Mid and small caps buck the trend
Closing

The benchmark Indian indices which showed signs of wearing off since the start of the session today failed to make a recovery till the final hour. Besides profit booking across heavyweights, the acceleration in food inflation acted as a major dampener. The food price index rose 17.9% in the 12 months to February 20 (17.6% last week) and the fuel price index was up 9.6%. Defying the government’s predictions that price rises would start to moderate, the higher inflation number adds to the pressure on RBI to raise interest rates further in April. The government's decision to raise petrol prices by about 6% and diesel by 7.8% in last week's budget to help curtail the fiscal deficit may prevent food prices from easing in the near term. Stocks from commodity, auto, and software sectors led today’s losers.

The BSE Sensex and NSE Nifty closed with losses of around 28 points (0.2%) and 8 points (0.2%) respectively. Mid and small cap stocks however bucked the trend. The BSE Midcap and BSE Smallcap indices closed higher by 0.8% each. 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 45.81 to the dollar.

Close on the heels of the government announcing new bank licences to private sector players and NBFCs, ANZ (Australia and New Zealand Banking Group) has received in-principle approval to set up a bank branch in India. ANZ, Australia's fourth-largest lender plans to have banking presence in Mumbai in the next 12 months. ANZ’s entry into India comes ten year after it sold its assets in the country to Standard Chartered. State-run banks control nearly three-fourths of India’s banking sector and only a handful of foreign banks, such as Citigroup, Standard Chartered and HSBC have a major share of corporate lending. Almost a decade later, ANZ is reviving its Asian focus and aims to get a fifth of its profit from this region. Last year it bought some Asian assets of Royal Bank of Scotland and is now focusing on China, India and south east Asia. Stocks in the banking sector including HDFC Bank, Yes Bank and ING Vysya Bank closed higher today.

Realty stocks managed to regain investor favour today with stocks like Unitech and DLF featuring amongst the lead gainers. After several months of muted performance, the housing construction sector was finally witness to a recovery in the past two quarters as sharp price cuts and teaser home loan rates lured buyers. However, the recent Budget proposal to levy 10.3% service tax on houses under construction threatens to crimp the sector’s fragile recovery. The resultant price hike of around 3% is expected to dissuade fresh buyers. The proposal is purported to spur builders into completing projects faster after rampant complaints of long delays. We believe that although the service tax may constrain demand in the short term, it will eventually be in the interest of both home buyers as well as shareholders of realty companies.

Watch and jewellery retailing major Titan Industries has cited plans to spend about Rs 1 bn on incremental capex in FY11. Part of the capex will be used for the firm's retail expansion plans as it plans to add more stores in the next fiscal. In 9mFY10, the growth in Titan’s revenues was driven by its mature business segments - jewellery and time products. However, in future the company to grow on the back of better penetration and new product launches. The sector provides immense potential on account of low penetration levels and on account of rising aspiration levels of Indian consumers. The company’s new initiatives, (prescription eyewear and precision engineering) taken with a view to sweat assets and sustain profitability are expected to improve shareholder returns in the future.

Punj Lloyd down on yet another fine
01:30 pm

The Indian markets continued to slide deeper into the red as selling activity intensified during the previous two hours of trade. Selling pressure is being witnessed in stocks from the IT, energy, auto and banking spaces, while those from the realty, consumer durables and FMCG sectors have managed to find investors’ interests.

The BSE-Sensex and the NSE-Nifty are currently trading lower by around 110 points and 40 points respectively. However, small and midcap stocks have managed to hold on to their gains as the BSE-Midcap and the BSE-Smallcap indices are trading higher by 0.3% and 0.2% respectively. The rupee is trading at 45.82 to the US dollar.

