. Both BSE Mid cap index and BSE Small cap indices are down 0.4% and 0.6% respectively. The rupee is trading at 50.9 to the US dollar.

Auto stocks are trading mixed with Tube Investments and Escorts being the biggest gainers and Maharashtra Scooters and Eicher Motor being the biggest losers. As per a leading financial daily, Hero MotoCorp is focusing on developing multiple technological tie-ups after it ended its collaboration with Honda, a year ago. As per the company, complete shift to the Hero brand will take 6-12 months. The company recently entered an agreement with US-based Eric Buell Racing (EBR) having a presence in high-end racing bikes. The company wants to adapt EBR's technology for mid-segment bikes beyond 200 cc which are likely to be launched by 2013; while bikes on complete EBR platform would be launched by 2013-14. Hero Motocorp does not want to limit its technological partnership to a single company but is looking for 3-4 tie-ups with technical experts. The company is working with AVL & Ricardo for engines and wants to seek technological support for styling of bikes and for small engines in the 100-125 cc range. The stock is down 0.8%.

Majority of the Indian pharma stocks have been trading positive with Strides Acrolab and Elder Pharma trading the strongest. As per a leading financial daily, Dr Reddy's will be going for a joint venture (JV) with Japan-based Fujifilm. The JV will set up a manufacturing facility to develop and produce generic drugs for the Japanese market and is expected to benefit from Fujifilm's advanced quality control technologies and DRL's expertise in cost competitive production technologies for active pharmaceutical ingredients and formulations. It will take 2-3 years for the company to come out with products. However, the company will have to obtain product approvals from Japansese authorities before the launch. A definitive agreement regarding this is expected to be signed by June 2012. The stakes of Fujifilm and DRL will be 51% and 49% respectively as per the agreement. DRL stock is up 2.3%.

Indian stock markets off day's lows
11:30 am

Indian stock markets recouped initial losses but continued to trade in the red during the last two hours of trade. Consumer durables and realty stocks were the top losers, while capital goods and healthcare stocks led the list of gainers.

The BSE-Sensex is trading up by 30 points and NSE-Nifty is trading down by 15 points. BSE Mid Cap and BSE Small Cap indices are trading lower by 0.1% and 0.2% respectively. The rupee is trading at 50.88 to the US dollar.

Steel stocks are trading in the red led by Tayo Rolls and JSW Steel. According to a leading financial daily, Tata Steel is now more comfortable in raising finance post the refinancing of debt that it had taken to acquire Corus. It had recently refinanced the entire debt in Corus through a Rs 250 bn term loan and revolving credit facility. The steel company will be borrowing up to Rs 500 bn for its capacity expansion and purchase of mines. This is in line with the company's objective of consolidating its position as the world's seventh largest steel company. Its expansion plans include increasing its capacity at Jamshedpur plant to 10 m tonnes, building a new steel plant at Kalinganagar in Odisha and investing in raw material project overseas.

Energy stocks are trading in the green led by GAIL India and Indian Oil Corporation. According to a leading financial daily, Reliance Industries Limited has agreed to supply additional amount of natural gas to the state of Andhra Pradesh. The company will supply 2.5 mmscmd (million metric standard cubic metre per day) of natural gas through a swapping of re-gasified liquified natural gas (RLNG) deal to partly utilise the idle capacity of the private gas power stations for meeting the needs of industry. Under the arrangement, the state government will bear the cost of RLNG to be used by the existing consumers of Reliance on the western coast, and utilise the natural gas supplies meant for those consumers for power generation in the state. The government will incur a cost of Rs 9 per unit of power as against around Rs 2.3 per unit currently paid to the gas power projects, as the price of fuel will be equivalent to that of RLNG as per the swapping arrangement.

