India the sole loser in Asia
Closing

The Indian markets had a rather volatile session today. After oscillating to either side of yesterday's close for a larger part of the session, selling activity finally took toll pushing the indices into the red. There was no respite in the final trading hour as well and the markets closed well below the dotted line. While the BSE Sensex closed lower by around 75 points (down 0.4%), the NSE Nifty lost around 18 points (down 0.3%). The BSE Midcap closed flat, while the BSE Smallcap gained around 0.4%. Losses were seen in IT, banking and metals stocks.

Barring India, most Asian indices closed in the green today while the European indices have opened on a mixed note. The rupee was trading at Rs 45.78 to the dollar at the time of writing.

As per a leading business daily, engineering major BHEL has received orders worth Rs 9 bn from ONGC to supply 6 on-shore oil rigs. Out of these, 4 rigs will be for Sibsagar in the eastern region, while 1 rig each will be for the Krishna-Godavari Basin and for Ankleshwar. Further, BHEL expects to deliver the first rig to ONGC in 18 months from the date of order. It must be noted that BHEL manufactures oil field equipment in collaboration with US companies like US Steel Engineers and Consultants, Skytop Brewster, Branham Industries and IRI International, USA.

This development comes as a positive for the company and will enable it to augment its revenue stream. At the same time, execution remains an issue given that BHEL has been blamed for delaying on orders in the past. Infact, one reason for this could be the huge order book that the company has built up and the unavailability of adequate resources to execute the same on time. The stock closed higher today while its peers L&T and ABB also closed firm.

Pharma stocks closed mixed today. While Sun Pharma, Ranbaxy and Dr.Reddy's found favour, Cipla closed in the red. As per a leading business daily, domestic pharma major Dr.Reddy's has entered into an agreement with Hyderabad-based Transgene Bioteck Ltd to manufacture and commercialise the active pharmaceutical ingredient (API) 'Orlistat'. The latter is used to treat obesity and acts by preventing the absorption of fats from the diet thereby reducing the intake of calories. While this drug is already being sold in the global market by Roche and GSK Plc as 'Xenical' and 'Alli' respectively, Transgene has come out with a new technology to manufacture this API.

This deal is beneficial to both the parties. While Dr.Reddy's will be able to capitalise on Transgene's unique technology of manufacturing 'Orlistat' API, Transgene will be able to leverage on Dr.Reddy's strong marketing and distribution network. Further, Dr.Reddy's will pay Transgene an upfront payment, additional payments for certain commercial milestones and royalties on the sale of 'Orlistat' API worldwide. We believe this agreement is positive for Dr.Reddy's and will enable it to augment its product portfolio with niche products which have become the order of the day in a highly competitive global generics market.

Indian Prime Minister Manmohan Singh is confident of India achieving a GDP growth rate of 7% for FY10. Interestingly, this is a tad lower than what the Finance Minister Pranab Mukherjee has predicted, namely 7.75%. Further, the PM is optimistic that India could return to those heady years of achieving 9-10% annual growth in a few years time. The obstacle that lies on India's path to higher growth not surprisingly is poor infrastructure. The PM has pledged that his administration would work to address key constraints in the infrastructure and the agriculture sectors as these were the key priorities of the Congress-led government. But it remains to be seen when these pledges actually translate into action and more importantly into meaningful results.

Volatility leaves mkts directionless
01:30 pm

The Indian stock markets remained volatile during the previous two hours of trade, oscillating to either side of the dotted line a number of times. Though currently in the green, they are inching slowly towards the dotted line. Stocks from the banking, telecom and IT sectors are trading weak, while stocks from the realty, power, capital goods sectors are finding favour.

The BSE Sensex and NSE Nifty are trading in the green, marginally down by 5 points each. However, midcap and small cap indices have managed to buck the trend. The BSE-Midcap and the BSE-Smallcap are trading up by 0.8% and 1.3% respectively. The rupee is trading at 45.73 to the dollar.

