Volatility plagues Indian markets
Closing

The Indian markets had a rather volatile session today. After oscillating to either side of yesterday's close for most part of the session, selling activity in the final hour finally took toll causing the indices to close into the red. While the BSE Sensex closed lower by around 31 points (down 0.2%), the NSE Nifty lost around 7 points (down 0.2%). Midcap and smallcap stocks, however, bucked the trend as they registered gains of 0.3% and 0.4% respectively. While oil & gas and capital goods stocks were at the receiving end, banking and FMCG stocks found favour.

As regards global markets, Asian indices closed mixed today while European indices have also opened on a mixed note. The rupee was trading at Rs 45.67 to the dollar at the time of writing.

Private banking stocks closed mixed today. While HDFC Bank and ICICI Bank closed firm, Yes Bank closed in the red. HDFC Bank announced its 3QFY10 results a short while ago. For the quarter, the net revenues witnessed a growth of 5%, while the net interest income grew by 12% YoY driven by growth in assets. The net interest margin (NIM) increased to 4.3% during the quarter from 4.2% in the corresponding quarter last year. Other income accounted for around 28% of revenues with fees and commission being the main contributor. NPAs during the quarter stood at 0.45%, while the capital adequacy ratio was at a comfortable 18.3%. The proportion of CASA deposits also increased and these accounted for 49% of total deposits as at the end of December 2009 as compared to 40% in the corresponding period a year ago.

Troubles for pharma company Wockhardt do not seem to end. As reported in a leading business daily, Wockhardt's deal to sell its nutrition business to US multinational Abbott Laboratories is likely to be blocked by a group of investors led by the New York-based QVT Financial Lp. Readers would do well to recall that Wockhardt had issued FCCBs worth US 110 m in 2004 which were due for redemption in October 2009. However, given the huge debt and cash crunch that Wockhardt is saddled with, the company struck deals with 3 companies including Abbott to sell 3 businesses that would result in funds being infused into the company. It had also gone in for corporate debt restructuring (CDR) and as per this plan Wockhardt had proposed buying back the bonds at a discount of 65% or converting them into equity shares by 2015.

This proposal not being acceptable, certain investors in these FCCBs including QVT are likely to block the nutrition business deal with Abbott. This could prove to be a problem for Wockhardt which is already grappling with a severe debt crisis and is having considerable problems raising the necessary funds to retire this debt. The stock closed lower on the bourses today.

Inflation has refused to cool down in India. As reported in a leading business daily, India's wholesale inflation rose by 7.3% in December (4.78% in November). While food inflation eased to 17.28% after reaching nearly 20% last month, prices of non-food items such as textiles, paper products, metals and machinery witnessed a rise. This will certainly put added pressure on the RBI to undertake measures to curb inflation. Already the central bank is in a dilemma because raising interest rates could curb growth at a time when India's economy is limping back to normalcy.

Realty, power aid the indices
01:30 pm

The Indian markets continued to trade on a weak note during the previous two hours of trade. Currently, buying activity in sectors like realty, power, banking and FMCG has managed to push the markets above the dotted line. However, oil & gas and capital goods sectors are finding it difficult to garner investors’ interest.

The BSE-Sensex and the NSE-Nifty are currently trading higher by around 22 points and 7 points respectively. Stocks from the midcap and small cap spaces are currently trading in the green, with the BSE-Midcap and the BSE-Smallcap indices trading higher by 0.8% and 1.04% respectively. The rupee is trading at 45.69 to the US dollar.

According to a leading business daily, engineering and construction firm, Punj Lloyd (PUNL) has won a project worth Rs 5.74 bn for an offshore oil facility in Thailand. This project from a Thailand’s oil and gas PSU (PTT Public Company) will require Punj Lloyd to install three compressor units in the Gulf of Thailand. This projects aims at boosting the gas pressure for the gas being supplied downstream. It is believe to aid in fulfilling the growing demand of gas in Thailand.

It may be noted that the company as at the end of September quarter had an order backlog of Rs 268 bn. During the entire 1HFY10, PUNL secured new orders of Rs 114 bn as compared to Rs 67 bn booked in 1HFY09, a growth of 70% YoY. We believe that robust bidding activity happening in the infrastructure and process industry spaces will aid the company in strengthening its domestic and overseas orderbooks. The stock is currently trading in the red.

