Robust buying fires up indices
Closing

Strong buying activity across index heavyweights throughput the session today ensured that the indices closed well above the dotted line. While the BSE Sensex closed higher by around 227 points (up 1%), the NSE Nifty gained around 71 points (up 1%). This optimism spilled over to midcap and small cap stocks as well as they notched gains of 2% and 1% respectively. Gains were largely seen in oil & gas, metals and banking stocks.

As regards global markets, Asian indices closed mixed today while European indices have opened on a weak note. The rupee was trading at Rs 45.85 to the dollar at the time of writing.

Barring Tata Steel, most steel stocks closed firm on the bourses today. As per a leading business daily, Tata Steel's European subsidiary Corus has sold its stake in a joint venture which was operating a tar distillation plant in the Netherlands. Corus, along with partner Cindu BV, have sold their stake to the US carbon-compounds maker Koppers Holdings. The rationale behind the move was that tar processing was not a core activity for Corus although the company has tied up a long-term arrangement for tar supply with the new owner. For Tata Steel Europe, the global financial crisis has had an impact on operations. What is more, the demand for steel is expected to remain subdued till the time the developed economies start recovering. Thus, in the short term, the weak steel demand is likely to create cash flow problems for the company which explains the stake sale in the JV.

As per a leading business daily, power major Tata Power is looking to increase its coal mining capacity in Indonesia by 25% starting the latter half of fiscal 2011. The current capacity which stands at 60 MT will be scaled to 75 MT a year. It must be noted that the company owns 30% stake in two Indonesian coal mines belonging to PT Bumi Resources, which were purchased in June 2007. Tata Power imports 3 MT of coal for its plant in Trombay, Mumbai. Out of this, 1 MT comes from the Bumi coal fields. These plans are likely to complement the company's objective of increasing its power generation capacity from an annual 3,000 MW at present to 4,242 MW in 2011 and 5842 MW in 2012. The stock was among the major gainers on the Sensex today closing higher by 5%.

As per a leading business daily, India seems to be on a firmer path to recovery as exports rose for a third straight month in January 2010. The January merchandise exports hit US$ 14.3 bn, 11.5% higher than the same month a year ago. Imports grew by 35.5% to US$ 24.7 bn. Readers would do well to recall that exports had shrunk for 13 months before turning positive in November. With exports recovering and new manufacturing orders reaching an 18-month high in February 2010, it appears that the stimulus backed rebound is certainly taking place in the private sector. All eyes, therefore, will be on the RBI and what it proposes to do with respect to interest rates when it meets again in April this year.

Energy, metal & realty bouy the indices
11:30 am

The Indian markets continued to trade on a strong note during the previous two hours of trade. Currently, buying activity is being witnessed across sectors with stocks from oil & gas, metal, realty, power and banking sectors leading the pack of gainers. Stocks from capital goods sector are the sole ones failing to garner investors' interest.

The BSE-Sensex and the NSE-Nifty are currently trading higher by around 97 points and 35 points respectively. Stocks from the midcap and small cap spaces are trading in the green, with the BSE-Midcap and the BSE-Smallcap indices trading higher by 1.2% each. The rupee is trading at 45.87 to the US dollar.

According to a leading business daily, India's largest software exporter, TCS has won a 10 year, Rs 41.2 bn IT contract from UK's national pensions scheme. As per the contract, TCS will be responsible for setting up and maintaining the pension scheme's IT systems. This contract will be signed later this month and is expected to even be extended for 5 more years.

It may be noted that this is the largest public sector deal for any Indian IT player in UK. Adding to it, it is expected to bring in more opportunities from the £10 bn public sector IT outsourcing market in UK which is currently dominated by European IT firms. We believe that this is a significant win for TCS as the company aims to increase its presence in the European IT services market. In November 2009, it won a Rs 6.9 bn contract from Cardiff Council, a UK government's local authority. Currently TCS generates nearly 16% of its revenues from UK and around 10% from Continental Europe. UK is an important market for Indian IT companies and all the IT majors like TCS, Infosys, Wipro and HCL Technologies are ramping up their presence there. Currently, the IT stocks are trading mixed.

According to a leading business daily, healthcare major Glenmark Pharmaceuticals has received an approval from US Food and Drug Administration (USFDA) for marketing its anti- Parkinson's disease medicine in the country. The company will immediately start marketing and distribution of this drug called Ropinirole Hydrochloride in form of tablets in 0.25 mg, 0.5 mg, 1 mg, 2 mg, 3 mg, 4 mg and 5 mg strengths.