CV (commercial vehicle) major Ashok Leyland announced its sales volumes for the month of December 2009 yesterday. The company reported an increase of 164% in its sales volume in December 2009. The company sold a robust 6,099 units in December 2009 compared to 2,307 units in the comparable month last year. Out of this, the domestic sales stood at 5,536 units for the month which was a year on year increase of 294%. The company's exports however fell to 563 units as against 901 units in December 2008. However, the total sales for the period of 9mFY10 declined by 13% to 38,117 units compared to 43,643 units in the same period of the previous year. The company witnessed its highest ever State Transport Undertakings sales during December 2009, on the back of Jawaharlal Nehru National Urban-Rural Mission orders. The management has indicated that the healthy demand for goods vehicles was back on account of the growth in the industrial production. The stock of Ashok Leyland opened on a strong note today and is currently trading higher on the bourses.

As per a leading business daily, L&T and Tata Steel are planning to jointly set up a container handling facility at Dhamra port in Orissa to tap demand for containerised cargo in the eastern part of India. It may be noted that L&T and Tata Steel are the developer and operator of Dhamra port respectively. The two companies have decided to have a container terminal at the port with an initial capacity to handle 500,000 standard containers a year, which will be scaled up to 1 m standard containers a year according to demand. L&T and Tata Steel are equal partners in Dhamra Port, which will start operating the first phase of the new cargo handling port by June with a capacity to handle 22 m tonnes (mt) of iron ore, coking coal, thermal coal and limestone a year. The JV has invested close to Rs 20 bn for developing the first phase of the port. The companies are also exploring the possibility of having a strategic partner to run the container terminal. Further, apart from catering to the captive use of Tata Steel, the port will tap the cargo generating states of West Bengal, Bihar, Orissa, Chhattisgarh and Jharkhand for business.

Markets down on profit booking
11:30 am

After witnessing a weak start, the Indian stock markets remained muted during the previous two hours of trade. Though currently in the red, they are inching slowly towards the dotted line. Currently, stocks from the banking, metal, telecom and IT sectors are trading weak, while stocks from the realty, power, capital goods sectors are finding favour.

The BSE Sensex and NSE Nifty are trading in the red, marginally down by 17 points and 6 points respectively. However, midcap and small cap indices have managed to buck the trend. The BSE-Midcap and the BSE-Smallcap are trading up by 0.79% and 1.2% respectively. The rupee is trading at 45.8 to the dollar.

As per a leading business daily, India's leading state-owned steel maker, SAIL is planning to cut prices of some of its products in the near term. It may be noted that during last week the company raised the prices for its flat and long products by around Rs 1,500 per tonne. Many steel companies including SAIL and Tata Steel increased the price of steel products on account of hike in input cost coupled with a surge in demand. Iron ore, which is a major raw material, costs around US$ 100 per tonne currently which is double the cost last year. Increase in demand is coming from the infrastructure, construction, automobile and consumer durable segments.

Nevertheless, it may also be noted that it is not just the raw material costs which drive steel prices. Prices are primarily linked to international trends and market fundamentals. Presently, the price of steel is surging globally. However it is believed that the price of long steel products which are mainly used by construction and infrastructure industry, has reached a level which mandate some correction. The domestic steel makers will have to take a price cut so as to make steel affordable for domestic companies mainly the PSUs.

According to a leading business daily, Indian IT majors like TCS, Infosys, Wipro and Patni have joined the race with global rivals like IBM and HP-EDS for a share in the outsourcing contracts being fleshed out by a multitude of city councils in the UK. As a number of city councils in the UK seek to gain efficiency by modernising their citizen services, they are inviting bids from renowned outsourcing firms across the world. No doubt, Indian IT majors are exploring new business opportunities in UK's public sector outsourcing. These contracts are particularly lucrative for Indian companies as they provide an opportunity for showcasing their ability to manage complex systems and deliver cost effective services to different set of customers.

However, it also brings a different set of challenges along with it. Working on government projects means increased public scrutiny, delays, potential cost overruns because of political pressures and investment risks. Moreover, currently due to high level of unemployment there, there is a lot of issue with public sentiments towards outsourcing. Such government contracts are expected to come with mandatory conditions for creating some local employment as well. The IT vendor might also need to share the initial cost of setting up shared services centres which will offer services across different departments (like financial management, payroll and customer service) across a number of city councils. It may be noted that TCS and Wipro are already working on such projects for some UK councils. We believe that such projects will give Indian IT companies a good insight of working with the government sector which currently ranks high in the priority list of almost all companies.

