Mkts give thumbs up to RBI's call
Closing

Indications coming from the RBI that it would not touch interest rates before April, cheered the markets today. The effect was largely seen on interest rate sensitive sectors like auto, realty and banking that gained the most. In the broader markets, there were almost two gainers for every stock that lost ground.

The BSE Sensex and NSE Nifty closed with gains of around 230 points (1.4%) and 70 points (1.5%) respectively. Mid and small cap stocks followed suit. The BSE Midcap and BSE Smallcap indices closed up by 0.8% apiece.

RBI's deputy governor Dr. Subir Gokarn told media earlier today that the central bank is not going to tinker with interest rates before April. As he said, "Please don't expect any action between now and the next announcement (April 20) unless there is a completely unanticipated event." These statements from the RBI come despite the fact that rising inflation is posing serious challenges to the bank's monetary policy. However, the fact that higher interest rates would come in the way of the economy's fledgling recovery must have led it to maintain its interest stance as of now. Anyways, today's vibes from the RBI cheered the markets and the biggest gains were seen in interest rate sensitive sectors like auto, realty and banking.

Auto stocks were amongst the best performers today. The BSE-Auto index closed 2% up. Major gainers here included Hero Honda, M&M, and Tata Motors. This comes after the past few days of hammering that these stocks have received. Some like M&M and Tata Motors have lost almost 15% over the last month. A large part of selling in these stocks has been owing to issues like high valuations and risks of rising interest rates that can curtail demand for these companies' vehicles in the short to medium term. With the markets worried about the withdrawal of government stimulus and the negative impact that this can have on the broader economy, interest rate sensitive sectors like auto (apart from realty) have been affected the most.

Software stocks also closed strong today. Key gainers here included the likes of TCS and Wipro. Infosys also closed in the positive. The company's top management has indicated that it is seeing a return in discretionary spending by clients. This indicates a recovery in the business sentiment for IT offshoring, and is in line with what most managements talked about after the recently concluded December 2009 quarter results. Anyways, Infosys also sees protectionism in some economies as one of the key concerns that can elongate the recovery process.

Metal & realty stocks find favour
01:30 pm

Although trading well above the dotted line, the Indian markets did witness certain amount of volatility during the previous two hours of trade. However, the market sentiments remains positive as the overall advance to decline ratio is poised at 1.8 to 1 on the BSE. Buying activity is being witnessed in stocks across sectors led by metal, realty and banking stocks. Stocks forming part of the power and healthcare spaces are currently amongst the lowest gainers.

The BSE-Sensex and the NSE-Nifty are trading higher, up by around 220 points (up 1.4%) and 70 points (up 1.5%). The BSE-Midcap and BSE-Smallcap indices are trading higher by around 0.9% each. The rupee is trading at 46.43 to the dollar.

Paint stocks are currently trading mixed with Asian Paints and Kansai Nerolac trading weak, while Berger Paints is trading firm. At the time of writing, only 9 stocks out of the BSE-100 index were trading in the red. The stock of Asian Paints was leading this pack. This seems to be primarily on account of profit booking due to the stock's expensive valuations currently. It must be noted that the stock has risen by about 180% since the low that it touched in March 2009. The key reason for this rise is its strong financial performances over the past few quarters. For instance, during the quarter ending December 2009, the company reported a 23% YoY growth in revenues. However its operating profits grew by a staggering 188% YoY on the back of an 11.3% YoY expansion in margins. The lower input costs have aided the performance of Asian Paints so far in FY10.

While the company may continue to record a good growth on the topline front, we believe that it would be difficult for the company to sustain such high margins in the future. This will especially hold true with an increase in input costs.

Pharmaceutical stocks are currently trading firm led by Orchid Chemicals, Ranbaxy, Aurobindo Pharma and Panacea Biotec. A leading business daily has reported that Ranbaxy will start selling products of its parent company, Daiichi Sankyo, in Mexico sometime in the future.

For Ranbaxy, this would translate as higher revenues considering its parent company will be using its distribution network to sell the products. It must be noted that this is precisely the reason for Daiichi to acquire Ranbaxy (which took place way back in 2008), apart from taking advantage of Ranbaxy's low cost manufacturing facilities. Although the companies have not disclosed the market size for these products, it is believed that the said drugs are Daiichi's flagship products and are already available in over 50 countries worldwide.

Buyers bouy the markets
11:30 am

The Indian markets continued to move upwards on account of sustained buying activity witnessed during the previous two hours of trade. Stocks from the banking, realty, IT, metal and consumer goods sectors are leading the pack of gainers.

The BSE-Sensex and the NSE-Nifty are trading higher, up by around 213 points and 67 points. The BSE-Midcap and BSE-Smallcap are also trading higher, up by around 0.9% each. The rupee is trading at 47.42 to the dollar.

According to a leading business daily, India’s third largest IT services exporter Wipro is scouting for acquisition in the telecom, healthcare, energy and utilities segments in order to strengthen its offerings in these verticals. It will be acquiring niche players having strong products offering so as to plug gaps in its portfolio.

The company is also acquiring land for setting up new campuses and has identified 4 Indian cities. However, the amount and timeframe of acquisition and expansion plans have not been disclosed. The company like its peers in the big IT league is ramping up employee count in India as well as abroad which will have an impact on its margins going forward. The wage inflation together with volatility in rupee will also exert pressure on operating margins. Nevertheless, an encouraging demand environment for IT services and products besides a comeback of discretionary spending will aid Wipro and other major IT players in going back to the high growth levels. However, we believe that the pre-recession growth rates of above 30% will take some time to reappear.

