Markets end 0.4% down for the week

Indian equity markets had a rather volatile trading session today. The markets started the days' proceeding on a negative note, but managed to turn positive by afternoon. Strong buying activity during the second half of the day led the Indian equity markets to end the day on a positive note. Barring stocks from the realty sector, stocks across the board ended on a firm note with those from the capital goods, banking and oil and gas sectors leading the pack of gainers. While the BSE-Sensex closed higher by 206 points, the NSE-Nifty closed higher by 63 points. BSE Mid Cap and the BSE Small Cap closed on a positive note.

As regards global markets, Asian indices closed mixed. European indices have also opened in the red. The rupee was trading at Rs 64.10 to the dollar at the time of writing.

According to a leading financial daily, Bosch Limited has embarked on a cost-cutting exercise to improve margins and profitability. The move comes after the slowdown in demand for heavy commercial vehicles, light commercial vehicles and passenger cars. Now, the company is focusing on expanding and developing its non-automotive product portfolio, as the automotive product segment hasn't seen much growth in recent quarters. It is also taking steps to improve operational efficiency and has initiated measures to curtail expenditure on travel and advertisements. It has also frozen hiring in non-growth areas. The company is also investing in new sales channels and marketing concepts and increasing localisation.

According to a leading financial daily, Reliance Industries and BP has announced new gas condensate discovery off the east coast of India in the Cauvery Basin. The discovery, in the deepwater block CY-DWN-2001/2 (CYD5), is situated 62 km from the coast in the Cauvery Basin and is the second gas discovery in the block. RIL is the operator with 70% equity and BP has a 30% share. Preliminary evaluation of well data and fluid samples indicated presence of gas condensate in the reservoir interval with a gross column of 143 meters. The well reached its total depth in early August and Reliance has conducted drill stem test (DST) to evaluate the potential of the discovery.

Indian share markets firm up
01:30 pm

Backed by sustained buying in index heavy-weights, Indian share markets picked up momentum in the post-noon trading session. Majority of the sectoral indices are trading in the green with consumer durables, oil and gas and banking stocks being the biggest gainers. Only realty, metal and pharma stocks are trading in the red.

BSE-Sensex is up 126 points and NSE-Nifty is up by 34 points. Both BSE Mid Cap and BSE Small Cap indices are trading up by 0.7% each. The rupee is trading at 64.6 to the US dollar.

Majority of the auto stocks are trading in the green, with Maharashtra Scooters and Eicher Motors being the major gainers. As per a leading financial daily, Hero MotoCorp has forayed into the Latin American market. The company launched its Hero range of two wheelers in Peru which include brands across segments such as scooter Pleasure, Passion Pro, Glamour, Hunk, Thriller, Karizma ZMR and Karizma R. Recently, Hero MotoCorp announced its global vision to be achieved by 2020. Under this, the company wants to surpass 100 m units in cumulative production and achieve annual sales of 12 m units. The company is also targeting sales reach in more than 50 countries and wants to set up more than 20 manufacturing and assembly plants across the globe. It may be noted that the past several quarters have been tough for Hero Motocorp as a subdued environment in the auto industry including two wheelers has been a drag on performance. For FY14, the company expects the motorcycle industry to grow not more than 7-8% after considering poor volume growth in the first quarter and assuming a pickup in volumes led by good monsoons and the festival season in subsequent quarters. Hero MotoCorp's stock is currently trading marginally up.

Most of the energy Stocks are trading in the green, with Oil and Natural Gas Corporation Ltd. (ONGC) and Indraprastha Gas being the leading gainers. As per a leading financial daily, Petronet LNG (PLL) has received the first LNG cargo of 1.23 lakh cubic meters from RasGas of Qatar at its Kochi terminal. However, only 10% of the terminal capacity will be utilized as Gas Authority of India Ltd (GAIL) has still not laid down crucial pipelines. As per PLL, GAIL has completed only phase-1 of the pipeline network covering only 44 km and this has a reach limited only to the industrial areas in Kochi. GAIL still has to complete a major part of the pipeline network of more than 900 km connecting to northern part of Kerala and states of Tamil Nadu and Karnataka. GAIL has said that regulatory issues at the state level have hampered the laying of pipelines. PLL will start commercial supply of gas from the Kochi terminal next week. Both GAIL and Petronet LNG stocks are down by around 1% each.

Indian share markets inch upwards
11:30 am

After opening in red Indian share markets have recovered a bit in the last two hours of trade. The sectoral indices are trading mixed with Consumer Durables and Auto leading the indices in green; while Teck and Metal continue to be in red.

BSE-Sensex is trading up by 16 points and NSE-Nifty is trading almost flat. BSE Mid Cap is trading up 0.59% and BSE Small Cap index is trading up 0.55%. The rupee is trading at 64.6 to the US dollar at the time of writing.

Most of the Engineering stocks are trading positive today. EMCO and BHEL are leading the gainers; while Everest Kanto and Punj Lloyd are leading the losers. Larsen and Toubro (L&T) in its AGM which was held yesterday stated that it is planning to form a new subsidiary 'L&T Technology Services'. The company plans to buy the engineering business of its subsidiary- L&T Infotech. After it transfers the engineering business of L&T InfoTech to its E&C division, the subsidiary will become a technology services company.

The management also reaffirmed that it will try its best to maintain its guidance of 20% increase in order inflow and 15 % growth in sales for the current financial year. L&T stock is trading up 0.34%.

