Sensex's final hour dash
Closing

Some late hour buying pulled the Indian markets high into the positive territory from what was otherwise looking like a lacklustre close to the day. Strength was seen in stocks from the IT and banking sectors. However, auto and FMCG stocks continued to trade weak. On the broader BSE, there were two losers for every stock that closed in the positive today.

The BSE Sensex and NSE Nifty closed with marginal gains of around 70 points (0.4%) and 30 points (0.6%) respectively. Mid and small cap stocks however closed in the red. The BSE Midcap and BSE Smallcap indices closed down by 0.2% and 0.5% respectively. At the time of writing this, the rupee was trading at 45.57 to the US dollar.

Among other key Asian markets, China and Japan closed marginally in the positive. European markets have opened the day on a negative note.

IT stocks were the biggest gainers today. The BSE-IT index closed up by 0.8%. Key gainers here included Patni Computers, TCS, and Wipro. The decline in rupee's value against the US dollar can be attributed as the reason for gains in these stocks today. As a matter of fact, rupee's depreciation against the US dollar helps Indian IT companies earn more for the same amount of their dollar receivables. And given that a large part of their total receivables are in US dollar terms, the rupee's decline against this currency is better for them. Today's depreciation in the rupee has to do something with the broader weakness in the Indian stockmarkets and withdrawal of funds from the FIIs. Also, speculation that oil companies and the government are looking to buy dollars to take advantage of the currency's gain to a two-month high, seemed to have fueled this decline in the currency today.

ABB topped the gainers' list on the Nifty. This follows the company's announcement of a US$ 22 bn order from the Haryana state-owned power utility Haryana Vidyut Prasaran Nigam Ltd. (HVPNL). ABB will provide four turnkey substations for HVPNL's regional grid in the state. The scope of the project covers design, supply, installation and commissioning of the substations and associated equipments, which includes switchgear and power transformers. ABB has recently seen a jump in its order inflows. This has come on the back of improved capex spending from Indian industries and power utilities. As it recently reported, the company booked orders worth Rs 24 bn during the quarter ended December 2009. This was about 88% higher than the orders it had booked in the quarter ended December 2008. The cumulative order inflow for the latest completed year (2009) stood at Rs 87 bn, a growth of 8% YoY. The company's order backlog at the end of the quarter stood at Rs 85 bn, which was higher by about 38% YoY. Anyways, other key gainers among engineering stocks were Blue Star and Voltas.

Oil marketing majors like IOC, BPCL and HPCL closed weak today. The weakness seemed a result of rising worries on the under recoveries front for these companies. The prices of crude oil have inched steadily upwards over the past few weeks and with the Government's hands tied on account of political constraints, it looks like the entire burden of the price rise will have to be borne by the oil marketing companies, resulting into greater losses.

It should be noted that the Indian basket of crude oil, which tracks benchmark Brent crude, has average US$ 69.2 a barrel in the current financial year but the prices have spiked up recently, going up to as much as US$ 77 per barrel by the end of the first week of March. Needless to say, if the trend keeps on persisting and if the Government does not crack the whip, oil marketing companies could see further damage to their respective net worth.

FMCG, auto stocks feel the pinch
01:30 pm

Alternate bouts of buying and selling led the Indian markets to hover around the dotted line during the previous two hours of trade. The overall advance to decline ratio is currently poised at 1.2 to 1 on the BSE. Currently stocks from the auto, FMCG, and capital goods spaces are amongst the top losers, while those from the IT, realty and banking sectors seem to be the investors' preference.

The BSE-Sensex and the NSE-Nifty are currently trading higher by around 40 points and 10 points respectively. Stocks from the midcap and small cap spaces are trading flat at the moment. The rupee is trading at 45.47 to the US dollar.

