India leads Asian gainers
Closing

The benchmark Indian indices today managed to recover most of the losses seen in yesterday’s session. Riding on the prospects of higher GDP growth and increased demand for commodities, stocks from the cement and metal sectors led the pack of gainers. Starting off close to the dotted line, the indices gathered momentum as buying interest intensified across heavyweights. The mid and smallcap stocks kept pace with their larger peers and their respective indices managed to end the session with gains of 0.6% and 0.5% respectively.

While the BSE Sensex closed higher by around 188 points (up 1.2%), the NSE Nifty gained around 54 points (up 1.1%). As regards global markets, most Asian indices closed strong today while European indices have also opened in the positive. The rupee was trading at Rs 46.18 to the dollar at the time of writing.

In a proactive move to safeguard their margins, commercial vehicle manufacturers have decided to hike prices on account of the new emission norms that are to be implemented from April 2010. Passenger cars and commercial vehicles will have to switch to Bharat Stage IV emission norms in 13 cities, while rest of the country will become Bharat Stage III compliant. As the new emission norms warrant use of upgraded technology, the manufacturers are looking to pass on some of the rise in costs to customers. The quantum of rise however varies company to company. While Ashok Leyland has already announced a rise of 15% for its vehicles, Tata Motors is contemplating a rise of 2% to 3%.

As per a business daily, Bharti Airtel which has offered US$ 10.7 bn for Kuwaiti telecom company Zain's African assets, is likely to finance the entire deal with foreign currency loans. The Zain bid comes after Bharti’s failed talks with MTN and in the midst of an intense price war in the Indian telecom sector. Zain's African business forms about 45% of the group's total revenues and 60% of the subscriber base. Nigeria is the biggest market within Africa and contributes 16% and 21% of Zain's revenues and subscriber base (total 71 m) respectively. The company's average revenue per user (within Africa only) ranges between US$ 3 per month and US$ 25 a month (as compared to Bharti's ARPU of about US$ 5 per month).

As for Bharti's balance sheet strength to manage this acquisition, the company has a net debt of Rs 19 bn currently. It is the only free cash flow positive company among all the telecom players and also has a low debt to equity ratio (of around 0.26 times). This should help the company take on the additional debt on its books to fund Zain Africa's acquisition. The stock of Bharti, which lost nearly 9% in yesterday’s trade closed 4% lower today.

MNC pharma major GSK Pharma announced its full year results (calendar year ending company) yesterday. The company’s topline grew by a robust 20% YoY, which could be attributed to the active promotion of priority products including vaccines (accounting for one third of revenues), which registered a double-digit growth. New product launches could also have played a role in contributing to revenue growth. Operating margins expanded by 2.3% to 32% during the quarter led by changes in the product mix. While the bottomline declined by 50% YoY, this was largely due to the extraordinary income that the company received in 4QCY08. Thus, on excluding the same, net profits grew by 20% YoY in tandem with the growth in sales. For the full year, revenues and net profits grew by 12.5% and 15% respectively.

Going forward, GSK Pharma intends to continue its focus on priority products, which account for a third of its revenues and increase the contribution from the chronic therapy segment through in-licensing opportunities. Launch of new products from its parent’s product folio will also go a long way in enhancing revenues in the future.

Realty stocks remain out of favour
01:30 pm

Strong buying activity led the Indian indices to rise into the positive territory during the previous two hours of trade. Stocks that are currently preferred by investors are those forming part of the healthcare, metal and IT spaces. The BSE-realty index is the only sectoral index that is trading in the red. Currently, there is one gainer for every loser on the overall BSE.

The BSE-Sensex and the NSE-Nifty are trading higher, up by around 90 points and 25 points respectively. The BSE-Midcap and BSE-Smallcap are also trading higher, up by around 0.2% and 0.4% respectively. The rupee is trading at 46.14 to the dollar.

Capital goods stocks are trading firm led by Siemens, BHEL, and Punj Lloyd. Gains in the sector heavyweights are on the back of news of few companies bidding for a large Rs 450 bn bulk equipment tender floated by NTPC and Damodar Valley Corporation (DVC). A leading business daily has reported that engineering majors such as BHEL, L&T, and Bharat Forge have put in bids through their respective joint ventures. BHEL-Alstom and L&T-Mitsubishi were among the few companies that bid for both - the supply of supercritical boilers for 11 units of 660 mw (megawatts) each and turbine generator sets. On the other hand, the JV between Alstom-Bharat Forge and Toshiba-JSW bid for only the turbine generator package.