Indian stock markets open weak
09:30 am

Most major Asian stock markets have opened the day on a weak note with stock markets in China (down 1.5%), Japan (down 1.2%) and Hong Kong (down 1%) leading the losses. The Indian stock markets have also opened the day on a weak note. Stocks in the consumer durables, realty and metal space are the major losers. However, healthcare stocks are trading firm.

The BSE-Sensex is down by around 108 points (0.6%), while the NSE-Nifty is down by around 37 points (0.7%). Mid cap and small cap stocks are trading in the negative zone as well, with the BSE Mid cap and the BSE Small cap indices down by about 0.3% and 0.2% respectively. The rupee is trading at Rs 50.92 to the US dollar.

PSU Bank stocks have opened the day on a weak note with Oriental Bank, Vijaya Bank, Central Bank and UCO Bank leading the losses. India's largest public sector bank State Bank Of India (SBI) has raised the interest rates on term deposits by 1%. The bank will offer an interest rate of 8% on deposits across various maturities less than one year. The new rate is set to be effective from today for deposits below Rs 10 million. The interest rate hike has come in a bid to prevent existing customers to switch to other banks that offer higher rates on savings account. It is likely that other banks will also follow suit. It must be noted that interest rates on savings bank accounts were freed in the latter half of 2011.

Auto stocks have opened the day on a weak note with Maruti Suzuki, Hero MotoCorp and Tata Motors (Telco) facing selling pressure. As per Maruti Suzuki's Chairman Mr R C Bhargava, the company is planning to reduce car production at its Gurgaon plant. However, there are no immediate plans to totally shift vehicle production out of this plant. At Gurgaon, Maruti is gearing to shut down one of the three assembly lines by 2015. This will reduce the installed capacity in the mother plant by 30%, from 7.2 lakh cars to 5 lakh cars. The decision to shut down one assembly line came on the back of complaints by Gurgaon residents who were being hassled by the movement of the trailers carrying cars from the factory as also the large quantities of incoming material. In place of the assembly line, the company would install its new diesel engine plant with a capacity of 3 lakh engines and will also make components.

Transport infra needs an overhaul

The role of transportation and logistics in India's economic growth can hardly be overemphasized. An average annual growth of above 7% in the last decade has put enormous demand on the Indian infrastructure. However, increasing demand has failed to evoke much response from the government but has only overstretched the existing network. Thanks to infrastructure deficit in the country, the GDP growth has been knocked down by almost 2%.

It is not that that the government is blind to the gaping deficit in transportation infrastructure. Well, at least not on paper. It plans to invest around US$ 1 trillion in roads, railways and ports during FY12-FY17.However, it is one thing to plan and quite another to put it into action. Especially in India where vote bank politics and political ambitions rule above anything else. A glaring example of this was seen last month itself when the railway minister who proposed small fare hikes as a step in the direction of reforms was made to resign and all the progressive suggestions were rolled back. The colossal railway network still falls short of the required coverage and needs huge investments which are hard to secure unless the tariff structure is overhauled. And this is just one part of the problem. The country's maritime ports that can well be described as the backbone of the economy have received just 17% of the targeted investment. The outcome is obvious. In a period of five years, forget any advancements, the turnaround period for ships in Indian ports has increased by 31%. The roads transport sector, a vital link that takes care of two thirds of country's freight still remains under developed and of poor quality. The scenario is no different in the aviation segment either. Despite a higher penetration of the private sector, the airports are not equipped enough to handle increasing air traffic leading to higher freights, manpower cost and inefficiencies.

So what is the solution? A higher participation from the private sector will certainly help. However, now that the growth rate has slowed down and credit growth is lagging behind the historical trends, it will be a little hard to convince private players to lock capital in the long term projects. Not that there is a lack of demand, but the stifling policies and regulatory bottlenecks at each and every step have dampened the sentiments of investors and questioned the feasibility of such investments. To conclude, it won't be enough to provide budgetary allocation to arrest infrastructure problems in the country. The need of the hour is to create enough incentives for investments to occur and lot of work on the regulatory front.