FMCG stocks are currently trading mixed with HUL, Dabur and Nirma trading weak, while Pidilite Industries, Colgate and Marico are trading firm. HUL's latest ad campaign has created a strong buzz recently. The company took on rival Proctor & Gamble Home Products Ltd. (P&G) by openly pointing out that Rin detergent (one of HUL's detergent powder brands) is superior in quality to Tide Naturals (one of P&G's new product launches). While P&G has not yet retaliated in a similar manner (although it approached the court against this advertisement), it has answered using a different approach. P&G has gone ahead and increased the grammage of Tide Naturals product by about 25%, while maintaining the same price. It is reported that the grammage of the Rs 10 pack of Tide Naturals has been increased from 100 gm to 125 gm, while that of the Rs 20 pack has been increased from 200 gm to 250 gm. This is an indirect price reduction of 20% on the product.

It must be noted that a few months ago, HUL had cut prices of its products (detergents) by about 8% to 12%. Could the detergent segment of the FMCG sector see another round of price war going forward? Too soon to say as of now, but it definitely cannot be ruled out.

Textile stocks are currently trading firm led by Raymond, Bombay Dyeing and Alok Industries. A leading business daily has reported that textile major Alok Industries is looking at exiting the real estate business. This we believe is a positive move at the company will be able to focus its resources on its core business of manufacturing textiles. It is reported that the land bank that the company owns is valued at about Rs 30 bn. This includes a building worth about Rs 11 bn which the company has purchased (which is believed to be under construction) in 2007. As per the business daily, this transaction would take about 3 to 4 months to complete.

This move is part of the company's strategy to reduce the debt on its books. At the end of FY09, the company had debt of almost Rs 70 bn on its books, while the debt to equity ratio stood at about 3.6 times.

IT, realty and telecom aid indices
11:30 am

The Indian markets remained extremely choppy witnessing alternate bouts of buying and selling during the previous two hours of trade. The Sensex barely kept itself afloat above the dotted line. Stocks from the IT, realty, telecom and consumer durables sectors are leading the pack of gainers, while capital goods, FMCG, metal and auto are leading the pack of losers.

The BSE-Sensex and the NSE-Nifty are currently trading marginally higher by around 16 points and 5 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 0.2% and 0.3% respectively. The rupee is trading at 45.44 to the US dollar.

According to a leading business daily, Titan Industries’ Rs 10 bn watch division , has big overseas plans especially for the South-east Asian watch markets. The company which forayed in the foreign watch markets a few years back has limited presence in the South Asian countries like Singapore, Malaysia, Thailand, Pakistan and Bangladesh. It believes that its target audience i.e. youth (below 35 years) in these markets has become highly westernized and fashion conscious. The company aims to redesign its offerings in-line with their changing demands. To this end, the company has collaborated with international design houses and targets to launch 4 to 6 collections every year. The new product ranges will be introduced in south Asian countries as well as in the domestic markets simultaneously. It also plans to venture into the South African watch market shortly.

It may be noted that on account of its strong brand portfolio, its ability to understand changing consumer preferences and accordingly streamline its products has helped Titan withstand the difficult economic situation better than others. In future too we expect the company to continue to grow on the back of its strong positioning and new initiatives.

Mr. O.P Bhatt, Chairman of India’s largest public sector lender, SBI has cited that the bank is considering testing the retail bonds market next year with a 10-year issue. It will test waters with an initial small issue of the size Rs 500-1000 m. If suitable, the bank will then raise more money by following that route. However, he has clarified that currently the bank is adequately capitalised and does not need any immediate funding.

The banker also hinted about his preference for using a rights issue rather than government’s stake dilution for strengthening SBI’s capital base. It may be noted that lately, the government has proposed an amendment in the SBI Bill allowing government to dilute its stake in SBI to 51% from the present limit of 55%. Presently, the government of India being the largest shareholder holds 59.4% in SBI.

Markets begin on a weak note
09:30 am

The Indian markets have started today's session on a weak note. The benchmark indices opened below the breakeven mark, moved into the positive territory but have slipped back into the red 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 marginally higher yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading a mixed bag with software and power stocks attracting investors' interest. However, select FMCG and auto stocks are in the red. The BSE-Sensex is trading lower by around 9 points, while the NSE-Nifty is down by about 6 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 0.2% respectively. The rupee is trading at 45.44 to the US dollar.