It must be noted that the Chinese and Korean power equipment majors such as Doosan, Shanghai Electric and Dogfang Electric (either on a standalone basis or through joint ventures with non-Indian firms), which have been giving a tough time to domestic power equipment manufacturers were not allowed to submit their bids. This is on the back of the Indian government making it mandatory for bidders to have a joint venture with an Indian company or a 100% Indian subsidiary to become eligible to bid for projects. In addition, they are also required to supply equipment that is manufactured in India.

Auto stocks are currently trading firm led by Tata Motors, TVS Motor and M&M. A leading business daily has reported that auto major, M&M along with BAE Systems Plc is looking to invest nearly US$ 21 m or about Rs 990 m over a three year period in a joint venture (JV). M&M will hold 74% stake in this in venture, which has been formed to make defense equipment. As per the company this joint venture company will employ about 100 people in a manufacturing facility at Faridabad near New Delhi.

In another development concerning M&M, the company is looking to launch new two-wheelers models and variants in the market this year. In the gearless scooter segment, the company is looking at revamping and launching a model which it had inherited from Kinetic Group, which it acquired recently. As for the motorcycle segment, M&M is believed to be in the process of identifying the line up for motorcycle models. As per the company’s management, launches in this segment are likely to happen by the end of this year in the mid and high market segment. The company believes that it would be able to make a dent in the market with its launches. However, in both the segments - gearless and motorcycles - the company will have to face very well established players such as Honda Motorcycle & Scooters, TVS and Suzuki in the gearless space and players such as Hero Honda, Bajaj Auto and TVS in the motorcycles segment.

Auto, power buoy the markets
11:30 am

Despite some volatility, BSE managed to break into the positive territory during the previous two hours of trade. Currently, stocks from the auto, power, metal, capital goods and healthcare sectors are leading the pack of gainers, while select stocks from the telecom, banking and realty sectors are trading weak.

The BSE-Sensex and the NSE-Nifty are trading higher, up by around 43 points and 8 points respectively. The BSE-Midcap and BSE-Smallcap are also trading higher, up by around 0.07% and 0.18% respectively. The rupee is trading at 46.16 to the dollar.

According to a leading business daily, Axis Bank, a leading private sector bank is opening a branch in Oman as a step towards deepening its penetration in West Asia. It may be noted that bank already has 5 international offices in Hong Kong, Singapore and Dubai, focusing on corporate lending, syndication, trade finance, investment banking, risk management and liability businesses. Currently, the bank derives 10% of its business from overseas operations and expects this to grow significantly going forward.

It may also be noted that the bank is aiming to increase its retail lending portfolio to 25% of its total lending in the short term. Presently, the total retail asset size for the bank is Rs 190 bn. Herein, the bank is planning to increase auto loans component of the retail portfolio from 17% to 25% of total retail lending. We believe that this is a positive move for the bank provided it maintains adequate asset quality and keeps itself away from the rate war characteristic of the retail lending segments. Banking stocks are trading on a mixed note.

As per a leading business daily, India's leading automobile manufacturer Tata Motors has appointed former General Motors (GM) executive, Mr Carl-Peter Forster as the group's CEO. Mr Forster is a German national and was heading GM's European operations previously. As a CEO at Tata Motors, he will be responsible for company's global operations including its British units- Jaguar and Land Rover. This is the third time that US$ 71 bn Tata group, equally admired in India and abroad, has appointed an expatriate at the helm of its business unit. We believe this is a real indication of company acquiring a truly global stature. Tata Motors is currently the top gainer on BSE. While other auto stocks like M&M, Maruti Suzuki are also finding favor, Hero Honda is trading in the red.

In other news about the company, it is in talks with SBI for selling 49% stake in Tata Motor Finance, latter's vehicle financing arm. If the deal comes to fruition, SBI will be able to expand into commercial vehicle financing particularly loans for trucks and buses where it has no presence currently. SBI is trading in the green currently.