It is estimated that the Indian banks will not be able to achieve the even lowered credit growth target for FY10. According to a leading business daily, despite a pick-up in loans, bank credits grew only by around Rs 202 bn in the latter half of January 2010. This will require banks to lend as much as Rs 1900 bn in the next two months in order to meet the RBI's revised loan growth target of 16% for FY10. It may be noted that by the end of January 2010, the bank credits grew by around 9% since April, 2009. Though it appears that the industry as a whole will miss the target, the public sector banks expect to achieve their respective targets. We believe that the release of pent-up demand by the corporates will result in a significant pick up in credit growth in the short term. An improvement in economic environment aiding to revival in spending should bring cheers to bankers going forward.

Markets begin on a strong note
09:30 am

Indian markets have started today's session on an extremely strong note. The benchmark indices opened above the breakeven mark and have surged ahead into the positive territory. Other key Asian markets are trading in the green with Hong Kong (up 1.5%) leading the pack of gainers. The US markets closed lower by 0.2% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading in the green with construction, metal, banking and software stocks witnessing buyers' interest. The BSE-Sensex is trading higher by around 160 points, while the NSE-Nifty is up by about 45 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 1.1% and 0.9% respectively. The rupee is trading at 46.42 to the US dollar.

Aluminium stocks have opened the day on a strong note. Gainers here include Hindalco and Nalco. As per a leading business daily, India's largest aluminium maker, Hindalco Industries hopes to complete Rs 49 bn of debt-raising by the end of this month. The process was launched in December last year by the company's bankers. Completing the process will help it achieve financial closure for its 1.5 m tonne per annum project in Orissa, Utkal Alumina Refinery. The refinery is expected to start production from July 2011 and involves an estimated capital expenditure of Rs 65 bn. Out of this, 25% will be in the form of the company's equity, while the rest will be debt. Hindalco has capital expenditure plans of over Rs 230 bn for the next three years, including other new plants in Orissa, Madhya Pradesh and Jharkhand. In our view, these projects will significantly enhance the scale of the company's operations. It will add to its competitive strength by virtue of being one of the lowest-cost producers of alumina and aluminium worldwide in a regime where cost curves are shifting upwards.

Energy stocks have opened the day on a positive note. Gainers here include GAIL and Petronet LNG. As per a leading business daily, the oil ministry has recommended a hike in petrol and diesel prices by Rs 3 and Rs 2 per litre respectively. Hike in LPG and Kerosene prices will be to the tune of Rs 50 per cylinder and Rs 3 per litre respectively. The decision is based on the recommendations of the Kirit Parikh committee. However, the cabinet is yet to approve it. It may be noted that recommendations stem from the fact that public sector oil marketing companies - Indian Oil, BPCL and HPCL incur huge losses due to under-recovery of input costs from subsidised fuel prices. In our view, the price hikes are inevitable from a financial standpoint. However, the political fallout is huge with opposition parties as well as coalition partners within the government wary of inflation at time when food prices are escalating. It remains to be seen if the government is willing to bite the bullet.

India to embark on stimulus withdrawal
Pre-Open

It has been proved beyond doubt. India has managed to escape one of the worst financial crises in modern times. There are signs of growth revival everywhere. India is expected to close the fiscal year 2010 with a respectable growth of upwards of 7%. However, this has not come without any cost to the economy. A good part of the growth could be attributed to fiscal stimulus undertaken by the government. And this meant enduring a greater than usual fiscal deficit. 6.8% of GDP to be precise. It should be noted that this is far higher than the 2.5% envisaged in the fiscal responsibility and budget management Act. Hence, it is only obvious that Government would aim to bring the deficit down to more manageable levels. There are talks doing the rounds that the Finance Minister would hike the excise duty by 2% during the forthcoming budget. While this would still be lower than 16% that prevailed before the crisis, it will nevertheless give the government decent headroom to grow revenues and at the same time, not have too much of an impact on demand as most companies would be able to absorb most of this stimuli and not fully pass it on to consumers. However, it remains to be seen whether the government will hike duties across sectors or be selective in its approach.

Government would recover every penny, says Paulson
Henry Paulson and Warren Buffett. It is not often that you see these two titans of the US financial industry come face to face at a public gathering. However, an industry body in Buffett's hometown Omaha pulled off this rare coup of sorts. It gave Warren Buffett the chance to interview Paulson. Paulson, as we all know was the US Treasury Secretary during one of the worst financial crises in history. Thus, who better than Paulson to give us the most intimate account of the crisis and what really transpired inside the corridors of power. Obviously, the talk veered towards the bail out of banks. Paulson had no hesitation in saying that the US Government will regain every penny given to the nation's banks during the economic meltdown. Infact, Paulson even predicted a sizeable profit for the government from the deal. What is more, even Warren Buffett seemed to agree.

How can our views be any different from that of these two learned men? However, what matters here is the frame of reference. The cost that they seem to be taking into account is just the purchase price. But what about the damage these acts could cause in the future? By endorsing the theory of too big to fail, Paulson has continued to support a wrong notion. And until this notion that the government would continue to save banks that pose systemic risks continues to rule the roost, no amount of profit on bank bailout would be enough to justify the cost.