Strong global cues buoy India
Closing

Strong buying activity across index heavyweights led the indices to hold on to their gains and close well above the dotted line in today's trade. While the BSE Sensex closed higher by around 327 points (up 2%), the NSE Nifty gained around 102 points (up 2%). Midcap and smallcap stocks also did well notching gains of 2% and 1% respectively. Gains were largely seen in metals, banking and consumer durables stocks.

As regards global markets, most Asian indices closed firm today while European indices also opened in the green. The rupee was trading at Rs 45.99 to the dollar at the time of writing.

Pharma stocks closed mixed today. While Glenmark and Cipla led the pack of gainers, selling was seen in Dr.Reddy's and Ranbaxy. Glenmark closed today with 4% gains. This is despite mixed results that the company had announced for the third quarter ended December 2009. Sales grew by 11% YoY largely driven by the specialty business which registered a decent growth of 19% YoY. India and Europe were the key contributors to the growth of this business. The generics business, however, performed poorly with sales growing by a mere 1% YoY. Operating margins shrank 6.4% during the quarter leading to the 11% YoY decline in operating profits. Higher raw material costs and other expenditure were the main culprits. Bottomline, however, managed to grow by 16% YoY due to a considerable fall in tax expenses.

Going forward, the company is confident of a strong performance as market conditions improve and various businesses ramp up. The fact that the company was able to out-license one of its specialty products in the dermatology space to Medicis Pharmaceuticals USA for milestone payments is also an encouraging sign. This is especially so given the setbacks that Glenmark's R&D business suffered in FY09.

As per a leading business daily, engineering major L&T has secured orders worth Rs 11 bn from various vendors for construction related works. These include construction of a residential tower, warehouses, a mall and a factory building. While this is sure to add on to its order book and provide revenue visibility in the future, execution will be the key. Infact, the company reported poor set of numbers for the third quarter ended December 2009 as its performance was largely impacted by a number of issues, mainly execution related. Execution of various projects went through rough patches leading to consequent delays. Delays in handing over of project sites, delays in financial closures, funds not being put up by customers during execution were some of the factors that led to the dismal sales performance during the quarter. The stock, however, closed 4% higher on the bourses today.

With debates raging as to when the Indian government will exit the stimulus measures given the rising inflation, it appears that the same may not happen anytime soon. As reported in a leading business daily, chief statistician Pronab Sen has said that India may defer taking a call on exiting stimulus measures and the finance minister could take appropriate steps later in the next fiscal year. Readers would do well to recall that the stimulus measures included a mixture of tax cuts, increased expenditure, easy credit and interest rate cuts. All of this amounted to more than 12% of GDP and were announced in three phases between September 2008 and April 2009. This also led to a huge jump in the government's fiscal deficit.

The RBI in its recent monetary policy chose to raise the CRR in a move to suck out excess liquidity in the system. Interestingly, the central bank opines that its monetary measures will be of little consequence unless the government mends its ways. The reversal of accommodative monetary stance cannot be effective unless there is also a roll back of government borrowing. Indeed, even after exiting the stimulus measures, the rising deficit will certainly a big problem that the government will have to deal with.

Mkts gain ground, rise further
01:30 pm

The Indian markets gained further ground to rise to higher levels during the previous two hours of trade. Currently, buying activity is being witnessed across sectors led by stocks from the consumer durables, metal, realty and capital goods sectors.

The BSE-Sensex and the NSE-Nifty are currently trading higher by around 390 points and 115 points respectively. Stocks from the midcap and small cap spaces are also in the positive, with the BSE-Midcap and the BSE-Smallcap indices trading higher by 1.6% and 1.4% respectively. The rupee is trading at 45.99 to the US dollar.

As per a leading business daily, Axis Bank is launching a new service in India in association with Banque Privee Edmond De Rothschild. This service called the family office account will target ultra high net worth clients with a net worth of over Rs 1 bn. The bank, under this service, will provide a one stop banking solution for the family spanning across generations.

This means that under this service Axis Bank will provide solutions for the management of multi-generational needs, especially children’s education, healthcare issues of the family and its following generations, management of the entire assets and investments, tax and legal counseling, estate, bill-paying etc. The bank is targeting assets worth at least Rs 40 bn across a clientele of 20 in the next 2 years and a market share of 5% to 7% in the family office space in the next 3 to 5 years. With this service the bank is looking to diversify its income stream by cutting down its dependence on fee based income. The stock of Axis Bank is higher on the bourses.

The stock of Titan Industries is up nearly 4% currently. The stock has presumably got fillip on the back of capacity addition plans unveiled by the company that will entail a small investment of Rs 120 m. This would be the company’s fifth manufacturing facility and would increase the company’s manufacturing capacity from 11 m units to 16 m units. Titan Industries holds 68% share of the domestic organized watch market and is planning to expand its retail presence.  The company is planning to open 10 Helios, a multi-brand watch chain, stores in a year’s time.   The company foresees its time products division to end FY10 clocking a 15% growth on a year on year basis.

In 3QFY10, Titan Industries reported 30% YoY growth in revenues on the back of nearly 25% growth in time products revenues and 33% growth in jewellery sales. The company plans to bank upon the opportunity of rebound in consumption and extend reach for future growth. Apart from extending capacity domestically the company plans to house premium international watch brands like Versace, Seiko, Movado, Hugo Boss, Citizen, Fossil, DKNY, Nina Ricci, Roberto Cavalli, Esprit and Tommy Hilfiger. These moves are expected to help the company cater to the demand across demographics and help sustain growth in the future as well.

