Buying momentum fuels indices

Indian equity markets began the day's proceedings on a positive note. Although the morning session saw the indices trade within a range, buying momentum intensified in the later hours enabling them to notch further gains. Buoyancy was sustained in the final trading hour as well and the indices closed well above the dotted line. While the Sensex today closed higher by 147 points, the NSE-Nifty today closed higher by 41 points. The BSE Mid Cap and the BSE Small Cap notched gains of 0.4% each. Gains were largely seen in metals and auto stocks.

As regards global markets, Asian indices closed firm today while European indices have also opened in the green. The rupee was trading at Rs 55.13 to the dollar at the time of writing.

Most auto stock closed firm today with the key gainers being Tata Motors and Ashok Leyland. As per a leading business daily, Tata Motors' subsidiary Jaguar Land Rover (JLR) has invested £ 370 m to upgrade its manufacturing facilities in the UK. The investment would also help the company to increase productivity as it prepares to launch the fourth generation Range Rover across 170 countries. As part of the investment, the company has installed a new aluminium body shop for the latest Range Rover at its Solihull plant, near Birmingham. It has also upgraded paint-applications technologies, trim assembly and warehousing facilities. It must be noted that Tata Motors' performance in FY12 and 1QFY13 was largely driven by the strong performance of JLR as the domestic operations continued to remain under pressure due to slowdown in the industry and competition. In terms of products, Land Rover has been the major growth driver for the company especially the new launch Evoque.

As per a leading business daily, Aurobindo Pharma has received final approval from the US Food & Drug Administration (USFDA) to manufacture and market Escitalopram Oxalate Tablets in the strengths of 5mg, 10mg and 20mg. These tablets are the generic equivalent of Forest Laboratories Inc's Lexapro Tablets. This drug is an anti-depressant and falls under the Central Nervous System (CNS) segment. It is indicated for treatment of depression associated with mood disorders and had a market size of approximately US$ 2.8 bn for the twelve months ending March 2012 according to IMS. The product has been approved out of Unit III formulations facility in Hyderabad. This is a positive for the company and will enable it to enhance revenues although competition will increase. Aurobindo now has a total of 158 ANDA approvals from the USFDA. The stock closed lower today.

IT, auto stocks lead pack of gainers
01:30 pm

The Indian equity markets continued to trade firm, in a range bound manner during previous two hours of trade. Barring stocks from the power, healthcare and PSU sectors, buying activity is seen in stocks across the board with those from the IT, Auto and consumer durables sectors leading the gains.

The Sensex today is trading higher by about 65 points (up 0.4%), while the NSE-Nifty is trading higher by about 16 points (0.3%). Midcap and smallcap stocks are trading firm with the BSE Mid Cap and BSE Small Cap indices trading higher by 0.25% each. The rupee is trading at 55.28 to the US dollar.

Stocks of FMCG companies are trading mixed with Godrej Consumer and GSK consumer trading weak while Marico and Dabur are trading firm. As per a leading financial daily, FMCG company Marico has said that beauty & wellness will be the main growth drivers in future. Therefore the company is open to making acquisitions in the beauty & wellness categories particularly in the emerging markets of Asia and Africa. In February 2012, the company had acquired the personal care business of Paras Pharmaceuticals from Reckitt Benckiser for Rs 7.4 bn. This acquisition has added personal grooming brands for youth namely Set Wet, Zatak and Livon to Marico's traditional portfolio of hair and edible oils. This will enable the company to gain a foothold in the rapidly growing and high margin categories of deodorants and hair gels. Marico has said that as a company, it is imperative to have a youth portfolio in line with demographic trends. The company believes that categories aimed at the youth are tailwind categories with high potential for growth over the long term.

IIP (Index or Industrial Production) numbers for the month of June 2012 were released recently. Led by a poor show by the manufacturing, mining and capital goods sector, industrial production grew by a mere 0.1% during the month. With this data, the YTD (year to date) data i.e. data for four month period April to July this year, has contracted by 0.1%. During the corresponding month last year, the growth in IIP was a low 3.7% during the month and 6.1% during first four month period of FY12. Forming nearly three-fourth of the index, the manufacturing sector contracted by 0.2% in July. Last year, the sector's growth figure stood at 3.1% YoY. During the April - July period, growth for the sector contracted by 0.6% (6.5% in the four-month period of FY12). The capital goods sector continued its dismal performance, declining by 5% in July as against a decline of 13.7% last year. Mining output dipped by 0.7% as against a growth of 0.7% in the same month a year ago.

With this data being released, all eyes will be on the RBI's mid-quarter policy review, which is scheduled for Monday next week. However, as per the Hindu Business Line, this modest uptick in IIP for the month could imply that the Reserve Bank of India (RBI) would leave policy rates unchanged and that the central bank would consider cutting rates during the mid-year review meeting in the month of October 2012.

Indian equity markets trade strong
11:30 am

Indian equity markets continued to trade strong over the last two hours of trade on back of heavy buying activity witnessed across industry heavyweights. Auto and Realty stocks witnessed maximum buying interest while Power and Pharma stocks witnessed maximum selling pressure.