Steel stocks have opened the day on a weak note. Losers here include Tata Steel and SAIL. As per a leading business daily, Tata steel is facing difficulties in implementing its decision to mothball Corus' Teesside plant. The decision was taken after the company had to operate the plant at severe losses as buyers walked away from their long term contracts. The company has also found it difficult to rope in strategic investors to help tide the slump. The decision to mothball the plant is now facing opposition from the workforce who are weary of job losses given the poor state of the local economy. In fact, they are considering an agitation. In our opinion, this highlights the sharp contrast in the fortunes of the steel industry in the West and the emerging markets. At a time when everyone in China and India speaks about capacity expansion, existing plants in the west are on life support. Since, a major portion of Tata Steel's operations are now located in Europe, it will have to cope with these problems.

Energy stocks have opened the day on a positive note. Gainers here include Petronet LNG and Reliance Industries. As per a leading business daily, Reliance Industries has leased a new ultra-deepwater rig under a five year contract. The lease rental of the rig is US$ 495,000 per day for the first six months of the contract and US$ 510,000 per day after that. The rig will be deployed in the eastern offshore region. It may be noted that the company's biggest oil and gas discovery, the KG basin D6 block is located in this region. The availability of rigs becomes a constraint for oil explorers once oil prices start moving upwards. In fact, per day rentals of rigs had touched unprecedented levels once oil prices crossed US$ 100 per barrel in the early part of 2008.

The certainty in uncertain times
Pre-Open

Recovery or a move back into recession? Higher stock markets or revisiting 2009 lows? Inflation or deflation? These questions have invariably shown up at the end of every financial crisis and towards the beginning of a recovery process. And more often than not people have usually voted in favor of a recovery. However, the scenario this time around is slightly different. What we witnessed was not just another crisis but amongst the most devastating ones. Secondly, it struck at the heart of the US financial system, affecting consumer demand as well as its housing market, two segments of the economy that have always played key roles during the previous recovery processes. Little wonder then the opinion over whether the world is going to witness some sort of recovery or will it move back into recession seems to be sharply divided this time around. Infact, more people seem to be predicting a double dip recession than the ones predicting a recovery.

Thus, we were surprised when BlackRock, amongst the world's largest asset managers, struck an extremely bullish tone in its latest strategy note. The chief strategist of the firm seems rather convinced that March 2009 marked the primary low for this bear market. "Skepticism about the durability of a recovery is common following recessions, especially after a severe one, but recent history suggests that the world economy almost always adapts and returns to growth. Minus any significant negative external shocks, we believe this recovery should follow suit", he is believed to have said.

We believe that the recovery, if any, would be rather muted. Although the government has unleashed one of the biggest stimuli measures, the huge run up in stock markets and the presence of a significant debt overhang in the system would continue to act as dampeners to a strong economic recovery. Thus, there is a strong likelihood that the US grows at a lower rate than what it has historically been accustomed to for considerable years in the future.

However, in India, there seems to be no such debate. Infact, the debate has been over whether the country will go back to a higher growth path in the region of 9% or will it be stuck at 7% for some time to come. It should be noted that 9% growth for India was made possible on account of global economic buoyancy and thus, with the same absent this time around, there is a big question mark whether the Indian economy can retrace the higher growth trajectory. The country's policymakers though seem pretty sure that within a couple of years, India should be able to go back to the higher growth trajectory.

If there is one point where the debate is rather conspicuous by its absence, it is in the realm of the Indian stock markets. Everybody seems to be of the opinion that they are likely to emerge as one of the most attractive asset classes over the next couple of decades. And it is this reality that matters to the Indian investors more than anything else. Thus, rather than focusing on whether the US economy recovers or relapses into a recession, if an Indian investor channels his energy towards identifying fundamentally sound Indian companies that are run by honest and competent management and are available at reasonable valuations, he would have done his net worth a world of good over the long term.