Commodities, capital goods find favour
11:30 am

The Indian markets continued to trade on a firm note during the previous two hours of trade. Currently, buying activity is being witnessed across sectors led by stocks from the consumer durables, metal, realty and capital goods sectors.

The BSE-Sensex and the NSE-Nifty are currently trading higher by around 306 points and 94 points respectively. Stocks from the midcap and small cap spaces are also in the positive, with the BSE-Midcap and the BSE-Smallcap indices trading higher by 1.4% each. The rupee is trading at 46.06 to the US dollar.

As per a leading business daily, engineering major Siemens has won an over Rs 1 bn contract from the Power Grid Corporation for constructing a new 765/400 kV sub-station at Meerut and augmenting its sub-stations in UP and Haryana. The order is to be commissioned in January 2011. It may be noted that Siemens is already implementing four contracts amounting to around Rs 6.73 bn for Power Grid. It provides 765 kV sub-stations and new voltage which aids Power Grid, to transmit AC power over long distances. However, we believe that volatility in prices of metals like steel, copper and aluminum, which are among the key raw materials for Siemens, will plague continue to company's margins going forward.

According to a leading business daily, FMCG major, Marico is reworking the strategy for its Kaya Skin care business. The personal care company saw a decline in demand for its skin care business on account of reduction in discretionary spend. The company is studying the current retail trends and going forward will focus on operating fewer but profitable clinics. It is expected to halt its expansion plans temporarily until the business becomes more profitable. Rather it will focus on improving the value of services that it offers. As per Marico’s management the Kaya business eroded about Rs 37 m of profits from Marico’s consolidated profits in 3QFY10.

Marico currently it has 84 Kaya clinics in 27 Indian cities and 15 stores in the Middle East. The company has launced many skin and hair care products under the brand Kaya and previously planned to aggressively expand this business. We believe that focusing on profitability and long term growth will be a prudent strategy for the company in prevalent economic environment.

Indian markets open strong
09:30 am

The Indian markets have started today's session on a strong note. The benchmark indices opened above the breakeven mark and have managed to hold on to their gains since then. Other key Asian markets are trading in the green with Taiwan (up 1%) leading the pack of gainers. The US markets closed higher by 1.1% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading in the positive with metal and auto stocks finding favour. The BSE-Sensex is trading higher by around 140 points, while the NSE-Nifty is up by about 40 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 1.0% and 1.3% respectively. The Rupee is trading at 46.1 to the US dollar.

Hotel stocks have opened on a mixed note. Gainers here include Indian Hotels and EIH. However, Taj GVK is in the red. As per a leading business daily, ITC plans to open nine more hotels under its Fortune brand in the next 10 months. Six hotels will come up in the National Capital Region, given the Commonwealth Games to be held in Delhi in October. The company will also open hotels in Mumbai, Gandhinagar, and Kolkata. It has recently opened one in Hyderabad. It may be noted that the company opened seven hotels last year and has an occupancy rate of 60%. It currently has 110 hotels in total, making it the largest chain in India. The Fortune brand has 32 hotels in operation and 25 are under construction and refurbishment. In our view, given the demand supply mismatch in India, strong GDP growth and capacity additions by the company, the segment is expected to do well for ITC going forward.

Energy stocks have opened on a positive note. Gainers here include MRPL and Gujarat Gas. As per a leading business daily, with the outflow of natural gas from Reliance Industries' D6 block in Krishna Godavari basin, there are few takers left for imported liquefied natural gas (LNG). In fact, the two LNG receiving terminals in India at Dahej and Hazira have hardly witnessed any cargo movement in the past month. In our view, the reason is pricing. The spot price of LNG is about US$ 8.2 per m British thermal unit (mBtu) as compared to the cost of D6 gas at US$ 4.2 per mBtu. As a result, most power and fertiliser companies have turned from LNG to D6 gas.

India to miss steel targets
Pre-Open

Metal companies are in a deep freeze in most of the developed economies. But, China and India are shining exceptions. In India's case, demand is driven by both infrastructure building and greater consumption of automobiles and consumer durables. On the supply side, abundant raw materials, cheap labour and power make metal companies extremely cost competitive. If only we were able to exploit these factors by rapidly building up capacity. As per a leading business daily, India is likely to miss its target of 124 m tonnes of steel capacity by FY12 due to delays. India currently has an installed steel capacity of 64 m tonnes. True, there are many large projects being put up by both Indian as well as international giants. Steel makers like SAIL, Tata Steel, JSW, and Essar are expanding. Global giants like ArcelorMittal and Posco are also investing heavily. In fact, the domestic steel sector is attracting investment in the region of Rs 11 trillion. But many of them are plagued by delays. Due to reasons ranging from agitations over land acquisition to slow government clearances. Sure, issues like land acquisition must be handled with sensitivity. But, in our view, we must find a way of speeding up our pace when it comes to key areas like steel making. After all it drives much of the infrastructure creating India so urgently needs.

The return of jobs
Employment numbers are among the many indicators used to gauge the health of an economy. For example, one of the man causes of concern in developed economies is the soaring unemployment. Closer home, although India escaped much of the global financial turmoil, the buoyant job market did become sluggish during much of 2008. Seems like things have turned a full circle. The IT sector, one of the largest employers in the private sector, is back to its hiring ways. As per a leading business daily, India's largest IT firm, TCS, has made gross additions of over 21,000 employees during 9mFY10, while Infosys expects the gross hiring to be 24,000 in FY10. In fact, in 3QFY10, TCS made 7,692 net additions, as against net additions of 320 in the previous quarter. Campus hiring, which had dried up, is also back. Infosys plans to make 15,000 offers at campuses for FY11. Incentives and promotions are also back in vogue. Clearly, going by this indicator, the slowdown is well and truly behind us.