Negative ending to the week

The downward slide that started around mid day today intensified during the closing hours. As a consequence, indices in the Indian stock market closed the day as well as the week on a negative note. While the BSE Sensex lost in the region of 120 points, losses at NSE Nifty came in at around 35 points. As far as BSE Midcap and BSE Small cap indices are concerned, while the former lost around 0.3%, the latter ended only marginally lower. On the Sensex, more than three stocks declined for every one that closed the day in the positive. Index heavyweights Reliance and HDFC emerged as the counters that exerted the maximum selling pressure on the Sensex.

While Asian indices closed mixed today, Europe is trading largely in the negative currently. The rupee was trading at around 45 to the dollar at the time of writing.

As per reports, BPCL, one of India's leading petroleum sector companies is planning to bid for city gas projects in Kochi and Hyderabad. Besides, the company is also looking to launch around 600-700 new retail outlets with a special focus on rural markets in FY12. The company is of the opinion that there is a huge potential in the markets of Hyderabad and Kochi and hence it is keen to bid for city gas projects in these cities. From an investor's standpoint, city gas distribution is one of the most promising segments in the Indian oil and gas industry. Compared to the rest of the industry, it tends to be stable, generates a decent return on investment and places a lower demand for incremental capital. BPCL closed lower by 1% on the bourses today.

NCC, previously known as Nagarjuna Construction Company has announced that it expects to win order worth Rs 140 bn in FY12 out of which Rs 50 bn would be in-house orders from the power project. The company hopes to grow its revenues by 15% this fiscal and by 20%-25% in FY13. The company had a strong orderbook position to the tune of Rs 162 bn at the start of FY12 and secured more orders worth Rs 7 bn during the first two months. The stock witnessed heavy selling pressure today and ended 4% lower on the bourses.

Indian stock markets shed early gains
01:30 pm

The Indian stock market lost its gains during the previous two hours of trade due to selling pressure in heavyweights and is now trading in the red. Stocks from the healthcare, metal, oil & gas and PSU space are leading the pack of losers, while those from the capital goods and software sectors are trading firm.

The BSE-Sensex is trading down by 68 points, while NSE-Nifty is trading 23 points below the dotted line. BSE Midcap index is down 0.1%, while BSE Small cap index is trading up by 0.1%. The rupee is trading at 44.95 to the US dollar.

Power stocks are trading mixed with Reliance Infrastructure, Reliance Power, and Power Grid Corporation leading the pack of gainers. However, Coal India, CESC Ltd and Neyveli Lignite are trading weak. As per a leading financial daily, Reliance Infrastructure has decided not to bid for small road projects even at the cost of losing market share. The reason is that company expects high competition may dent profitability in such projects. The company aims to bag 8-10% of highway projects of up to Rs 800 bn that are likely to be awarded every year. In line with the new decision, it will bid only for projects worth Rs 15 bn - 20 bn and above as these are expected to be less impacted by high competition and lower-than-expected traffic unlike the low cost projects. The company's strategy is to focus on financials and it will not bid for projects that offer less than 20% return on equity. However, it is open to acquisitions of road projects of all sizes if valuations look attractive.

As per a leading news website, NTPC aims to double growth in power generation capacity in FY12. The management is confident of achieving an additional capacity of 5 gigawatt (GW) this year. The company has already applied for additional gas supplies which will boost up its plant load factors (PLF). The PLFs for FY12 are expected to be around more than 90. The company had indicated backing down of 13 bn units from State Electricity Boards to be a reason for weak PLFs last year. That still remains an area of concern. The management also said that it expects coal supplies to improve this fiscal as soon as logistics issues sort out. It expects to receive 140 m tonnes of coal from Coal India next year. This is against a requirement of 166 m tonnes. The rest has already been tied up for imports. The company does not expect coal prices to increase if Coal India supply remains as what they have committed. The stock of the company is trading weak.

Realty stocks lead the markets
11:30 am

Indian stock market indices traded firm on the back of sustained buying in index heavyweights over the last two hours of trade. All sectoral indices are trading firm led by realty and consumer durables.

The BSE-Sensex is up by 117 points while NSE-Nifty is trading 35 points above yesterday's closing. BSE-Midcap and BSE-Smallcap indices are up by 0.7% and 0.8% respectively. The rupee is trading at 44.96 to the US dollar.

Auto stocks are trading firm led by Force Motors and M&M. As per a leading financial daily, Hero Honda is looking out for a technology partner. The company had recently split with Honda Motors and is now looking at tie-ups to source technology and designing expertise. These firms are mostly based out of Europe and Japan. It may be noted that earlier, Honda was providing the technology and Hero group was marketing the products. The auto company is also working on developing capacities for research and development on its own. It wants to invest Rs 2.5 bn in R&D activities in the current financial year. As per management, developing an entire product is a vision and they may do it themselves or in association with a partner. Going forward, the company wants to focus on the mass commuter segment but is also exploring opportunities in the premium segment.