It may be noted that these tablets are the generic version of GlaxoSmithKline's Requip tablets sold in the US market. As per research estimates, Ropinirole Hydrochloride tablets grossed a total sales of around US$ 104 m in 2009 in the US market. We believe that this is a positive for Glenmark, particularly after the lackluster performance of the generics business in 3QFY10. Its sales from the generics business failed to impress by growing at a tepid 1% YoY 3QFY10. Also, its revenues from the US declined by 10% YoY during the quarter.

Markets up on Asian cues
09:30 am

The Indian markets have started today's session on a 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 China (up 0.4%) leading the pack of gainers. The US markets closed marginally higher yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with construction and metal stocks attracting investors' interest. The BSE-Sensex is trading higher by around 82 points, while the NSE-Nifty is up by about 27 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% and 0.9% respectively. The rupee is trading at 45.93 to the US dollar.

Pharma stocks have opened the day on a positive note. Gainers here include Indoco Remedies and Dr. Reddy's. As per a leading business daily, Ranbaxy planned to launch the generic version of the Japan-based Astellas' Flomax on March 2 in the US. Flomax is used to treat prostrate enlargement and clocked sales of around US$ 2 bn in the US last year. The launch would have come eight weeks before the drug's patent expires in the US. However, the American drug regulator, FDA has denied Ranbaxy the permission to market the generic version of a blockbuster drug in the US. This is a negative development for the company especially given the difficulties on the USFDA front it has faced of late. It may be recalled that the regulator had banned 30 drugs from Ranbaxy's stable in September, 2008. Launching the generic version of Flomax on a later day would miss the eight-week marketing exclusivity window. Moreover, another generic drug maker, US-based Impax Laboratories was able to launch the product on time.

Engineering stocks have opened the day on a positive note. Gainers here include Areva T&D and Thermax. As per a leading business daily, engineering major BHEL is aiming at a turnover of Rs 500 bn per annum in the next ten years from its current level of Rs 270 bn. The company is banking on a strong order book valued at about Rs 1.5 trillion and a series of new joint ventures in related fields. The company is looking at tie up with foreign partners for a 10,000 tonnes per annum poly-silicon manufacturing facility in India, which can support the creation of solar power capacity of 1,000 mw annually. In the nuclear power space it has tied up with Nuclear Power Corporation of India (NPCIL) and is in talks with Areva and Westinghouse. It is also in talks with Toshiba, Japan for the transmission and distribution sector and Sheffield, UK for high-end forgings.

Good intent but poor execution?
Pre-Open

The Finance Minister's noble and confident intent of building 20 kms of roads per day, offering banking services to the smallest villages and stimulating infrastructure growth were well received during the Budget speech. However, as seen several times before, execution seems to be the bone of contention.

Be it power projects or road construction, the implementation rate so far has little to write home about. The Economic Survey itself was testimonial to this. "Against the target of awarding projects for a total length of about 9,800 km under various phases of National Highways Development Project (NHDP) during 2009-10, projects have been awarded for a total length of about 1,285 km up to November 2009," states the Economic Survey.

Moreover, the survey questions the bankability of the PPP (public private partnership) projects. The mere 13% execution rate affected the reputation of the government so badly that the reason for funding delays included 'lenders' perception of high risk'. Thus with the government constrained of borrowing, the PPP projects at the mercy of private parties may come to a standstill unless execution picks up pace. In addition, the bottlenecks identified for slow progress in road projects included delays in land acquisition and environment clearances.

Bank licences for private sector and non banking companies an have an equally sealed fate unless executed with the noble intent to the tee. With private sector banks keen to offer credit cards and personal loans, only 7% of their branches are currently in the hinterlands. The small sized deposits there are hardly remunerative to the private sector players. Even with the additional licenses this figure may not increase unless the bankers are content with farmers buying consumer durables on their credit cards. It will be bankers praying to the Rain Gods then!

The roadmap for bringing down fiscal deficit was indeed praiseworthy. But most of it relied on indirect taxes. Although that brings the nation's tax to GDP ratio at just 12% from 10% in this fiscal, policy makers will be challenged by the implications of an uncontrolled inflation. Politically sensitive areas like rise in fuel and cement taxes particularly will have to pass the test of time before seeing their way into the government coffers.

Implementation of Goods and Services Tax (GST), Direct Tax Code and Unique Identification numbers (UID) in FY11 are also on the cards. However, the numerous delays in implementation of VAT raises doubts about the timeliness of the targets this year as well.

The government therefore has a tough job at hand. While so far the growth in industrial production, harvest of rabi crops and interest rates have all been reasonably benign, the way forward could be much tougher. With expectations of more social expenditures and growing economy burdening upon fiscal prudence, it will have additional challenges to overcome on the execution front.