According to a leading business daily, Indian government is aiming to achieve a teledensity of 40% through BSNL by 2014. Mr Sachin Pilot, Minister of State for communication has hinted that the government is making efforts to have at least 40 phone user for every 100 inhabitants in the country in the next 4 years. It may be noted that teledensity in India was at an abysmal 2% in 1995. Although India's teledensity has improved a lot from that level reaching over 36% by the end of March 2009, we are still way behind other developing nations. To achieve this end, the government will help state-owned telecom major BSNL to expand its telephone network in urban as well as far flung locations. It plans to set up 150 BSNL towers by end of current fiscal with 150 more to be setup in the next fiscal. We believe that such government focus will aid the telecom company in competing more confidently with the private peers. The private telecom players like Bharti, Idea and RComm will have to revisit their strategies of focusing on urban areas where they rake in large sum of revenues. They will have to invest aggressively in extending their network to the remotest part of India. Nevertheless, it is good news for Indian telecom users. The stocks from telecom sector are trading mixed.

ITC upbeat on its hotel business
11:30 am

After witnessing a shaky start, the Indian stock markets slipped into the negative during the previous two hours of trade. Currently, persistent buying activity is being witnessed in sectors like FMCG, realty and power. However, selling pressure is being witnessed in stocks from the oil and gas, capital goods and IT sectors.

The BSE Sensex and the NSE Nifty are trading in the negative, down by 5 points and 1 point respectively. Midcap and small cap stocks are however trading in the positive, up by 0.6% and 0.9% respectively. The rupee is trading at 45.67 to the dollar.

As per a leading business daily, ITC expects to add 8 to 10 hotels in India in the next 3 to 5 years to the 110 that it already operates. This is on the back of the company's expectation that India's growing economy will boost the demand for rooms going forward. The company will add two properties in FY11 at Chennai in south India and Kolkata in the eastern region. There are many other projects in the pipeline too. It may be noted that the company had said earlier that it plans to invest about US$ 2 bn on its hotels business over five years. Further, the management expects occupancy levels to pick up on the back of improving market conditions in the coming months. Volumes too are improving and the company is hopeful to see a rise in yields as well. Average room rates are currently 8% to 10% below last year's levels, and are expected to pick up by March. It may be noted that the company's hotels business currently contributes to about 3% of its overall topline. The stock of ITC is currently trading higher on the bourses.

Rallis India announced its 3QFY10 results yesterday. The company's topline suffered a small decline of 4% during the quarter on a YoY basis. It saw a strong 6.7% jump in operating margins which boosted its operating profits by 43% YoY. Buoyant other income and lower taxes combined with strong operating performance led to a strong bottomline growth of 55% YoY during the quarter. Its bottomline for the nine month period grew 29% YoY on the back of a 3% growth in topline during the same period. It may be noted that the company caters to both the domestic as well as the export markets. During the quarter, the domestic business recorded handsome gains in the marketplace with farmers showing a preference for some of the company's latest product offerings. The exports business however was rather sluggish and this led to the company's topline suffering a marginal fall during the quarter. Outlook on the domestic side appears positive as planting so far for the Rabi season has shown improvement. The stock of Rallis is trading lower currently.

India begins on a choppy note
09:30 am

The Indian markets have started on a choppy note. The benchmark indices opened above the breakeven mark but are struggling to stay in the positive territory since then. Asia is currently trading a mixed bag with South Korea (up 0.8%) leading the pack of gainers. However, Japan is down 0.2%. The US markets closed higher by 0.3% yesterday.

Currently, in India, heavyweights from the BSE-Sensex are trading a mixed bag with auto and banking stocks witnessing buyers' interest. However, select software heavyweights are in the red. The BSE-Sensex is trading higher by 10 points, while the NSE-Nifty is up by 6 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 0.6% and 0.7% respectively. The rupee is trading at 45.65 to the US dollar.