Stocks begin on a choppy note
09:30 am

The Indian markets have started today's session on a choppy note. Although the benchmark indices opened below the breakeven mark, they quickly surged into the positive territory. However, they have not managed to hold on to their gains since then. Asia is currently trading marginally in the green with Japan (up 0.7%) leading the pack of gainers. The US markets closed higher by 0.3% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading a mixed bag with engineering and auto stocks leading the pack of gainers. However, select metal and software majors are in the red. The BSE-Sensex is trading up by around 20 points, while the NSE-Nifty is up by around 5 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 45.73 to the US dollar.

Auto stocks have opened the day on a positive note. Gainers here include Ashok Leyland and Tata Motors. As per a leading business daily, Hero Honda plans to trigger 8 to 10 new launches in coming financial year - FY11. It may be noted that the company has achieved sales of 3.3 m vehicles in FY09 and is aiming at selling 4 m vehicles in FY10. The new planned launches are on the back of robust demand for two wheelers in India. This demand stems from the low penetration of vehicles when compared to the size of the opportunity. The premium segment is witnessing several launches in recent times, four from Hero Honda itself. But the size of demand is the greatest in the entry-level models.

In our view, the two wheeler sector will continue to perform well subject to two riders. First, whether the stimulus package will be continued, there by continuing the easy interest rates regime. And second, whether the prices of input commodities will remain within reasonable limits.

Energy stocks have opened today on a mixed note. Gainers here include GAIL and Indian Oil. However, Reliance Industries is in the red. As per a leading business daily, Reliance Industries has sweetened its offer to buy a controlling stake in LyondellBasell. Its new offer has pushed the valuation of the bankrupt Lyondell to about US$ 13.5 bn, up from US$ 12 bn bid in November last year. It may be noted that the company is under a bankruptcy court where it has filed a reorganization plan where senior creditors will emerge with the control of the company. The hike in Reliance's offer will make the management to reconsider its proposal. Having said that, the Indian petrochemical giant must be careful in not paying too rich a price in its hunt for even great scale and marketing reach.

Investors knocking. Are we prepared?
Pre-Open

It is now common to mention China and India in the same breath. For good reason. They are geographically close. They are the two most populous nations. And most importantly, they are the two fastest growing economies of the world. But people who have visited China or have a working familiarity with the dragon nation are quick to correct the notion. There is one aspect where China is remarkably different from us. Its attitude towards economic development. That attitude is reflected in Shanghai's skyline. It is this attitude which has made China the world's factory.

India needs to learn a great deal in this regard. And the latest reminder comes from none other than world's largest steel maker ArcelorMittal. Lakshmi Mittal believes that India is not equipped to handle big-ticket investments. He should know. The company's projects worth US$ 22 bn have been held up for over four years. It had plans for two major projects in Orissa and Jharkhand but progress has been painfully slow. Mr. Mittal believes that India was simply not prepared for the kind of growth it has witnessed. As a result, neither the central government nor the state governments were prepared for the massive investment in the Indian steel industry. It is ironical because India has abundant deposits of the raw materials required for making steel. It is also one of the few countries where the demand for steel is robust.

As per reports, India needs more than US$ 500 bn to improve its infrastructure. And given the interest of the international business community in steel, auto, power or telecom, we must grab the opportunity with both hands. Yes, due process must be followed. Especially with regard to land acquisition. But, in our opinion, it would be a shame if we miss out simply for the lack of preparedness.

After tallest building comes tallest hotel
Recently, Dubai threw open the world's tallest building - the Burj Khalifa. You must have seen the congratulatory advertisements and news programmes. Interestingly, the western media had a different take. For example, the New York Times recollected how breathtakingly tall buildings generally are built during financial excesses. In fact, they often debut right before a massive slump. The paper also called the Burj Khalifa a celebration of Dubai's troubled real estate market.

To add more fun to the proceedings, Dubai has launched a 72 floor hotel. The world's tallest. Such feats certainly increase the appeal of Dubai as a tourist destination. But one has to ask if it makes financial sense. Much of Dubai's construction boom has been fuelled by debt. It is now having difficulties in servicing it. Had it not been for neighbouring Abu Dhabi's last-minute intervention, we would have had another debt crisis on our hands. Surely, at some point the high profile Emirate should consider giving it a rest.