Markets buoyed by GDP estimates
Closing

After the thumbs up given to the Union Budget announced last week, the markets were further buoyed today by the announcement made with regard to 9% GDP growth in 4QFY10. The Prime Minister's economic advisor Mr. C Rangarajan has said that the economy is likely to grow by around 9% in 4QFY10 and would make up for the slow expansion of 7.2% in 3QFY10. This would be supported by higher industrial production and better Rabi crops. The Union Budget 2010 brought some cheer to the Indian markets, which had been reeling under fear for the past few days with respect to the government's stimulus withdrawal. Also, much of the stimulus withdrawal has been in line with what the markets had been expecting. Stocks from commodity, auto, and power sectors led today's gains.

The BSE Sensex and NSE Nifty closed with gains of around 343 points (2.1%) and 95 points (1.9%) respectively. Mid and small cap stocks also closed with gains. The BSE Midcap and BSE Smallcap indices closed higher by 2.2% and 2.3% respectively. Among key Asian markets, while China and Hong Kong closed marginally in the red, India and Korea were among the lead gainers. European markets have opened lower today. The rupee is trading at 46.04 to the dollar.

Following Finance Minister's announcement of RBI's intent to grant fresh bank licences, a host of non-banking finance companies such as IDFC, Aditya Birla Financial Services, Reliance Capital, Religare Enterprises and Indiabulls are planning to seek the banking licences. Infact smaller finance companies such as Srei Infrastructure and Shriram Transport Finance have also expressed their intent to approach the regulator. Foreign banks, most of which operate in the country as branches of an overseas subsidiary, are unlikely to apply given the higher tax that they would have to shell out on setting up an Indian banking company. Besides, many of the global banks are going slow on overseas expansion due to the stress in their home markets. While the RBI has not given any fresh bank licences in the last 5 years (after Yes Bank), it needs to be rather careful of not allowing heavily risk exposed entities to get into banking.

One sector that seems to be rather disappointed with the budgetary allocations is the healthcare industry. While players in the sector had recommended immediate policy reformation and a move towards a combined public and private healthcare spending equal to 7% of GDP over the next three years, up from the current 4.5%, the budget seems to have left a lot to be desired. Although the Budget raised the plan allocation for the ministry of health and family welfare by 14% to Rs 195 bn, the players in the pharma sector believe that the same is not sufficient to enhance healthcare spending in the country. The focus on domestic market by pharma players is a fallout of stricter regulations and tighter government budgets in the US and Europe. Most companies in the sector ended higher today.

Petrol and diesel prices rose about 6% and 8% respectively after the government increased excise and customs duties on the fuels as part of Union Budget 2010, which stressed fiscal prudence to cut a wide deficit. However, with food prices rising at an annual rate of nearly 20%, the government's allies have been opposing this move. But the government seems to be in no mood to give in to populist policies at the cost of economic interest. Prime Minister Mr. Manmohan Singh has already clarified that populist policies would hurt the economy in the long-term and that the impact of increase in fuel prices on Wholesale Price Index (WPI) will be no more than 0.4%. Energy stocks like Reliance, Petronet LNG and Gujarat Gas closed higher today.

Realty stocks not invited to the party
01:30 pm

The Indian markets continued to trade firm as buying activity was witnessed in stocks across sectors during the previous two hours of trade. While stocks from the realty sector are the only ones not in favour, those from the auto, metal, banking and FMCG spaces continue to be market participants' favorites at the moment.

The BSE-Sensex is trading firm, up by around 260 points, while the NSE-Nifty is up by around 70 points. The BSE-Midcap and BSE-Smallcap are also trading firm, up by around 2% each. The rupee is trading at 46.03 to the dollar.

