HUL lifts up the markets

With buying activity intensifying during the closing stages, indices in the Indian share market edged higher and closed comfortably in the positive. While BSE-Sensex gained to the tune of 117 points, NSE-Nifty closed with gains of 26 points (up 0.5%). BSE Mid Cap and BSE Small Cap indices witnessed contrasting trends with Mid Cap index gaining 0.4% whereas the Small Cap index ending lower by 0.3%. Nearly three stocks gained for every two that closed the day in the red.

While other Asian markets closed strong today, Europe too is trading mostly in the negative currently. The rupee was trading at Rs 53.8 to the dollar at the time of writing.

The indices continued from where they left off yesterday. And while they did show signs of fatigue, they quickly recovered towards the closing hours and posted significant gains on yet another occasion. Bulk of today's gains came on account of buoyancy in HUL counter where news of buyback by parent created significant buzz and took the stock some 17% higher. Other heavyweights like ITC and ICICI Bank also helped the Sensex post a strong gain.

Petronet LNG has announced results for the fourth quarter of financial year 2012-2013 (4QFY13). The company has reported around 33% year on year (YoY) growth during the quarter. The total expenses during the quarter witnessed a growth of 35% YoY. The pre tax profit for the quarter was up 5% YoY. The net profit for the quarter was flat as compared to the corresponding quarter of the last year. The net profit margin for the quarter stood at 2.9%, as compared to 3.9% in 4QFY12. The board of directors has recommended dividend at 25% on paid up share capital of the company (i.e. Rs 2.50 a share) for the year. The stock closed marginally higher today.

Dabur also announced its results for the quarter ended March 2013. The company posted a revenue growth of 12.5% YoY. On the back of reduction in other expenditure coupled with controlled raw material costs and ad-spends, Dabur managed to expand operating margin by 0.8% to 17.7%. Net profit for the quarter increased by 17.6% aided by 102% jump in the other income component. Interest charges and tax outgo grew by 162% and 34% respectively during the quarter. The stock closed marginally higher today

FMCG, pharma and IT stocks in demand
01:30 pm

Indian share markets lost all their morning gains and hovered around their neutral zone during the post noon trading session. While stocks from the FMCG, pharmaceutical and information technology spaces are leading the pack of gainers, those from the capital goods and realty sectors are amongst the most unfavored.

The BSE-Sensex is trading flat while the NSE-Nifty is down by about 15 points. The BSE Mid Cap and BSE Small Cap indices are trading lower by about 0.2% and 0.5% respectively. The rupee is trading at 54.05 to the US dollar.

FMCG stocks are currently trading firm led by Hindustan Unilever, Colgate and Gillette India. FMCG major Godrej Consumer Products Limited announced its results for the quarter ended March 2013 recently. The company's consolidated net profits surged by about 73% YoY during the quarter. Its revenues, on the other hand rose by about 30% YoY during the quarter. The faster rise in profits was aided by an exceptional gain. On excluding the same, the profits are higher by about 8% YoY. At the operating level, the company margins contracted by 2.4% YoY to 15.1%. The decline was largely due to high marketing expenses for new launches. However, the company expects the result of these expenses over the next few quarters.

Power stocks are currently trading weak led by Lanco Infratech, Reliance Power and Adani Power. As per a leading business daily private sector power major Tata Power is seeking coal assets in the US, Canada and Columbia. The rationale behind doing the same is the on the back of the rise in gas supplies and decline in the fuel's prices. As per the company's management, its plans of acquiring assets in South Africa may not go through on the back of infrastructure concerns. It may be noted that Tata Power had acquired assets in Indonesia for meeting its requirements back in India. However, on the back of the Indonesian government pegging its coal to global benchmark prices, the same became very expensive. And as such some of its projects became unviable. However, with US power generators looking at gas extraction, coal reserves have become relatively free and therefore cheap. While it may be too early to say in terms of prices and acquisition costs, this move would definitely help the company in terms of fuel security.

Indian indices stay in green
11:30 am

Indian share markets continued to trade in the green during the previous two hours of trade. Sectoral indices traded mixed with FMCG and healthcare stocks as top gainers while energy and capital goods stocks were the top losers.

The BSE-Sensex is trading higher by 124 points and NSE-Nifty is trading up by 22 points. BSE Mid Cap and BSE Small Cap indices are trading up by 0.4% and 0.3% respectively. The rupee is trading at 54.16 to the US dollar.

Mining stocks are trading strong led by Sesa Goa Limited and Coal India (CIL). As per a leading daily, Coal India has stated that it will continue to provide coal to power projects commissioned before 2009 at domestic prices. The Cabinet Committee on Investments (CCI) recently decided that CIL would supply domestic coal at 90% of the annual contracted quantity for pre-2009 projects. The plants commissioned after 2009 would receive coal on cost plus basis. These include the plants that have been commissioned or will be commissioned by March 31, 2015. These will receive 65% of the promised annual quantity on cost plus basis if these have signed power purchase agreements. We may note here that pre-2009 projects have a capacity of 65,185 megawatt and the post 2009 ones of 36,000 megawatt. This is expected to resolve the pricing issue which affects power generation in the country.