Capital Goods stocks are trading firm led by Voltamp Transformers and KSB Pumps. Crompton Greaves Limited (CG) has announced the acquisition of US based company QEI Limited. The enterprise value of this acquisition is equivalent to US$ 30 m. CG will pay US$ 24 m upfront and the balance US$ 6 m will be paid as part of a conditional earn out amount. Formed in 1960, QEI is the market leading provider of SCADA and automation systems and products for the management of electric transmission and distribution networks in electric utilities and electrified transit. For the year ended 31st July 2010, QEI had sales of US$ 12.4 m and operating income of US$ 2.35 m. CG with this acquisition has further fortified its position in SCADA and the Substation Automation domain. This acquisition will also help the company penetrate the North American automation markets by using QEI's customer references.

It may be noted that this is CG's ninth acquisition in 6 years. Other acquisitions include Pauwels (2005), Ganz (2006), Microsol (2007), Sonomatra (2008), MSE Power Systems (2008), Power Technology Solutions (2010), three businesses of Nelco in 2010 and Emotron Group in 2011.

Indian stock markets open firm
09:30 am

Asian stock markets have opened the day on a mixed note. Stock markets in China (up 0.9%), Taiwan (up 0.4%) and South Korea (up 0.2%) are trading firm. However, markets in Japan (down 0.3%) and Hong Kong (down 0.2%) are facing selling pressure. The Indian stock markets have opened the day on a firm note. Stocks in the realty, capital goods and power space are leading the pack of gainers.

The BSE-Sensex is trading higher by around 133 points (0.7%), while the NSE-Nifty is up by around 40 points (0.7%). Midcap and smallcap stocks are trading in the positive as well with the BSE-Midcap and BSE-Smallcap indices up by 0.7% and 0.6% respectively. The rupee is trading at 44.96 to the US dollar.

Power stocks have opened the day on a strong note with Reliance Infra, Reliance Power, GVK Power and Suzlon Energy trading firmly in the green. The environment ministry has cracked its whip at yet another company. This time the one to suffer is none other than the government owned coal major Coal India. As per a recent order, the ministry has stated that the company needs to obtain clearances before mining in even the barren areas if another part of the coal block has a forest. Thanks to this new rule, Coal India's annual output is expected to decline by 11.5 m tones during the current fiscal. The Coal ministry has requested the Planning Commission to exempt coal projects from this rule as most coal bearing areas have forests. The rule would adversely impact the coal production in the country as obtaining a forest clearance from the ministry takes anywhere between 3 to 5 years. So far, the environment ministry has blocked 203 coal blocks that have nearly 660 m tones of coal reserves.

Finance stocks have opened the day on a firm note with IDFC, IFCI and Mahindra Finance trading firm. However, HDFC is trading in the red. The National Housing Bank (NHB) has increased the standard assets provisioning on retail home loans to 0.4%. Earlier, the same was lower at 0.1%. So far, the provision for non-retail loans such as developers, loan against property and top-up loans was at 0.4%. After this hike in provisioning norms, housing finance companies will be in parity with banks.

The impact of higher provision on HDFC which is India's largest home loan provider would be a miniscule Rs 1,400 m. In fact, according to the officials of the company, it has already made an excess provision of Rs 3,100 m on their books. Hence, HDFC would not be affected by the upward revision in provisioning norms.

RBI sets new rules to prevent fraud

Money can corrupt a man's mind. If he sees too much of it floating around, he'd probably want to grab a handful of it.

Take for instance the banking business. It's a place that's constantly dealing with huge sums of money. Think about the huge risks associated with it. It is no wonder that time and again banking frauds by rogue employees have led to major bank collapses. In India, just a few months back, the relationship manager at the Gurgaon branch of Citibank India was found to be involved in a multi-crore fraud.

The risks will never go away. What one can do is build robust systems with effective controls and checks. Our esteemed central bank, the Reserve Bank of India (RBI) has chalked out new set of rules for banks that would help prevent frauds and irregularities.

The RBI has directed banks to frame staff rotation and leave policies for employees working in sensitive areas of the banks such as the treasury department and also relationship managers handling the accounts of high-value clients. Staff rotation and leave policies are popular international practices that enable banks to keep a tab on the decisions taken and work handled by their employees. Such practices help create proper checks and act as deterrents against any wrongdoing that employees may be tempted to be part of.

According to a notification by the RBI, these new rules have been introduced on the back of certain forensic studies at some banks due to the "occurrence of large value frauds or sharp increase in number of frauds at such banks".

Additionally, the central bank has asked private and foreign banks to appoint chief of internal vigilance (CIV) officers. The responsibilities of these officers would be akin to those of chief vigilance officers in public sector banks.

We believe that the RBI's move has been timely and will go a long way in strengthening the Indian banking system.