The Sensex today is up by 57 points, while the NSE-Nifty is up by 13 points. BSE Mid Cap index and the BSE Small Cap index are up by 0.52% and 0.61% respectively. The rupee is trading at 55.24 to the US dollar.

Energy stocks are trading in the green led by Gujarat State Petronet Ltd (GSPL) and Petronet LNG. According to a leading financial daily, Petroleum and Natural Gas Regulatory Board (PNGRB) has slashed the rate charged by Gujarat State Petronet Limited (GSPL) by about 40%. This is for the company's 2,239-km Gujarat Gas Grid. The regulator has said that the company was charging discriminatory rate from different customers. Against Rs 39.6 per million British thermal unit (mmBtu) rate submitted by GSPL, the PNGRB has fixed the rate at Rs 23.9 per mmBtu. The regulator has also said that the approved rate would be effective November 20, 2008 and the difference between the tariff charged and that approved by the board shall be adjusted with customers in future billings.

Software stocks are trading strong led by Wipro and Tech Mahindra. According to a leading financial daily, Wipro is planning to sell its water purification and treatment business to New Delhi-based Earth Water Group (EWG). The deal size is likely to be between Rs 450 to 500 m. The water business is part of Wipro Infrastructure Engineering, which is also the largest independent hydraulic cylinder manufacturer in the world with 10 manufacturing set ups. The potential sale was part of a bigger restructuring exercise to exit the smaller pieces in its diversified portfolio, which the company has been finding it difficult to scale up. The other businesses identified as non-core include the baby care and vanaspati oil brands. Close to 85% of Wipro's revenues come from IT, while consumer durables and lighting form the lion's share of the residual non-IT revenues.

Indian share markets open firm
09:30 am

The key Asian stock markets have opened the day on in green with markets in Hong Kong (up 0.8%) and South Korea (up 1.5%) leading the gains in the region. However, the markets in Malaysia (down 0.1%) have opened in red. The Indian share market indices have opened the day on a firm note. Barring technology, the other sectoral indices are trading in green with stocks in the realty and banking sector leading the gains.

The Sensex today is up by around 59 points (0.3%), while the NSE-Nifty is up by around 14 points (0.3%). 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% each. The rupee is trading at Rs 55.26 to the US dollar.

Aluminium stocks have opened the day on a firm note with Hindalco Industries and National Aluminium Corperation Limited (Nalco) leading the gains. As per a leading financial daily, Hindalco has planned a capital expenditure of Rs 100 bn for its green field as well as brown field projects for the fiscal year 2012-13 (FY 2013). As per the management, the company strategic expansions in Brazil, South Korea and the US are on track. It has also ventured into China with a plant that will initially focus on automotive sheet finishing capabilities. With this, the management expects the company to solidify its global automotive leadership position. It has said that its strategic investments at Novelis in global recycling facilities will ensure metal supply and optimization of overall cost base.

Telecom stocks have opened the day on a mixed note with Tata Communications Ltd and Tata Teleservices Ltd leading the gains while Idea Cellular and Reliance Communications are witnessing losses. As per a leading financial daily, the mobile phone subscriber numbers of the country's largest GSM operators, Bharti Airtel, Vodafone and Idea Cellular have fallen for the first time in over a decade in the month of August. This has come as another blow to the country's telecom story. It is to be noted that while telecom regulator is yet to release the August subscriber data, the three GSM operators that account for 67% of the sector revenues are expected to have jointly lost about 5 million customers. The trio had added a total of 3.16 million subscribers in July 2012 and 4.42 million in June 2012.

Is round tripping driving heavy FII inflows?

With the country facing all possible problems including the risk of a sovereign downgrade and almost no action on reform front, Indian growth story is losing steam. Given the scenario, it is surprising that India is attracting highest overseas money in the stock markets among the Asian peers. But few are bothered to solve this riddle. After all, stock markets do run on sentiments and people would prefer to make the most of it rather than spoiling the party. But that is not completely true.

What will sustain the rally is the source and quality of the money. With SEBI (Securities and Exchange Board of India) not disclosing the source and investor category, there is no way to confirm this. Infact, as per a global fund tracker EPFR, the amount invested by foreign funds is just US$ 1.1 bn this year versus US$ 12 bn as suggested by SEBI. The anomaly raises questions regarding the accuracy of SEBI's data. Also, if EPFR'S data is correct, there are high chances that the money stock markets are getting is being routed from India to Mauritius and then back to the country with the sole purpose to avoid tax. With Mauritius route getting GAAR (General Anti-Avoidance Rule) breather, the trend may continue for some more time. The fact that we don't know and can't confirm the veracity and source of such inflows raises serious doubts about financial management in this country. How can we control the economy when we don't know the source and quality of the money that is flushing around?

If the overseas money inflow is driven by foreign investors' faith in India's growth story, we will not be surprised to see the rally reverse due to policy logjam in the country. On the other hand, if this is on account of round tripping of funds, sooner or later the funds are bound to dry up. The inflow of speculative money is not something to cheer about and encourage. The same led to havoc in ASEAN economies in the late nineties and we for sure don't want the pattern to repeat here.