Down but not out!
Closing

A fresh round of profit booking towards the fag end of the day led to the benchmark indices once again slipping into the red and eventually ending the day below the dotted line. Thus, while Sensex closed with a decline of around 50 points (down 0.3%), NSE Nifty edged lower by around 20 points (down 0.4%). Declines in BSE Midcap and Small cap indices were slightly higher, with both indices losing in the range of 0.7%. On the Sensex, two stocks fell for every one that closed higher.

While Asian indices closed mixed today, Europe was seen trading largely negative today. The rupee was seen trading Rs 45.5 to the dollar at the time of writing.

This is the second time post the budget announcement that the markets have closed lower for the day. However, on both the occasions, the declines have been pretty modest, indicating that the investor fatigue has still not set in. Furthermore, with any major negative news flow not emanating from the developed markets either, the indices have had hardly any reasons to drop significantly lower from the current levels. Going forward, the direction of the Indian markets is likely to be determined by international events as until the month of April, when the steady stream of results will start flowing, there is hardly any important event that the markets should look forward to. Unless of course, RBI springs a surprise or two. However, with food prices showing signs of cooling off, even the RBI may want to maintain the status quo. For a long term investor though, every correction of the magnitude of 10%-15% should be an opportunity to add to his portfolio and set himself up nicely for the long term India growth story.

With a gain of 1%, Sun Pharma, the homegrown pharma major emerged amongst the top performers on the Sensex today. The buoyancy towards the counter seemed a result of the news that Caraco, its US based 76% subsidiary has got a reprieve from one of its bankers. RBS Citizens, Caraco’s banker has agreed to suspend the conditions on a term loan of US$ 18 m. Besides, a line of credit worth US$ 15 m will also not be affected. This could come as a welcome move to Caraco and eventually, to Sun Pharma as this is likely to give some more time to the troubled pharma maker to recover from a slump in business. It should be noted that the US FDA had asked Caraco to shut down its facilities in the US as it was found to be violating FDA manufacturing norms. The company was running solely on the basis of marketing Sun Pharma’s products in the US and had posted a loss during the most recent quarter. Hopefully, things should start looking up after a couple of quarters.

The entire sugar pack closed weak today with leading players like EID Parry, Bajaj Hindusthan and Balrampur Chini down anywhere between 1% and 3%. The weakness appeared a consequence of a reports floating around that sugar prices could easily come down by 2-3 rupees across India over the next few weeks. The report further added that irrespective of the type of sugar processed and the cost of production, there is still scope for further drop in sugar prices. It is worth mentioning that most sugar players in the country have seen their stock prices surge anywhere between 3 to 5 times over the last one year on the back of record high sugar prices. Now, with the tide of this extremely cyclical industry turning for the worse for producers, it is getting reflected in the stock prices as well.

IT, realty stocks help cut losses
01:30 pm

Increased buying activity led the Indian markets to recovered their losses and rise above the dotted line during the previous two hours of trade. The market breadth currently is positive as the advance to decline ratio is poised at 1.4 to 1 on the BSE. Stocks from the IT, realty and FMCG spaces are leading the pack of gainers, while those from the metal, oil & gas and auto spaces are amongst the key losers.

The benchmark indices are currently trading flat with the BSE-Sensex trading higher by about 10 points (about 0.1%), while the NSE-Nifty Index is trading lower by about 5 points (0.1%). Stocks from the midcap and small cap spaces are currently trading marginally lower. The rupee is trading at 45.56 to the US dollar.

Auto ancillary stocks are currently trading firm led by Exide Industries, Asahi India, Munjal Showa and Bosch. Gains in the stock of Exide Industries are on the back of the company looking to raise capital by selling about 50 m shares to qualified institutional buyers (QIBs). As per a leading business daily, the company has fixed the floor price for this exercise at about Rs 108 per share. As such, it would end up raising about Rs 5.4 bn from the same. These proceeds will be used for research and development (R&D) initiatives as well as for adopting new technologies for the future.

We are not sure whether these R&D initiatives would help Exide improve its product portfolio. However, if it does, it would be a step in the right direction as it would give the company additional revenue streams. On the other hand, if the company is able to improve the quality of existing products but not pass on the prices to its customers, it would be a disadvantage. As of now, investors seem to have favoured this move as the stock is trading higher by about 4%.

Stocks of cigarette companies are currently trading firm led by ITC, Godfrey Phillips and VST Industries. According to a leading daily, ITC is planning to increase the prices of its cigarettes. This is a result of the excise duty hike imposed on cigarettes in the Union Budget 2010-11. The impact on ITC's tobacco business due to this increase has been 17%. While in the past the government has imposed heavy excise duty on cigarettes, the effect of these increases has been passed on entirely by ITC. It has been seen in the past that increase in prices due to excise duty hikes has affected the company's cigarettes volumes marginally if at all. However, due to the sharp increase in excise duty this year we would like to wait and see what the effect of this increase would have on the sales of the company.

Metal and power weigh heavy
11:30 am

The Indian markets continued to remain extremely volatile, dragging the benchmark index below the dotted line during the previous two hours of trade. Currently, selling activity across stocks from the metal, oil & gas, realty, auto, and power is weighing heavily on the indices. Nevertheless, stocks from IT, telecom, healthcare and FMCG sectors are managing to garner investors' interest.

The BSE-Sensex and the NSE-Nifty are currently trading lower by around 28 points and 15 points respectively. Stocks from the midcap and small cap spaces are currently trading in the red, with the BSE-Midcap and the BSE-Smallcap indices trading lower by 0.27% and 0.45% respectively. The rupee is trading at 45.53 to the US dollar.