Auto stocks are currently trading weak led by Eicher Motor, M&M and TVS Motor. However, commercials vehicle manufacturer Ashok Leyland has managed to buck the trend as the company announced a strong sales volumes growth for the month of February 2010. The company reported an over 140% YoY increase in unit sales as compared to the same month last year. Sales during the month stood at 7,869 units while they stood at 3,245 units last year. The growth in volumes was mainly on account of a spurt in domestic sales which grew by about 165% and formed nearly 90% of total sales volumes as compared to about 82% last year. Exports also grew at a strong pace, higher by about 35% YoY. The cumulative sales during the year till date i.e. from April 2009 till February 2010 at 53,859 units as compared to 49,332 units, representing a growth of about 9% YoY. Sales of medium and heavy commercial vehicles contributed to nearly 68% of sales and reported a growth of about 270% YoY. Key reason for this strong surge is the low base of last year, coupled with the overall improvement in economic conditions over the past few months. It must however be noted that when compared to sales on a month on month basis i.e. in comparison January 2010, the sales volumes remained flat.

The stock of Punj Lloyd is amongst the top losers from stocks forming part of the BSE-Capital Goods Index. This is on the back of the company’s announcement that Simon Carves, its UK subsidiary, has been fined a sum of Rs 1.6 bn for delays in execution of a particular project in the UK. Punj Lloyd was believed to be in talks with its client in the UK. However, the decision seems to have gone against the company. It must be noted that Punj Lloyd has already provided for losses to the tune of about Rs 3 bn on this project on the back of cost overruns in the financial year till date. This additional sum will be an additional cost to these losses.

While the company has blamed the extreme weather conditions in the UK for the delay in the same, it should be noted that the company also reported losses during FY09 on account of the legacy orders of Simon Carves. In another development, the company reported that it received a letter of intent (LOI) for an order worth over Rs 10 bn from Dhariwal Infrastructure, a subsidiary of CESC to construct a 600 MW power plant in west Maharashtra.

Midcaps and smallcaps find favour
11:30 am

The Indian markets continued to remain volatile, with the benchmark index trading below the dotted line during the previous two hours of trade. Currently, selling activity being witnessed in stocks from the IT, telecom, auto, oil & gas and capital goods sectors is weighing heavy on the indices. Nevertheless, stocks from realty, consumer durables, healthcare and metal sectors are managing to garner investors’ interest.

The BSE-Sensex and the NSE-Nifty are currently trading lower by around 45 points and 18 points respectively. Nevertheless, stocks from the midcap and small cap spaces are currently trading in the green, with the BSE-Midcap and the BSE-Smallcap indices trading higher by 0.6% each. The rupee is trading at 45.78 to the US dollar.

According to a leading business daily, India’s largest public sector bank, SBI is planning to further revamp its employee base. To this end it has raised its hiring target from 11,000 to 25,000 in order to take care of retirements and new positions at newer branches. It may be noted that the bank is already in a recruitment phase currently and has recruited around 33,000 employees in the clerical cadre since 2007. By adding 25,000 more employees the recruitment figures will stand tall at 50,000 at the end of March 2011.

The increase in intake this year itself is aimed at reducing the time and cost in initiating a new hiring spree again next year. It may be noted that the cost for the clerical recruitment for the bank (along with its associates) is expected to be Rs 500 m in 2010. As the bank plans to increase its branch network three-folds to 50,000 by the end of current decade, it will require more hands to staff these branches. Currently it has 12,027 domestic and 141 overseas branches along with over 4900 belonging to its 6 associates. With bank consolidation plans underway, the bank also factored in hiring requirements at its associate banks while raising its recruitment target. While the growth plan is a long term positive, we believe that such rampant increase in branches as well as employee base will impact bank’s margins significantly in the medium term.

As per a leading business daily, Indian IT major Wipro has restructured its non-IT business along with rejiging its top leadership. In order to underpin its focus on ecology as a business stream, it has created a separate business vertical for eco-energy by splitting it from infrastructure engineering segment. It may be noted that lately eco-energy business gained importance in Wipro’s business strategy. It has built its offerings around multi-technology consulting and engineering practices for commercial, industrial and utility clients. Under infrastructure engineering business which includes hydraulics and water business, it plans to expand its global footprint besides increasing its market share. It has also made some changes in its top management along these business units.

In terms of its IT services, the company already generates 10% of its revenues from energy and utilities segment. It is betting big on green solutions in this vertical. The company aims at generating 10% of consulting revenues from green IT consulting in the next couple of years, reaching US$ 500 m revenue by 2010. We believe that focusing on green solutions as a driver for future growth will definitely help the company in the long term.

