Midcaps outshine larger peers
Closing

Going full throttle in the final hours of trade today, the benchmark indices managed to break away from the range bound trade seen for most of the session today. While the BSE Sensex closed higher by around 94 points (up 0.5%), the NSE Nifty gained around 32 points (up 0.5%).

The BSE Midcap and BSE Smallcap indices managed to outshine the heavyweights and registered gains of around 1.5% and 1.6% respectively. While commodity and auto stocks led the pack of gainers, telecom and power stocks were at the receiving end today.

Barring Hong Kong, other Asian indices closed in the positive today. European markets have opened on a mixed note. The rupee was trading at 46.31 to the US dollar at the time of writing.

FMCG, particularly soap manufacturing companies, are facing the pinch of higher input costs very hard. With prices of non edible oil rising by around 10% in the last six months and no signs of abatement, the companies are planning to either hike prices of soaps in the next few months or reduce pack sizes. Most soap manufacturing companies like ITC, HUL and Godrej Consumer are getting impacted by the rise in palm oil prices as it constitutes about half the input cost for making soaps. HUL and Godrej Consumer are the largest soap manufacturers in the country with nearly 44% and 12% of the market share. Given the reluctance to hike prices at the cost of market share, the companies are expected to keep the price points intact while they will reduce the weight of soaps in the pack. While HUL closed flat Godrej Consumer closed 2% higher today.

Adding some degree of credence to India's economic recovery, the spurt in demand for steel from the automobile and infrastructure companies has made the third quarter of FY10 very buoyant for steel companies. SAIL reported a 32% YoY growth in sales in December 2009. SAIL has a market share of around 25%, producing around 13 m tonne of steel every year. This is despite the fact that most steelmakers such as SAIL, Tata Steel and JSW Steel have hiked prices by up to Rs 2,000 a tonne on the back of rise in demand. Globally steel prices have risen by US$30 to 40 per tonne to US$ 580 a tonne in the past month. Hence companies in the auto and construction sectors are believed to be building inventories expecting further upmove in prices.

As per a business daily, two major tax reforms due in 2010 promise to reduce transaction costs for importers and exporters significantly. The Goods and Services Tax (GST) regime will reduce complications and lower the compliance costs. Input costs are likely to go down further as the import duty rates come down. This is as India tries to integrate its economy with East Asian countries. Under the South Asian Free Trade Agreement (Safta), the entire neighbourhood can get integrated into a seamless market in about five years. The integration with the Association of South East Asian Nations (ASEAN) will mean that market access to these countries will progressively become easier in about seven years. As a result, movement of goods in the region will become duty-free. Given the government's ambitious target of achieving 5% of the world trade share by the year 2020 (currently 2%), these reforms will be a good start.

Auto stocks lead the pack of gainers
01:30 pm

Although trading in a range bound manner, the Indian markets managed to stay above the dotted line during the previous two hours of trade. Currently, the overall advance to decline ratio is poised at 2.8 to 1 on the BSE. Currently buying activity is being witnessed in stocks across sectors led by auto, metal and PSU stocks. However, profit booking is being witnessed in the oil and gas space as the BSE-Oil & Gas Index is trading lower by about 0.7%.

The BSE Sensex and NSE Nifty are trading in the positive, up by 40 points and 15 points respectively. Midcap and small cap stocks seem to be in more favour as the BSE-Midcap and the BSE-Smallcap indices are trading higher by 1.1 and 1.5% respectively. The rupee is trading at 46.52 to the dollar.

Auto stocks are currently trading firm led by TVS Motor, Ashok Leyland and M&M. The stock of Ashok Leyland is currently amongst the top gainers in stocks forming part of the BSE-A group. Gains in the stock are supposedly on the back of the company launching a new platform of trucks. Termed as 'U Truck', this platform is designed to meet the Bharat Stage (BS) III, BS IV and even BS V emission norms. In addition, it would also provide higher power and fuel efficiency. The management of Ashok Leyland has stated that all of the company's products would gradually shift to this platform. In addition, it is also believed that the company is looking to launch about 25 products on the new platform over the next eighteen months. The company is slated to manufacture these trucks from its new factory in Uttarakhand. Production of the same is scheduled to begin by March this year.