FMCG stocks are trading strong led by Hindustan Unilever Limited (HUL) and Colgate. As per a leading daily, the parent company of HUL, Unilever Plc is planning to raise its stake in the Indian unit. Unilever plans to increase its stake to 75% by acquiring up to 487 m shares equaling 22.52% of the total equity of HUL. For this it would pay around US$ 5.4 bn. This would be the largest equity offer ever in the country. As per the management of Unilever, this is in line with their strategy to invest in emerging markets. India is Asia's third largest economy and spending power is on a rise here. Unilever wants to make the most of this opportunity. HUL makes popular brands including skin creams Fair and Lovely, Sunsilk shampoo, Lux soap and Kissan ketchup. The HUL stock is currently trading up by 15%.

FMCG drives Indian share markets
09:30 am

Barring Japan (down 0.4%) and Indonesia (down 0.1%), all major Asian stock markets have opened the day on a firm note with stock markets in South Korea (up 1.1%), Taiwan (up 0.8%) and Hong Kong (up 0.7%) leading the gains. The Indian equity markets indices have also opened the day on a firm note. Stocks in the FMCG and metal space are leading the gains.

The Sensex today is up by around 190 points (1%), while the NSE-Nifty is up by around 45 point (0.8%). Mid and small cap stocks are also trading in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.5% and 0.4% respectively. The rupee is trading at Rs 54.23 to the US dollar.

Auto stocks have opened the day on a firm note with Eicher Motors, Escorts and Maruti Suzuki leading the gains. As per a daily, India's leading two-wheeler manufacturer Hero MotoCorp has inked a three-year wage settlement agreement with its workers at the Gurgaon plant. As part of the agreement, the company has agreed to raise salaries of workers by Rs 9,000 per month on an average, over a three-year period. The agreement will be valid for three years with retrospective effective from August 01, 2012. It must be noted that discussions between the workers and management had remained indecisive for about seven months. The Hero MotoCorp Workers Union (HMCWU) had been demanding a hike of upto Rs 18,000 per month over a period of three years. It is also worth noting that Hero MotoCorp's Gurgaon plant has about 1,100 permanent workers.

Cement stocks have also opened the day on a firm note with Shree Cement and Mangalam Cement leading the gains. Leading north Indian cement maker Shree Cement has announced its financial results for the quarter ended March 2013. During the quarter the company reported net sales of Rs 14,716 m, higher by 6.9% YoY over the corresponding quarter of the previous financial year. While the cement segment reported a marginal decline in sales of 0.5% year-on-year (YoY), the power segment reported a robust 27.8% YoY rise in sales. Operating profits stood at Rs 4,202 m, higher by 12.6% YoY. While other income declined by 44.6% YoY to Rs 428 m, depreciation charges also dropped by 46.1% YoY to Rs 1,265 m. The effective tax rate was also substantially lower at 6%, as against 33.5% in the quarter ended March 2012. This was mainly on account of MAT credit entitlements. As a result, net profits zoomed up by 139.8% YoY to Rs 2,741 m. Net profit margins increased to 18.6% in the quarter ended March 2013 from 8.3% in corresponding quarter of the previous year. During the nine month period ended March 2013 (the company has a June year ending), the company reported sales of Rs 42,235 m and net profits of Rs 7,197 m, both higher by 23.3% YoY and 239.5% YoY respectively.

Should we fund current account deficit this way?

Desperate times need desperate measures. It's an age old adage that perhaps the former Finance Minister took too seriously when he suggested the possibility of using sovereign bond to face the issue of increasing current account deficit (CAD). Before we go further on this, let us discuss what a sovereign bond means. A sovereign bond is a bond (debt security) issued by the Government in foreign currency. The idea is to use these dollar denominated bonds as a low cost option (considering low interest environment abroad) and finance the CAD. However, recently, the finance ministry said that it will not do that as gold and crude prices are coming down which is likely to ease the CAD. However, let us see what can happen if such a move is taken by the government.

Despite the low interest rate environment abroad, the Government will need to borrow at higher costs. This is because it will have to pay extra for its bonds which don't enjoy a high confidence of the rating agencies, courtesy poor fundamentals of the Indian economy. Second, such a move will lead to negative sentiments regarding the state of the Indian economy setting off alarm bells and raising the cost of debt further. Also, it will not leave much on the table for private sector investments that might have opted for foreign funds. More importantly, it will mean an increase in the external debt that could be risky, especially when rupee as a currency has lost much value.

Hence, we are better off not using this option. Rather, it would be worthwhile if the Government thinks of putting into effect some measures that can improve fundamentals of the economy. While it has taken some measures in this direction by rolling out reforms, these are just the baby steps. We have a long way to go and we certainly cannot afford to be complacent.