Rate cut hope fuels rally

Indian equity markets surged over 2.5% on Wednesday led by interest rate sensitive stocks on rate cut hopes. Domestic sentiment was buoyed after WPI inflation fell to a three-year low of 4.69%, giving room for RBI to cut interest rates in its mid-quarter monetary policy review next month. Buying interest in Banking, Realty and Capital Goods stocks led indices in Indian equity markets to close at the highest level since January 2011. While the BSE-Sensex closed higher by 490 points, the NSE-Nifty closed higher by 151 points. Both the BSE Mid Cap and the BSE Small Cap closed on a positive note.

As regards global markets, Asian indices closed in the green. European indices have opened mixed. The rupee was trading at Rs 54.73 to the dollar at the time of writing.

According to a leading financial daily, ITC is planning to foray into various new segments, including oral care. The company's foods segment is fast approaching break-even, and its personal care division is also faring well. The Rs 60 bn toothpaste market in India is growing 19% a year and many companies including ITC are eyeing this space. ITC, much like other consumer companies, has watched how the oral care sector has evolved in the last two years and the company has adequate resources to enter into a category such as oral care, considered competitive, with a penetration level of 55-56% in India. ITC has demonstrated it has the staying power in competitive categories such as foods and personal care, despite being a late entrant in these segments. While oral care is growing, the initial challenges would be there.

According to a leading financial daily, Tata Motors' subsidiary Jaguar Land Rover (JLR), manufacturer of premium luxury vehicles, sold 28,503 vehicles, its best ever, in April, an increase of 12% versus the same period last year. During the first four months of the year, Jaguar Land Rover sold 143,974 vehicles, up 16%. April sales were up for Jaguar Land Rover in every major region, with the Asia-Pacific up 37%, the UK up 32%, the China Region up 10%, North America up 6%, Europe up 2% and other overseas markets up 11% (including India, which is up 6%). Sales of the Jaguar XF remain buoyant across many of their key markets and the company is seeing the positive impact of the all new Range Rover with sales approaching 15,000 cars in the first four months of this year. In April, Jaguar sold 4,711 vehicles up 12%. The Land Rover, on the other hand, sold 23,792 vehicles in April, up 12%.

Indian share markets remain upbeat
01:30 pm

Buoyed by sustained buying in index heavyweights, Indian share markets continued to ascend in the post-noon trading session. All the sectoral indices are trading in the green with realty, banking and auto stocks being the major gainers.

BSE-Sensex is up 403 points and NSE-Nifty is trading up 124 points. BSE Mid Cap is trading up 1.4% whereas BSE Small Cap index is trading up by 0.9% each. The rupee is trading at 54.7 to the US dollar.

Most of the MNC pharma stocks are trading in green, with Pfizer Ltd and Sanofi India leading among the pack of gainers. As per financial daily, Pfizer Ltd has announced March 2013 quarter results. Total income increased by 4% YoY for the quarter. The slow growth has been due to a high base as the year-ago quarter included revenues from the animal health business and service income. However, the company sold off its animal business in this fiscal. Excluding this impact, the pharmaceuticals business grew by 9.6% YoY during the March 2013 quarter. The operating margin improved by 0.6%. The net profit increased by 21% YoY for the quarter.

Majority of real estate stocks are trading in the green with Madhucon Projects and NCC being the major gainers. As per a leading financial daily, Reserve Bank of India (RBI) has extended the deadline for real estate developers and house finance companies, to access external commercial borrowings (ECBs) for low-cost housing, from one year to two years. In December 2012, RBI had permitted ECBs of upto USD 1 bn for the promotion of low-cost housing projects. The funds raised through the ECB route can either be used for development of low-cost housing projects or extending loans of upto Rs 25 lakh to individuals for buying houses valued at Rs 30 lakhs or less.

Auto stocks lead the rally
11:30 am

Indian equity markets continued to trade in the green during the previous two hours of trade. Sectoral indices traded strong led by auto and banking stocks.

The BSE-Sensex is trading higher by 373 points and NSE-Nifty is trading up by 112 points. BSE Mid Cap and BSE Small Cap indices are trading up by 1.4% and 1% respectively. The rupee is trading at 54.71 to the US dollar.

Indian pharma stocks are trading strong led by Elder Pharma and IPCA Labs. As per a leading daily, it is expected that Ranbaxy may have to take a hit of US$ 1 bn in the US over a period of 5 years. Earlier, this amount was estimated to be US$ 500 m when the Indian pharma company was recently found to be guilty of regulatory wrongdoings. However, the company would not just suffer monetary losses but has also lost the reputation and goodwill that it earlier enjoyed in the US. We may note here that Ranbaxy has been charged of systematically violating good manufacturing practices. Mr Dinesh Thakur, a whistleblower and an ex employee of the company uncovered these unsafe practices at Ranbaxy.