Markets begin on a volatile note
09:30 am

The Indian markets have started today's session on a volatile note. The benchmark indices opened above the breakeven mark but soon fell into the negative territory. Other key Asian markets are trading in the green with South Korea (up 0.8%) leading the pack of gainers. The US markets remained closed yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading a mixed bag with auto and metal stocks witnessing buyers' interest. However, select software heavyweights are in the red. The BSE-Sensex is trading lower by around 4 points, while the NSE-Nifty is down by about 3 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 0.1% and 0.3% respectively. The rupee is trading at 46.34 to the US dollar.

Retailing stocks have opened the day on a mixed note. Gainers here include Pantaloon and Trent. However, Shoppers Stop is in the red. As per a leading business daily, retail major Shoppers Stop plans to open 18 new department stores over the next three years. It currently has 29 department stores. In terms of retail space, the company will add 1 m square feet (sq ft). This would be fastest capacity addition in the company's nearly two-decade history. The expansion will require investments to the tune of Rs 3 bn. The company plans to raise Rs 3.5 bn by March 2011, mainly through qualified institutional placement (QIP). In our view, the expansion is clearly aimed at catching up with the competition. The company has 1.9 m square feet (sq ft) of retail space as compared to 10 m sq ft of Pantaloon Retail, 4 m sq ft of Reliance Retail and 2 m sq ft of Aditya Birla Retail. However, the key will be profitable expansion as some retail formats have worked well in India in the past while others have only managed to burn cash.

Cigarette stocks have opened the day on a positive note. Gainers here include ITC and VST Industries. As per a leading business daily, India's largest cigarette maker, ITC has increased the price of Gold Flake Kings cigarettes by 7%. A pack of 10 cigarettes will now cost Rs 47, up from Rs 44 earlier. It may be noted that the company had hiked the prices of its two other brands, India Kings and Benson & Hedges, by Rs 10 and Rs 5, respectively late last year. Apparently, the move is a proactive measure ahead of the Union Budget. The government has steadily raised taxes on cigarettes in a bid to reduce consumption. However, despite high government intervention and campaigns against smoking along with high tax rates, the company has managed to grow its cigarettes business at a CAGR of 10% between FY02 and FY09. Hence, we do not expect the price hike to affect the segment's performance going forward.

The sharp contrast between countries
Pre-Open

The global financial crisis definitely put the brakes on growth in both the developed and developing world. While the developing countries of China and India did not necessarily sink into recession like the rich world, growth in these countries nevertheless slowed down. But while an economic recovery across the world seems to have started, it is happening at a different pace in different countries. At the height of the crisis, most companies with high debt on their books were the worst hit as lower sales coupled with higher interest costs and forex losses combined to hamper profits. What is more, the high amount of debt meant that spending on spurring growth also did not seem feasible.

Interestingly, at a time when the global economic recovery is said to have started, countries are now beginning to be bogged down by the threat of sovereign defaults . First, Dubai started the trigger. Now certain European countries such as Greece, Spain and Portugal are in increasing danger of doing so. This then raises a question mark on whether an economic recovery is actually taking place - in Europe atleast. US also has its own set of problems. Massive doses of liquidity may have been injected into the system. But unemployment is still very high. Property prices have still not having recovered completely. And consumers are wary of going on a spending binge anytime soon. Therefore, for the developed world atleast, the problem appears to be more of stagnating economies rather than inflationary pressures. This means that central bankers may not resort to withdrawing stimulus packages soon.

For the developing economies notably India and China it is a different ballgame altogether. There the recovery seems to be slowly taking place. This is because of the strong growth in domestic demand even if exports have still not set the pulse racing. In China, there are increasing concerns of the economy overheating what with banks resorting to indiscriminate lending and property prices soaring as a result.

Therefore, the problems confronting the developed and the developing world are different. For the developed world, recession is still a huge problem. This means that central bankers might be vary of tightening monetary policy. Especially when it is not clear if the subtle signs of recovery are for real or are propped up by stimulus measures. For India and China, the problem now is inflation. Both the countries recently raised the reserve requirements to be kept with banks. In India especially, inflation has still not displayed any signs of cooling off, consequently putting immense pressure on the RBI.

The global financial crisis has certainly been a shocker to the world at large. Will most countries regain their lost glory? Or will we witness a ‘new normal’? Only time will tell.