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, fell thereafter but have managed to claw back towards the positive territory since then. Other key Asian markets are trading in the red with China (down 0.6%) leading the pack of losers. The US markets closed lower by 0.1% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading a mixed bag with energy and power stocks attracting investors' interest. However, auto stocks are trading weak. The BSE-Sensex is trading lower by around 1 point, while the NSE-Nifty is down by about 5 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 0.3% respectively. The rupee is trading at 45.68 to the US dollar.

Pharma stocks have opened the day on a positive note. Gainers here include Indoco Remedies and Panacea Biotech. As per a leading business daily, Cadila Healthcare has filed for the next phase of clinical trials for a swine flu vaccine after completing the first phase. The company expects to get the requisite permission this month. The company is among the few Indian companies who are in advanced stages of developing the vaccine. Last month, Serum Institute of India had completed the first phase of trials. Panacea Biotech is also working on the vaccine. Cadila plans to launch the product in April this year. It will initially produce around 500,0000 doses, which will doubled to 1 m doses in the next six months. It may be noted that the company's domestic formulations business has grown at a CAGR of 9% in the past five years. Given its efforts to introduce new product in India, we expect robust growth for the company on the domestic front.

Engineering stocks have opened the day on a negative note. Losers here include Infosys and Wipro. As per a leading business daily, Infosys plans a salary hike across board in April this year as it seeks to restore incentives after the economic downturn last year. This step clearly indicates the IT major's opinion that business is going to be normal in the near future. In our view, this provides positive signals for the IT sector as a whole. In fact, industry body Nasscom has predicted double digit growth rates for FY11. However, with the revival of prospects we also expect the old bugbear of the industry - salary pressure and attrition to make a comeback.

Mark Mobius finds India appealing
Pre-Open

It is no surprise that noted investor Mark Mobius finds emerging markets especially BRIC very appealing when it comes to investing. But India really seems to have caught his fancy. In fact, he is of the view that India's shares may outpace other emerging markets as the country's economy strengthens. What stands in India's favour is the fact that unlike companies in the US and Europe, most Indian companies have healthy balance sheets and strong cash flows. He believes that the government has done a good job in managing the economy through the current global crisis. However, these BRIC nations could face volatility in the short term although they are expected to do well in the long term.

In India especially, stockmarkets have considerably run up in the last one year. Although the indices are not in bubble territory yet, valuations of many companies appear stretched. Investors will have to be all the more vigilant while making their stock picks. While good managements and strong business prospects are certainly the most important criteria, giving due importance to valuations is also necessary. As Warren Buffett has said, "Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid." Big Pharma's race for generics intensifies

Given that there is intense competition and brutal pricing pressure in the global generics market, acquiring scale has assumed paramount importance. Little wonder then that when any generics company comes up for sale, the existing ones make a beeline to acquire the company on the block. But now the race for acquiring generic companies is no longer restricted to other generic players alone. Big Pharma (namely the world's biggest innovator companies) has also joined the fray. Take the case of the German generics company Ratiopharm for instance. This company is being put on the block by the Merckle family to repay debt.

Thus, while global generics companies Teva and Actavis have evinced interest in buying this company, the global pharma company which is also said to have entered the bidding process is none other than the world's largest pharma company Pfizer. The latter is said to have bid as much as US$ 4.08 bn for Ratiopharm. As reported on Bloomberg, in the event that Pfizer is successful, the company's generics business would touch US$ 11 bn. This would be close on the heels of Teva, which is the world's largest generics company with revenues of US$ 13.9 bn.

Just a few years back, global innovator companies looked down upon generics companies as they made cheaper versions of their branded drugs and considerably dented the former's revenues and profits. But these innovators also had to confront the reality that their research pipelines were drying up, many of their blockbusters were on the verge of losing patents and governments across the world were increasingly favouring generics. So Big Pharma has entered the generics arena, either through acquisitions or partnerships, to capitalise on opportunities especially in the branded generics market. Indeed, the action in the global generics space is beginning to hot up.