Markets have a lackluster outing
Closing

The markets came off the day's highs during the closing hours of trade and in the end, could manage only marginal gains. While the BSE Sensex closed higher by around 20 points, NSE Nifty ended virtually flat today. The BSE Midcap and Small cap indices also ended pretty flat today. On the Sensex, the advance to decline ratio was evenly matched with one stock gaining for every one that declined.

Most Asian indices ended in the negative today while Europe is trading mostly positive currently. The rupee was seen trading at Rs 46.8 to the dollar at the time of writing.

Although the markets did manage to eke out small gains today, it was anything but a confident rally. The indices remained in the negative for most part of the day and while once threatened to end significantly in the positive, were pulled back towards the dotted line. All this perhaps signifies that we may not be out of the woods just yet. And there are very few reasons to feel otherwise. Investor sentiment still remains pretty fragile what with the developed economies showing no signs of growing on their own, without significant help from the government. The fact that most good stocks in India are trading at a not too cheap valuation from a 1-2 year perspective are also not helping matters either. Hence, until earnings of India Inc surprise on the upside or the developed world shows signs of limping back to trendline growth without any support from the government, we may continue to witness volatile times.

Jubilant Foodworks, the food services company that operates Domino's pizza stores in India, debuted on the bourses today and surged an impressive 58% on the listing day itself. A good part of the buoyancy could be attributed to the company's robust December quarter numbers as well. As per a leading daily, the company's net profits during the quarter surged more than six fold on the back of a 50% jump in net income. The increase in sales has come about on account of new store openings as well as a rise in orders received by the stores. The company further expects net profit of 320 m rupees for the full year on the back of about Rs 4.2 bn worth of revenues. However, even after taking into account such robust profit growth numbers, we continue to view the stock as an expensive proposition.

Other stocks that gained impressively today were FMCG heavyweights like Dabur, P&G Hygiene and Nestle. And even here, most of the buoyancy must have been due to strong December quarter numbers. Infact, most of the companies have managed to outperform street expectations. What was heartening to see was the strong surge in volumes, which as per a daily, surged 15%-18% despite lower consumer offtake. Companies also did their bit by resorting to aggressive price cuts and passing on most of the benefit from lower commodity prices as compared to same quarter last year. However, the coming few months are likely to present some stiff challenges. For one, commodity prices are already on the rise and passing the same on the end consumers, could derail the volume growth story. Also, with stimulus benefits like excise duties likely to be revised upwards, the cost pressures are likely to further pile up for companies. Hence, it would be interesting to see how the sector companies rise up to these challenges.

Inching up towards the dotted line
01:30 pm

Despite several attempts to rise above the dotted line, the Indian markets continued to languish in the red during the previous two hours of trade. However, they managed to recoup some of losses witnessed early during the day today. Currently, the selling activity being witnessed in the metal, oil & gas, auto, IT and power sectors is weighing heavy on the indices. Consumer durables and capital goods stocks are the only ones managing to garner investors' interest.

The BSE-Sensex and the NSE-Nifty are currently trading lower by around 83 points and 27 points respectively. Stocks from the midcap and small cap spaces are currently trading in the red, with the BSE-Midcap and the BSE-Smallcap indices trading lower by 0.43% and 0.2% respectively. The rupee is trading at 46.80 to the US dollar.

According to a leading business daily, the finance ministry has shelved the idea about consolidating public sector banks on account of unfavorable views from RBI and political quarters. It may be noted that in December 2009, the ministry asked 5 public sector banks to analyse opportunities for mergers and acquisition among Indian state-run banks. However, no bank could come with any merger target or plan as yet. A lack of political will as well as opposition by bank unions resulted in the bad response. Even the RBI appeared averse to the consolidation plan as the central bank considered financial inclusion and not bank consolidation as the top priority for Indian banking sector currently. We believe though consolidation of banking system has its own benefits, the RBI is right in pointing out the real need of the hour i.e. expanding the reach of banking services to more Indians.

According to a recent BSE announcement, M&M group owned Mahindra Satyam has won two multi-million dollar multi-year deals in Latin America, strengthening its presence in the region. The company will deploy technology in the enterprise applications space for a global conglomerate and a leading logistics company's operation from Latin America. The company aims to become a leading player in this rapidly growing market which holds huge growth opportunities for IT companies. Tech Mahindra, which is the parent company for Mahindra Satyam expects to leverage its global delivery model in order to expand in the area of enterprise solutions as a strategy to diversify out of the core-telecom vertical.

Mkts slip deep into the red
11:30 am

The Indian markets steadily slipped deep into the negative territory on account of sustained selling activity during the previous two hours of trade. Although selling is being witnessed across sectors, chief among the losers are stocks from the metal, IT, oil & gas and pharma sectors.

While the BSE Sensex is trading lower by 200 points, the NSE Nifty is down 65 points. Midcap and small cap stocks too are seeing profit booking with losses of about 0.7% and 0.4% respectively.

Auto major Maruti Suzuki has recorded a robust 33% YoY increase in sales volumes in the month of January 2010. The company’s domestic sales rose 21% YoY during the month to 81,000 vehicles, while its exports rose an impressive 300% to more than 14,500 vehicles. This brought its total sales number to 95,650. Interestingly, this is its best ever sales performance in a single month. As per the company’s management, plant de-bottlenecking has helped in higher supplies leading to improved volumes. Also, some of the company’s newly launched models have been doing particularly well. Further, the company expects the fourth quarter of FY10 to be as good as the third quarter’s performance. It may be noted that the company’s topline grew by a strong 62% YoY during 3QFY10 on the back of a 49% growth in volumes. Maruti is currently trading lower on the bourses.

