Markets see a strong finish
Closing

While markets traded close to the dotted line during the morning session and even briefly dipped into the red on occasion, strong buying activity in the ensuing hours pushed the indices well above the dotted line. Towards the end of the session, the markets closed well into the positive. While the BSE Sensex closed higher by around 218 points, the NSE Nifty gained around 73 points. Midcap and small cap stocks too did well as they gained around 1% and 1.3% respectively. The oil & gas and metal and capital good spaces saw the highest gains today.

As per a leading business daily, Tata Steel may increase prices of its products in the coming months on account of rising raw material cost. As per the company’s management, raw material prices are likely to go up by somewhere around US$ 140 to US$ 150 per tonne in FY11. However, it is not yet sure about how much will be passed on to its customers.

It may be noted that Tata Steel along with other steel makers increased prices of its products by roughly US$ 2,000 a tonne in the beginning of March 2010 to partially offset the impact of the rise in excise duty by 2% announced by the budget. While the company is self dependent in terms of availability of iron ore, it procures coking coal from overseas whose prices are expected to go up over the short term. The stock of Tata Steel closed the day on a strong note.

As per reports, NTPC plans to double its gas based power generation capacity to over 8,000 MW by 2017. NTPC’s current gas based power generation capacity is 3,955 MW. The expansion in capacity will be possible if the company is assured of supply of the fuels by petroleum ministry from all sources including RIL’s KG-D6 fields. In an effort to expand its gas based power generation capacity, NTPC plans to add 1,000 MW to its gas based plant located in Kerala and 700 MW to another plant located in Rajasthan. In addition, the company is also contemplating adding 1,400 MW to its Auraiya plant in UP and another 1,400 MW to its Badarpur plant. NTPC aims to increase its power generating capacity to 75,000 MW in FY 2017. It may be noted that the company currently has an installed capacity of 31,134 MW.

Denying speculations that the largest public sector bank in India - SBI - is on the lookout for acquisition of smaller PSUs, the state Finance Minister has cited labour issues in the merger proposals. Although SBI has plans to absorb its six associate banks, opposition from its labour union and political parties has deferred the move. The bank has already completed the merger with State Bank of Saurashtra and is currently merging another associate State Bank of Indore with itself. SBI’s balance sheet growth continues to remain ahead of the industry due to its widespread rural and semi-urban presence. Although the bank may witness lower growth and muted margins in the near term, given its balance sheet size, penetration and the possibility of merger with associates, SBI continues to have attractive business prospects for the long term.

Smallcaps outdo larger peers
01:30 pm

The Indian markets gained further ground as buying activity intensified during the previous two hours of trade. The market breadth remains positive as the overall advance to decline ratio is poised to 1.4 to 1 on the BSE. Currently, buying activity is being witnessed is stocks from the oil & gas, capital goods and auto ssectors, while stocks from the FMCG, banking and realty sectors are witnessing some profit booking.

The BSE-Sensex and the NSE-Nifty are trading higher, up by 35 points and 15 points respectively. The BSE-Midcap and BSE-Smallcap are trading higher, up by around 0.6% and 1% respectively. The rupee is trading at 45.66 to the dollar.

Auto stocks are currently trading mixed with TVS Motor, Ashok Leyland and Tata Motors trading firm, while Bajaj Auto and Maruti Suzuki are trading weak. As per a leading business daily, M&M has inaugurated a Rs 50 bn auto manufacturing plant at Chakan in Maharashtra. To finance this plant, M&M plans to raise around Rs 20 bn through long-term debt. The balance will come from equity and internal accruals. The plant will manufactire not just M&M's existing vehicles, but also its forth-coming launches like its Sports Utility Vehicle (SUVs) which are due for launch in 2011.

The company expects the plant to achieve full capacity in the next four years. It enjoys a huge cost advantage due to its presence in a non-octroi zone, and will also get benefits from the Maharashtra government thus ensuring better cost efficiency. The advantage of these sops will make it cost competitive by almost 10-15% compared to manufacturing at most other locations. Not surprisingly, the company’s top management recently expressed the view that M&M is betting big on this plant for its future growth plans.