Metal stocks are trading mixed today. Gujarat Mineral development and Jindal Steel and Power are leading the gainers while Hindustan Zinc and National Mineral Development Corporation (NMDC) are among the losers. The Finance Ministry has asked ministry of mines to speed up the Cabinet note on the stake sale in Hindustan Zinc (HZL) and Bharat Aluminium Company (BALCO). It has also proposed that stake sale should be done via the auction route. HZL and BALCO are erstwhile public sector firms that were sold to mining major Vedanta Resources during 2001-03. The government has a residual stake of 29.5% in Hindustan Zinc and 49% in BALCO. The divestment program could bring in over Rs 130 bn to the government. The government may have to obtain a no objection certificate from Vedanta for the auction sale.

The long pending stake sale of government's share in Hindustan Zinc (HZL) got delayed as the mines ministry's legal advisor had suggested that the ministry revisit all divestment related issues of HZL. As per a deal between the Government and Vedanta, the Anil Agarwal led company had the option to buy back the government's 29.5% stake in the firm. Vedanta had first offered Rs 172.75 bn for buying out remaining stake of the government in both Hindustan Zinc and BALCO. Vedanta had valued government's 29.5% stake at Rs 154.93 bn in Hindustan Zinc. However the company's board later sweetened the offer by up to 15% to about Rs 186.06 bn. As per the government plan, it will auction the shares and Vedanta will be given an opportunity to match it. Hindustan Zinc is trading lower by 2.5%

Indian stock markets open weak
09:30 am

The major Asian stock markets have opened on a firm note with stock markets in Indonesia (up 1.4%) and Japan (up 2.6%) leading the gains. However, the Indian stock markets indices have opened the day on in the red. The sectoral indices have opened on a mixed note with stocks in the auto and capital goods sector leading the gains. However, the stocks in the FMCG and healthcare space were leading the losses.

The Sensex today is down by around 30 points (0.2%), while the NSE-Nifty is down by around 5 points (0.1%). Midcap and small cap stocks have however opened in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.5% each. The rupee is trading at Rs 64.68 to the US dollar.

Telecom stocks have opened the day on a mixed note with Reliance Comunications Ltd and ADC India Communications Ltd leading the losses. However, AGC Networks and ITI Ltd have opened in the green. As per a leading financial daily, Bharti Airtel is planning to sell off its Sri Lankan operations to Abu Dhabi's Etisalat. The latter is the third largest operator in Sri Lanka with 4.5 million subscribers. As per a leading daily Bharti Airtel Lanka has a subscriber base of 1.7 million and has been valued between US$110 m and US$130 m. As of now, no official comments have been received regarding the development. It is important to note here that Bharti Airtel had entered Sri Lanka in 2009 as country's fifth operator. However, despite heavy investments, its subscribers have not grown in the past four quarters.

Steel stocks have opened the day on a mainly in the green with Tayo Rolls Ltd and Tata Sponge Ltd leading the gains. As per a leading financial daily, Afghanistan has said that it does not have any objections against Steel Authority of India Ltd (SAIL) led US$ 10.8 bn iron ore and steel plant project. The project will be developed in phases by SAIL led consortium - the Afghan Iron and Steel Consortium (AIFSCO). It consists of SAIL, Rashtriya Ispat Nigam Ltd (RINL) and NMDC Ltd and holds a combined stake of 56 %. The rest is held by private players. Earlier, the steel plant was to have a capacity of 6.1 million tonnes per annum (mtpa). It was to be developed in two equal phases along with an 800 MW power plant. However, later AIFSCO scaled down its plans and decided to invest US$ 2.9 bn to set up a steel plant of 1.25 mtpa and a 120 MW captive power plant. Eventually, the investment will range between US$ 10 bn to US$ 11 bn. The project will be carried out in phases based on negotiations and is expected to have a capacity of 7 mtpa.

The ugly side for Indian Inc

The Indian rupee has fallen more than 15% against the US dollar so far this year. This sharp depreciation in rupee has numerous implications for the market. Since it affects dollar returns, falling currency affects investments by foreign investors, a dominant force in the Indian markets.

Further, it would lead to higher cost of imported goods which will push inflation and will not allow the central bank to cut interest rates and support growth. In fact, the Reserve Bank of India has taken measures to curb liquidity in the market in order to defend the rupee and, in the process, has significantly reduced the possibility of an interest rate cut in the foreseeable future.

However, the more important factor is that falling rupee will affect company earnings and, eventually, stock prices for companies with high foreign debt. Another point to look out for is that companies with short term debt and long cash conversion cycles could also be in trouble (even from the so called defensive sectors). A long working capital cycle will lead to credit problems only if accompanied by high leverage and low interest coverage (their ability to pay interest).

An analysis conducted of the BSE 200 list by Business Standard throws up at least nine companies that have debt/equity ratios of over two times and interest coverage less than two and a half times. Top on the list are Aban Offshore, Dish TV, HCC and Shree Renuka Sugars. The other five are Jaiprakash Associates, Bhushan Steel, Lanco Infratech, GMR Infrastructure and Essar Oil.

While debt levels of these companies are high, the rising interest rates will add to their woes. On top of that, operational pressure (on account of a slowdown in demand) has only made things worse, impacting their earnings.

In any case, even in normal circumstances, investors should avoid companies with very high levels of debt. And if the significant part of the debt is foreign and short term, it should be a red flag. With companies high on foreign debt, you are not only taking a normal business risk as an equity investor who understands the business of the company, but also a currency risk.