As per a leading business daily, engineering major L&T is aiming for a revenue of Rs 37 bn from its consolidated electrical systems business for FY10. This, in effect, would mean a growth of about 12% to 13% YoY for the segment. As per the company’s management, 4QFY10 promises a growth of around 12% YoY for the division as it has seen an improvement in the power and infrastructure sectors, which were affected by the slowdown a while back. It may be noted that this business segment manufactures products like switchgears, metering systems, petrol dispensing pumps and medical equipment, and contributed about 8.3% to the company’s overall topline during 9mFY10.

Markets fight back after weak start
09:30 am

The Indian markets have started today's session on a weak note. The benchmark indices opened way below the breakeven mark but have managed to make a significant upward movement since then. Other key Asian markets are trading in the red with Indonesia (down 2.1%) leading the pack of losers. The US markets closed higher by 0.1% last Friday.

Currently in India, heavyweights from the BSE-Sensex are trading a mixed bag with construction and auto stocks witnessing buyers' interest. However, software and banking heavyweights are in the red. The BSE-Sensex is trading lower by around 40 points, while the NSE-Nifty is down by about 10 points. However, buying interest is being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.5% and 0.9% respectively. The rupee is trading at 46.75 to the US dollar.

Power generation stocks have opened the day on a weak note. Losers here include Tata Power and NTPC. As per a leading business daily, power generation giant NTPC plans to begin work on the 500 MW imported coal-based power project in Sri Lanka by the end of this month. The joint venture between Ceylon Electricity Board (CEB) and NTPC is currently awaiting the opinion of Sri Lanka's attorney general. Coal will be imported from Indonesia or South Africa. The CEB and NTPC will have an equal stake in the joint venture. The project will be funded with a debt to equity ratio of 70:30. NTPC is also looking at acquiring coal mines in Australia, Indonesia, Mozambique and South Africa. In our view, NTPC's overseas foray is part of its aggressive expansion plans across the power generation value chain. It may be noted that it is diversifying into such areas as captive coal mining, LNG, manufacture of transformers and electrical works, power transmission and distribution, and even hydropower.

Pharma stocks have opened the day on a mixed note. Gainers here include IPCA Labs and Indoco Remedies. However, Sun Pharma is in the red. As per a leading business daily, Lupin is moving away from its traditional position of being a low-cost antibiotics maker focused on the domestic market for tuberculosis drugs. Having witnessed other pharma companies cater to the chronic diseases segment , the company is now making amends. In 2009, Lupin filed 28 abbreviated new drug applications (ANDAs) in the US, and expects to file 35 this year. It is also investing in its intellectual property division and acquiring new assets in Latin America. In our opinion, while the US generics business is expected to gain momentum going forward, the impact of pricing erosion is likely to continue. As such, Lupin might not be able to replicate the success story of other Indian pharma majors who got into the generics business much earlier.

Bubble bubble everywhere...
Pre-Open

"Every form of addiction is bad, no matter whether the narcotic be alcohol or morphine or idealism," said Carl Gustav, the noted Swiss psychologist. Well, if Gustav were to be alive today, he would have definitely added 'money' to his list of addictions. Given the way central bankers are working overtime around the world to make sure that the recovery is never short of money, the 'medium of exchange' surely has become an addiction!

Recent developments in the US, including the deterioration in job and financial markets, have increased the uncertainty surrounding the recovery. And with the Euro zone also involved in a serious debt crisis, it seems clear that the pain hasn't ended as yet. In fact, some experts like Nouriel Roubini and Marc Faber are even hinting at a prolonged economic slowdown worldwide. Then, there are fears of bubbles building up in emerging markets stocks and real estate.

We are not trying to act as fear-mongers but just talking about the economic realities that bull markets generally help fade.

Take for instance the bubbles that are said to be building up in emerging markets, where the effect of free money is remarkable. One clear case in point is China. Some economists have raised alarms about rapid stock and property price increases in China. The dragon nation has seen its economic growth rebound quickly in 2009, and this has attracted money from slower-growing economies of the West. This money has fueled speculation in China's stock and realty markets.

Now, apart from issues in valuations of stocks and properties in China, another concern experts have is of the sustainability of the economic recovery there. After all, this recovery is largely built up on cheap global and Chinese money. And as The Economist says - "Something's got to give."

Coming to India, while there seems to be no talks of bubble here, stock and realty valuations have moved sharply up from their lows of early 2009. And it's got really difficult to find real bargains now. Over that, investors are now feeling the jitters of rising inflation and the likelihood of higher interest rates in the future.

So, is something's about to give in here as well?

See, there is no denying that certain pockets of India's real estate market, like Mumbai for instance, are seeing a bubble like situation. But will this burst now or still build up further is anyone's guess.

When it comes to stockmarkets, of course valuations have reached high levels (notwithstanding the recent crash in prices). But again, we cannot say the markets' current state as that of a bubble. The Indian economy and companies are still in the early stages of their evolution. There is tremendous demand potential that will keep the economy chugging along for years to come. And when it comes to stockmarkets, it is staring at a huge potential in terms of a getting a larger share of Indian households' huge savings.

So while markets might fall down even further from here on, we believe investors must not fear this correction. After all, post a sharp rise in stock prices we saw in 2009, a correction this year should be expected and not feared. Corrections are just a normal part of stock markets and do not alter the overall bull market trend. And given the way India's economy and companies are evolving; the markets will definitely be in for a good time (notwithstanding the normal hiccups) over the next 5 to 10 years.