As per a leading business daily, L&T is aiming to have a power generation capacity of 5,000 MW by the year 2015. This will need a total funding of about Rs 300 bn, of which about Rs 70 bn would be equity with the rest being debt. Further, the company's first power plant of 1,400 MW in the state of Punjab is expected to start by January 2014. Two more power plants of 1,600 MW each are also slated to come up with one of them in Chhattisgarh, while the location of the other unit is yet to be decided by the company. As per the company's management, L&T will right now focus on power generation, after which the next step would be to focus on power transmission. Of the total coal requirement for the 5,000 MW of power generation capacity, the company expects to import roughly 20% from outside the country.

With the number of private players that have either recently got into the business of power generation, or are looking to get into the field, we believe that the business of power generation as such is likely to become much more competitive going forward. Further, L&T has negligible experience in operating power plants. Considering that the company's strength lies in its core business of engineering and construction, and the vast scope that lay ahead for that business, we believe that the company's shareholders would be better served by focusing its energy on its core business. The stock of L&T is currently trading flat.

According to a leading business daily, Wipro's India focused IT arm, Wipro Infotech has won a contract worth Rs 600-700 m from Financial Intelligence Unit (FIU) of India in order to develop an IT network for tracking all irregular financial transactions in the country. This IT system will also track the financing of terrorist organizations as well as money laudering trail in India. This is expected to be a 5 year IT project, first two years being development and implementation and next 3 years being maintenance and support. Other bidders for the contract were TCS, Infosys and Mahindra Satyam.

It may be noted that FIU is a finance ministry's arm that keeps a track of all the financial transactions occurring in the country. It tracks a list of around 10,000 financial organizations including even the Indian stock exchanges. We believe that this is a super-critical project for Wipro as well as FIU. The financial IT network will also connect FIU to FIUs in other countries as well as to critical departments like CBI, Income Tax and all the banks in India. Even insurance companies as well as other non-banking financial institutions will be required to report all irregular financial transactions of customers in the network. While this is a great move to bring in effective governance for the country, it will help Wipro in strengthening its foothold in the growing Indian IT market. The company generates over 22% of its consolidated topline from India. IT majors like TCS, Infosys, Wipro are trading in the green.

Markets begin on a choppy note
09:30 am

The Indian markets have started today's session on a volatile note. The benchmark indices opened below the breakeven mark, moved into the positive, but have not been able to hold on to their gains since then. Other key Asian markets are trading in the green with Indonesia (up 0.5%) leading the pack of gainers. The US markets closed lower by 0.1% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading a mixed bag with software and engineering stocks attracting buyers' interest. However, auto and construction stocks are bearing the brunt of selling activity. The BSE-Sensex is trading higher by around 14 points, while the NSE-Nifty is down by about 3 points. 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% each. The Rupee is trading at 45.48 to the US dollar.

Auto stocks have opened the day on a mixed note. Gainers here include TVS Motor and Maruti Suzuki. However, Tata Motors is in the red. As per a leading business daily, Tata Motors plans to hike the prices of its passenger cars in the month of April. The hike will go towards complying with the Euro-IV fuel emission norms. However, the company has not indicated the exact amount of increase. The price hikes will not be limited only to Tata Motors and is likely to be adopted by the Indian passenger car industry in general. It may be noted the auto industry has already upped prices after the rollback of excise duty in the Union Budget. It remains to be seen whether higher prices will affect the dream run of India's domestic car sales, which have grown by 33%, 40% and 61% YoY in the last three months.

Banking stocks have opened the day on a negative note. Losers here include Indian Bank and Canara Bank. As per a leading business daily, the government plans to reduce its stake in India's largest lender SBI. It has recently tabled a bill in the parliament to bring down the requirement of a minimum government stake to 51% from the current 55%. The government currently holds a little more than 59% in the bank. This move will help the SBI raise funds from the stock markets. It could also raise funds through financial investors. It may be noted that it needs nearly Rs 400 bn in the next five years in order to meet its growth plans. It will also help the bank comply with Basel-II capital adequacy norms.

Back to pre-crisis growth levels?
Pre-Open

Judging by the way India's growth has accelerated in the past few quarters, it appears that the economy is on the path to a recovery. But will it be able to grow in the future the way it had before the crisis erupted i.e., at 9% plus levels? In the medium term at least it would appear unlikely, says Ruchir Sharma of Morgan Stanley in an interesting article published in the Economic Times.

Although India and the faster growing emerging markets did not have to suffer the same fate as the developed world, much of the growth had come in due to Americans going on a splurge. After all, interest rates in the US were at an all time low 2003 onwards and this spurred growth in the emerging markets as well. Further, corporates in the developing world raised huge amounts of debt and equity capital to fund their ambitious growth plans, largely from western financial institutions.

Of course, it appears that the emerging nations might retain some of their lost glory. But there is one big change. That is the considerable rise in government debt, which has been a result of stimulus packages pumped into economies. Thus, an expansionary monetary policy has, among many things been responsible for the strong revival in growth seen in emerging economies including India. What it essentially means is this – while there are talks about growth in the developed world reaching a 'new normal', it may not be possible for emerging nations such as India to grow at a rate approaching that of the past (namely 2003-2007).

Having said that, while India's growth rate may not be in the region of 9% plus, it would still be enough to make the developed world envious of it. Moreover, we believe what will push India's growth to a higher trajectory is the growth of infrastructure and the obliteration of corruption. Other means such as following a loose monetary policy will only give rise to other problems notably inflation.