Auto stocks have opened the day on a strong note. Gainers here include Bajaj Auto and M&M. As per a leading business daily, Maruti Suzuki is finding it difficult to control the recent price rise in commodities like steel, aluminium, copper and rubber. The company is trying to come out with more affordable versions of its current range of models such as Alto and WagonR. But the commodity price hikes mean that its efforts are negated. It may be noted that Maruti Suzuki is on a cost-cutting drive across its manufacturing and distribution operations. Component suppliers, who are independently battling the cost pressure, are also being asked to cut prices. Auto companies are witnessing robust topline growth on the back of strong volumes. In our view their next big challenge would be to protect their margins in the face of higher input costs.

Power stocks have opened the day on a strong note. Gainers here include NTPC and NHPC. As per a leading business daily, power generation behemoth NTPC plans to add 6,000 MW each year in 12th Plan. In the remaining two years of the 11th plan, i.e. 2010 and 2011, the company plans to add 4,000 MW each year. Put together, it will take its total generation capacity to 75,000 MW by 2017, up from 30,644 MW currently. Interestingly, 9,000 MW out of the 75,000 MW will be from hydro electric projects and 2,000 MW will be from nuclear projects. At present, 18 projects of 17,930 MW capacity are under construction at 16 locations. While there is certainly a ready market for such capacity, the main issues for NTPC will be timely execution and sufficient supply of fuel such as coal and natural gas. It may be noted that the company is launching a follow-on issue from February 3 to February 5.

The biggest economic risk in 2010
Pre-Open

At the dawn of 2010 we had requested readers to make their investing resolutions for the New Year keeping some possible economic risks in mind. They were a sudden spurt in inflation, unwinding of loose monetary policies, strengthening of the US dollar and a sovereign debt default by a major world player. Incidentally, the World Economic Forum (WEF) has thrown some more light on this. In its latest report, the global economic body has zeroed in on sovereign debt default as the biggest economic threat in 2010.

WEF cites that major world economies have responded to the steep downturn created by the financial crisis with stimulus packages. This has been executed by underwriting private debt obligations, causing fiscal deficits to balloon. The stimuli may have helped keep a worse recession at bay, but high debt has become a growing concern for financial markets. Hence the risk that deteriorating government finances could push economies into full-fledged debt crises threatens global economic recovery. The WEF think tank in its annual Global Risks report has cited that unsustainable debt levels tops the three key economic risks foreseen for 2010. This is alongside underinvestment in infrastructure and chronic diseases driving up health costs and reducing economic growth. The fact that debt levels have risen from 78% of GDP (in 2007, before the crisis) to 118% of GDP in the G20 economies seems to be the gravest concern.

Infact worries over Dubai, Ukraine and Greece have now spilled over to global markets. The threat of debt default now seems to be reigning high even for the economies of "irrational exuberance" namely the US and UK.

We completely concur with the WEF’s warning that already fragile economies, particularly in the developed world are at the risk of overleveraging. Add to that the loose monetary policies in developed and emerging economies that have made excess debt more lucrative. These trends if sustained could potentially lead to full-blown crises with inevitable social and political consequences. The governments therefore could at best stop fighting unemployment and recession using the easy route. Building unprecedented levels of debt and therefore stoking the risk of sovereign defaults could only make matters worse.

Energy credits in store for India Inc.
India Inc.’s technology energy saving initiatives could soon fetch it much more than higher margins. Being the world’s fourth-largest polluter, companies in India may soon trading energy-saving credits. And here we are not referring to a paltry sum. As per Reuters, energy credit market in India is expected to touch Rs 740 bn (US$ 16 bn) in five years. As the country seeks to curb emissions that cause global warming, businesses that exceed energy efficiency targets will be awarded credits. These will be traded on power exchanges with companies that fail to meet the goals.

Having unveiled a plan aimed at saving the equivalent of 23 m metric tons of oil by 2015, the government seems to be committed to its target this time around. It is already in talks with Indian Energy Exchange and Power Exchange India, the country’s two power exchanges, to set up trading protocols. The government will reimburse as much as 50% of unpaid bank loans given to companies that seek to invest in energy efficiency projects.

An excellent initiative aimed at not just ensuring greener environment but also efficient use of limited resources, the credits could go a long way in making Indian manufacturing sector more self sufficient.