Engineering stocks are currently trading firm led by TRF, Thermax, Crompton Greaves and LMW. However, the stock of ABB is amongst the few losers on the back of poor results that were announced by the company at the end of last week. The company reported a 13% YoY decline in sales during 4QCY09 (December ending fiscal), while its revenues for the full year declined by 9% YoY. The decline in revenues was led by the company's power systems business which reported a 43% YoY decline in sales. Operating margins during the quarter contracted by 4.4% YoY on the back of higher cost of traded goods and higher other expenditure (both as percentage of sales). Further, the company reported a 43% YoY decline in profits during the quarter, while for the full year profits stood lower by 35% YoY. Apart from contraction in operating margins, higher depreciation charges and lower other income also pared the bottomline growth.

However, there was some good news for the company during the last quarter. ABB recorded a surge in order inflows, wherein orders booked stood at about Rs 24 bn, which is higher by about 88% YoY as compared to the same quarter last year. The cumulative order inflow for the CY09 stood at about Rs 87 bn, a growth of 8% YoY. The order backlog at the end of the quarter stood at almost Rs 85 bn, which is higher by about 38% YoY.

Trading higher by about 3.7%, the BSE-Auto Index is currently the top gainer amongst the sectoral indices. The stocks of Tata Motors, TVS Motor, Ashok Leyland and M&M are leading the pack of gainers. Maruti Suzuki announced its sales numbers for the month of February 2010 this morning. The company reported a 22% YoY growth in total sales volumes. While domestic sales volumes grew by 20% YoY, exports increased by 39%. Domestic volumes during the month stood at 84,765 units. This is the company's highest ever domestic monthly sales. Further, exports formed about 12% of the total sales volumes as compared to about 11% during February 2009.

Sales volumes during the fiscal year till date stood at about 923,000 units, higher by about 31% YoY as compared to the corresponding period last year. While domestic sales volumes increased by about 22% YoY, exports increased by about 127% YoY. Exports during this period stood at about 14% of total sales volumes as compared to 10% last year.

Auto, commodity stocks lead gainers
11:30 am

Persistent buying activity among the index heavyweights helped Indian bourses maintain the opening gains they witnessed today. Currently, stocks from the auto, metal, banking, capital goods and consumer durables are leading the pack of gainers, while realty stocks are the only ones failing to garner investors' interest.

The BSE-Sensex is trading firm, up by around 249 points, while the NSE-Nifty is up by around 68 points. The BSE-Midcap and BSE-Smallcap are also trading firm, up by around 1.8% each. The rupee is trading at 46.02 to the dollar.

Reliance Industries (RIL) seems to be finding investors’ favour today. According to a leading business daily, the company is likely to fail in getting through with its multi-billion bid for the bankrupt petrochemical company LyondellBasell. It may be noted that the latter’s valuations are climbing up lately on the back economic recovery. RIL had already sweetened its bid by 21% to US$ 14.5 bn from the initial amount of US$ 12 bn. However, at current valuations, the bid is considered highly expensive and a group of US based creditors are expected to reject the offer. We believe that this appears to be a better option for the company as the exorbitant valuations should be justified by extremely strong fundamentals. Moreover, RIL is likely to concentrate on smaller acquisitions like Canada’s Value Creation for US$ 2 bn if its LyondellBasell deal falls apart.

As per an announcement on BSE, FMCG major, Marico appears to be optimistic with the Union Budget 2010. The company believes that the impact of increase in MAT to 18% will get nullified by the decrease in corporate tax surcharge. However, the increase in excise duty, particularly on petrol and diesel will increase the cost base. While the inclusion of more services under service tax gamut will push the cost, the retention of service tax at 10% is a favourable move. The company’s skin care services division is likely to be benefitted by this. On a broader level, the measures announced in favour of the ‘aam aadmi’ are likely to increase the disposable income of the public. The company expects this to result in mildly positive impact on consumer demand.

Markets cheerful post budget
09:30 am

The Indian markets have started today's session on an extremely positive note. The benchmark indices opened above the breakeven mark and have managed to move further into the positive territory since then. Other key Asian markets are trading in the green with Indonesia (up 0.7%) leading the pack of gainers. The US markets closed higher by 0.8% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with auto and metal stocks attracting investors' interest. The BSE-Sensex is trading higher by around 216 points, while the NSE-Nifty is up by about 65 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 1.3% and 1.4% respectively. The rupee is trading at 46.03 to the US dollar.