It must be noted that the new fuel emission norms are scheduled to come into effect from April 1 this year. As such, all commercial vehicle (CV) manufacturers are required to upgrade platforms. Tata Motors, for example, launched its 'World Truck' platform a while back. This is therefore a positive development for Ashok Leyland considering that this technology would allow it to compete with Tata Motors in the CV space. In addition, with Tata Motors announcing a strong volume growth of about 140% and 14% on a year on year and month on month basis respectively in its CV segments, investors may be expecting the story to be similar in the case of Ashok Leyland.

Textile stocks are currently trading firm led by Raymond, Alok Industries and Welspun India. In a move to protect itself from the tough export markets, textile major Arvind Limited is looking at expanding its retail reach in India. The company's management believes rural India has become a very lucrative market, considering that disposable incomes and awareness about branded items has risen in recent times. As such, the company plans to set up a distribution network across the country with at least 1,000 to 1,500 points of sale in each state. A leading business daily has reported that these points of sale would also included non-textile shops such as grocery stores and petrol pumps, amongst others. The main product that Arvind is looking at marketing in such a manner is its shirt. The pricing of this product would be in the more 'affordable' category, the management added.

Arvind is amongst the many textile companies that are looking at the domestic markets to fuel their growth going forward. Factors such as increasing competition, currency fluctuations and volatile demand surrounding the export markets are the reason for the same.

Buying across sectors aids indices
11:30 am

After witnessing a strong start, the Indian stock markets had a volatile session during the previous two hours of trade. However, the indices managed to trade in the positive territory on account of buying activity being witnessed across sectors with auto, metal, realty, and IT gaining the most. However, oil and gas stocks are unable to garner investors' favor.

The BSE Sensex and NSE Nifty are trading in the positive, up by 62 points and 21 points respectively. Midcap and small cap stocks are also finding favour, with the BSE-Midcap and the BSE-Smallcap trading higher by 1.21% and 1.45% respectively. The rupee is trading at 46.49 to the dollar.

According to a leading business daily, Bajaj Auto witnessed an 85% YoY surge in two-wheeler sales in the month of December 2009. The automaker sold 220,429 units of two wheelers as against 119,215 units sold in December 2008. The major boost came from the motorcycle segment which grew by 86% YoY in December. It may be noted that in December, Bajaj launched its new Pulsar 135 LS with the aim of making it a million units per year brand. The overall sales growth for motorcycles and three-wheelers from April to December 2009 has been 17% each. The company saw a decent 9% YoY growth in exports over the same period. The growth in sales during the period was driven by both higher volumes as well as an improved product mix. Motorcycles, which account for nearly 90% of all the vehicles sold by the company, grew both in the domestic market as well as the exports market. The growth in domestic sales for three wheelers can be attributed to marketing initiatives geared towards the in-city segment.

As per a leading business daily, Indian drug makers had a decent year in 2009 in terms of drug approvals in the US, the world's largest health-care market. About 25 Indian generic drug makers bagged around 200 approvals from the US drug regulator (USFDA) in 2009. This is slightly more than the numbers registered in 2008. It may be worth noting that this is a decent performance given the tightening of regulations and aggressive competition in the US market which resulted in a dip in sales there. Dr Reddy's topped the list with 32 final and tentative approvals in 2009. The second in the list was Aurobindo (26) which was closely followed by Wockhardt (23). Sun Pharma and Cadila Healthcare bagged 18 approvals each. It may be noted that Indian drug majors have realised that in order to survive and grow in markets like the US, they need to have a large basket of products with a niche focus. We believe this strategy of concentrating on niche and specialised products rather than trying to market and sell all products that go off-patent will aid established drug majors like Ranbaxy and Dr. Reddy's in strengthening their position there.

Positive start to the decade
09:30 am

Indian markets have started the first trading day of this new year and a new decade on a strong note. The benchmark indices opened below the breakeven mark, but soon managed to cross over into the positive territory where they have stayed since then. Asia is currently trading in the green with Japan (up 1.2%) leading the pack of gainers.