Automobile stocks are trading strong led by Eicher Motors and Tata Motors. As per a leading daily, Eicher Motors is planning to increase its production capacity of producing its motorcycles, Royal Enfield. The company wants to double the annual capacity to 1.5 lakh units by December this year and to 2.5 lakh units by 2014. We may note here that Eicher produced and sold 1.13 lakh units of two-wheelers during last year. Also, the company recently commenced operations at its second manufacturing facility at Oragadam near Chennai. For the first phase of this 50 acre plant, it is investing Rs 1.5 bn initially. The company is targeting total capital expenditure of Rs 12 bn in 2013 and 2014.

Indian share markets open firm
09:30 am

Asian stock markets have opened the day on a mixed note with China (down 0.1%) and South Korea (down 0.1%) trading weak. However, markets in Japan (up 2.3%) and Hong Kong (up 0.5%) are trading firm. The Indian share markets indices have also opened the day on a firm note. Stocks in the realty, auto and banking space are leading the gains.

The Sensex today is up by around 122 points (0.6%), while the NSE-Nifty is up by around 30 point (0.5%). Mid and small cap stocks are also trading in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.6% and 0.4% respectively. The rupee is trading at Rs 54.76 to the US dollar.

Indian pharma stocks have opened the day on a firm note with Elder Pharma, Glenmark Pharma and Lupin Ltd leading the gains. Indian pharma firm Dr Reddy's Laboratories has announced its financial results for the quarter ended March 2013. The company's revenues grew by 25.6% year-on-year (YoY) from Rs 26.6 bn in 4QFY12 to Rs 33.4 bn in 4QFY13. The growth was driven by strong sales from North America and emerging markets in the global generics segment. The pharmaceutical services and active ingredients segments also witnessed better performance. At the bottomline level, net profits increased by 66.6% YoY from Rs 3.4 bn in 4QFY12 to Rs 5.7 bn in 4QFY13. For the financial year ended March 2013 (FY13) revenues were higher by 20% YoY at Rs 116.3 bn while net profits increased by 17.6% YoY.

Auto stocks have opened the day on a firm note with Eicher Motor, Maruti Suzuki and Hero MotoCorp leading the gains. As per a leading financial daily, India's leading two-wheeler manufacturer Hero MotoCorp has entered into the Central American market. It has partnered with Indy Motos Group of Guatemala and launched its two-wheelers in Guatemala, El Salvador and Honduras. In Central America, the company has introduced bikes such as Hunk, Karizma, Glamour, HF Dawn, Splendor NXG, Super Splendor and Achiever under the Hero brand. As per the company's Managing Director and CEO Mr Pawan Munjal, the company is also planning to enter other markets in Latin and Central America and Africa. It is worth noting that the company aims to achieve 10% of its volume sales from international business in the next four to five years.

Rising food prices: Blame the Government

Food is one of the basic needs for survival. Also, a key constituent of price index and a major cause of the rising fiscal deficit. Hence, any increase in food prices is a matter of concern, not just for the common man but economists and policy makers as well.

Unfortunately in India, food production is largely dependent on monsoons. The unpredictable weather has many a time wreaked havoc on farmers and troubled policy makers. Following the simple economic logic of demand and supply, when food supply goes down; the prices go up leading to overall increase in the inflation levels. However, as an article in Firstpost suggests, the converse might not be true. While the metrological department's prediction about monsoons bodes well for production, easing of food prices could remain a distant dream. So what is it distorting the laws of economics that suggests that price of a commodity should come down as supply increases?

No prizes for guessing the answer. As in most of the cases, it is Government policies that are distorting the market economics, without making much of a positive difference. Let us see how. As highlighted in an article on Firstpost, the Government procures wheat and rice from Food Corporation of India (FCI) and other state Government agencies at minimum support prices (MSPs) which farmers already know in advance. A trend of rising MSPs in the last few years has led to huge production of these two food crops by farmers. As such, the stock of these crops with the Government now stands at more than double of the minimum buffer. But the main issue here is that while the stock is going up, the distribution or supply in the market is not in line with the trend. Blame inefficient logistics and infrastructure, operational challenges or the lack of intent and ineffective implementation. Despite good production, there is an artificial shortage in the market. Infact, it wouldn't be an exaggeration to say that the Government is hoarding the food while there is an unmet demand in the market. No wonder the prices of food crops like wheat and rice have gone up manifold.

With a system of food subsidies, the level of inefficiency has gone up further. This is what the picture looks like - production and procurement costs are increasing (higher MSPs and storage, infrastructure and distribution costs) for the Government. At the same time, increasing food subsidies are leading to higher fiscal deficit. The same is likely to lead to higher inflation at a macro level.

You will be further surprised to know that there is no clear mechanism to determine MSPs. As per an official report, there is no clear correlation between cost of production and MSPs. The higher MSPs are creating artificial shortage of food grains in the market. This has adversely impacted the diversity in production basket (more focus on wheat and rice at the cost of other food grains) and crowded out private forces from the market thus leading to an adverse development in open market prices. Not to mention the rising fiscal deficit and inflation.With elections just around the corner, it is unlikely that MSPs will be rationalized. To conclude, irrespective of the production and procurement, one should not be surprised if food prices in India do not go down anytime soon.