Auto stocks have opened the day on a positive note. Gainers here include Tata Motors and TVS Motor. As per a leading business daily, Tata Motors has reported a growth of 58% YoY in February sales at 69,427 units, up from 43,811 units during the same period last year. Its domestic passenger vehicles sales grew 44% YoY at 29,241 units in February this year, up from 20,348 units. Total exports jumped to 3,237 units, as compared to 1,318 units. Within the passenger car segment, among the various models, the Indica range sold 11,502 units during February this year, followed by Indigo at 7,373 units, Sumo and Safari at 4,005 units and Nano at 4,105 units. In the commercial vehicles segment, the company clocked in 39,205 units, up from 23,454 units during the same month last year. This would be welcome news for the company at a time when the stock has been weighted down due to fears of a stimulus roll back and labour union issues over job cuts and wages on the JLR front.

Cement stocks have opened the day on a positive note. Gainers here include JK Lakshmi Cement and Dalmia Cement. The impact of the union budget 2010-2011 is already visible in the cement sector. As per a leading business daily, companies across the industry have increased the price of cement in the range of Rs 10 to Rs 12 per bag. In our opinion, this is due to the excise duty hike from 8% to 10% as well as the rise in transportation costs due to costlier diesel. Interestingly, the price hike has been uniform through out India despite the fact that cement is a zone-specific industry and prices depend on the market conditions of each region.

Promises are past. Now's time to act!
Pre-Open

The most awaited moment for the stockmarkets at the start of this year, is past. We are talking about the Union Budget 2010 that was tables in the Parliament last Friday. All in all, this year's budget seemed a balancing exercise – between growth and financial discipline. At least it seemed from the Finance Minister's (FM) speech that he tried to keep both the economists and the aam aadmi happy.

The key takeaway for the economists was the announcement of a roadmap for lowering the central government's fiscal deficit. The FM talked about a target of reducing the same to around 4.1% of GDP by FY13, from 6.9% of GDP estimated for the current fiscal FY10. At least the intention seemed there. Now it will be important for the government to act upon the same. But that will be a difficult task. Political compulsions of keeping all alliance partners happy will be on the top of the FM's mind before he announces any measures to cut short the deficit.

After all, the exercise will involve raising duties and taxes on products and services that the aam aadmi consumes. Petro-products are one such category. The walkout by some of the UPA government's alliance members as the FM talked about raising these prices during the budget announcement must have come as a warning sign for the government. Therefore, it will be difficult for the FM to raise prices further in the near future, even if the going on the fiscal deficit front gets tough. Also given that the FM has just announced a roadmap as of now, and is yet to talk about any concrete measures towards reducing the deficit, there's a lot of 'hope' built into his estimates. This also leaves a lot of room for doubt as to 'how' the government will actually cut on its spending and borrowings without compromising on growth.

Now coming to the aam aadmi, this budget can at best be termed a mixed bag. It was good that the FM somewhat lowered the tax burden for individuals (the post budget positive reaction from the market was seemingly largely on account of this 'feel good' factor). However, the budget also took away the low excise benefits on certain products and also raised prices for key items like petrol and diesel. Given that the country is already reeling under high food price inflation, the excise cuts and fuel price hikes announced in the budget seemed like taking away from one hand what was given to the common man from the other hand.

Overall, while the budget seemed to have some pragmatism and feel good factor attached to it, it seemed more of a balancing exercise than anything. There are several roadblocks ahead for the economy. The FM and his government has a real tough task on hand. Merely setting a roadmap towards fiscal discipline will only amount to a starting point. There is a lot of ground to cover to achieve whatever has been promised. Now what is required is 'real intention' from the government to act upon its promises. Nothing else will do!