Currently, in India, heavyweights from the BSE-Sensex are trading in the positive with auto, engineering and banking stocks leading the pack. The BSE-Sensex is trading higher by around 40 points, while the NSE-Nifty is up by around 15 points. Buying interest is also being witnessed among mid and small-cap stocks as the BSE Midcap and BSE Smallcap indices are trading higher by 0.5% and 0.6% respectively. The rupee is trading at 46.66 to the US dollar.

FMCG stocks have opened the day on a mixed note. Gainers here include Godrej Consumer and Marico. However, Gillette India is in the red. As per a leading business daily, Godrej Consumer is close to acquiring Indonesian household products company Megasari. Megasari makes HIT insecticide, Stella air freshener and instant foods. The deal is estimated to be in the region of Rs 12 bn to Rs 14 bn. Godrej Consumer will fund it through a combination of internal accruals and debt. The acquisition will be run by the company's household insecticides joint venture Godrej Sara Lee.

It may be noted that Godrej Consumer is also looking at buying out US based Sara Lee's 51% stake in the joint venture in a few months. In our view, these moves fit the company's stated intention of aggressively looking for international acquisitions. It has obtained board approval for raising Rs 30 bn for this purpose. In the past few years it has acquired UK based Keyline Brands and South Africa based Rapidol and Kinky.

Steel stocks have opened the day on a mixed note. Gainers here include Jindal Steel and SAIL. However, Bhushan Steel is in the red. As per a leading business daily, India's steel companies have witnessed almost a 50% YoY increase in sales in the month of December 2009. SAIL has reported a 32% growth in volumes at 1.3 m tonne for the month. For the quarter, the company posted a 23% volume growth. In our view, the robust growth can be attributed to the pent-up demand from the automobile and infrastructure sectors. Moreover, December, 2008 was a low-base due to the economic downturn. With volumes off take expected to grow further, steelmakers have hiked prices by around Rs 2,000 a tonne to Rs 32,000 to Rs 34,000 per tonne.

Before you start investing in 2010…
Pre-Open

Each new year brings the opportunity for a fresh start. Some traditional new year resolutions are to revisit that long-forgotten gym, lose weight, quit smoking, and become healthier. For you as an investor, it is time to reassess your long-term financial goals and study where you stand in your efforts to achieve them.

Some of you might have resolved to cut down on your debts. Some might have also resolved to set aside more money for savings and investments. Some of you might have planned to become stingy with your credit card. And some of you might have set on course to become more proactive with your asset allocation.

Then, if you are like most investors, you might have vowed to bring your portfolio back in shape by the end of the year. You might have sworn of becoming even more disciplined with your investments.

All in all, as of today, you might be having one or the other financial resolution for 2010...a plan that will bring you closer to financial freedom. Isn’t it?

But if these resolutions aren’t backed by real intentions, you will have given up your admirable goals by February. By then, you will have overwhelmed by the task at hand.

And remember, if you are an equity investor, the task at hand this year is even more difficult than the task you had at hand in January 2009. With markets already at their highs, you might have to face a tough time this year in finding good quality stocks for your portfolio.

But that must not worry you? You only need to search a little harder. There are numerous companies in India that have brilliant long-term prospects and are yet trading at just a fraction of their future values. You only need to turn over lot of rocks to identify them. And the best guide you have in your search is your intelligence and independence. Dilute any of these and you risk making a mess of your portfolio.

So, as you start investing in 2010, be prepared for a challenging time. We are not trying to scare you. Treat these just as words of warning so that you are better prepared to tackle your investing future better.

And here are some final words of advice. Do not act in haste when you have nothing sensible to act upon. Stick with the golden rules of investing - buy quality, buy cheap, and hold for the long run. Study hard before you make any stock buying decision. And if you watch any business news channel, make sure the mute button is on.

See, whatever investment strategy you plan for the coming year, make sure it is one that you will stick with.

Keep it simple. And have a very profitable 2010!