Cement stocks are currently trading weak led by ACC, Ultratech Cement, India Cements and Ambuja Cement. A leading business daily has reported that cement manufacturers are looking at increasing prices of their products by the end of this month. It may be noted that cement companies have recently increased the prices by Rs 10 per 50 Kg bag on account of proposed hike (2%) in the excise duty by the government in the Union Budget. The further increase will be on the back of the companies wanting to negate the impact of rise in the diesel price. The latest hike in cement prices is likely to come in less than a month of the previous increase.

Of the total 240 m tonnes domestic cement capacity, approximately 60% sales are dispatched though road route, while balance through rail. The rise in fuel costs has increased the companies’ transportation costs. Transportation costs form nearly 20% of total operating costs for cement manufacturers. As such, any increase in the same are mostly passed on to customers in order to maintain profitability.

Investors cheer energy & capital goods
11:30 am

After starting on a positive note, the Indian stock markets could not hold on to the opening gains during previous two hours of trade. The indices kept swinging to either side of the dotted line on account of alternate bouts of buying and selling activity. Currently, stocks from the realty, banking, FMCG and telecom sectors are dragging the markets lower, while stocks from the oil & gas, capital goods and consumer durables sectors are trading higher.

The BSE-Sensex and the NSE-Nifty are trading higher, up by 20 points and 7 points respectively. The BSE-Midcap and BSE-Smallcap are trading in the positive, up by around 0.41% and 0.74% respectively. The rupee is trading at 45.58 to the dollar.

According to a leading business daily, PFC (Power Finance Corporation), the country’s largest financer of power projects has tied up with SBI for raising dollar denominated funds worth US$ 300 m (about Rs 14 bn) to finance its future lending. This loan will be disbursed by SBI’s London branch under the External Commercial Borrowing (ECB) route. The sum raised is expected to be used for funding power generation, transmission and distribution projects in the country.

PFC had previously targeted to raise funds of around Rs 210 bn in FY10. Out of this it has already raised Rs 160 bn this fiscal. We believe that PFC’s ability to access long term funding, sustain reasonable margins and good asset quality sets it apart from financial institutions in the private sector. Currently, PFC as well as SBI are trading lower.

Tata Motors is among the top gainers on BSE today. As per a leading business daily, Tata Motor’s global sales increased by 59% YoY in February 2010. The company sold a total of 89,768 units of commercial and passenger vehicles on back of robust demand. The sales of passenger vehicles stood at 47,108 units, up by 50% YoY in the month of February, while the same for commercial vehicles was up 70% at 42,660 units. The company’s luxury cars from Jaguar Land Rover also grew 60% YoY, standing at 17,197 units. All these pegged the cumulative sales growth for this fiscal at 17% YoY. In FY10, the company has so far sold 35% more commercial vehicles and 4% more passenger vehicles as compared to what it sold in corresponding period in FY09.

We believe that uptick in these vehicle sales number indicates an improvement in the overall economic climate which bodes well for the company. Moreover the improvement at Jaguar Land Rover, Tata Motors’ largest subsidiary is particularly heartening. Investors continue to favour the stock of Tata Motors for its strong fundamental prospects

Markets begin on a positive note
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 hold on to their gains since then. Other key Asian markets are trading in the green with Taiwan (up 0.4%) leading the pack of gainers. The US markets closed higher by 0.2% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with energy and software stocks attracting investors' interest. However, select banking stocks are in the red. The BSE-Sensex is trading higher by around 20 points, while the NSE-Nifty is up by about 4 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 0.3% and 0.5% respectively. The rupee is trading at 45.6 to the US dollar.

Energy stocks have opened the day on a positive note. Gainers here include BPCL and Reliance. As per a leading business daily, the Supreme Court has allowed the Petroleum & Natural Gas Regulatory Board (PNGRB) to process pending applications for city gas distribution projects. It may be noted that the Delhi High Court had recently restricted PNGRB's powers to authorise city gas projects. It had also rendered the previous authorisations by PNGRB invalid. Last year, the board had issued city gas licences for six cities and had invited bids for seven cities. Indraprastha Gas had challenged these moves in the Delhi High Court. In our view, the procedural issues regarding PNGRB's authority should be resolved quickly. City gas is a cleaner alternative to petrol and diesel and it is highly desirable that it reaches as many Indian cities as possible.

Engineering stocks have opened the day on a positive note. Gainers here include Thermax and L&T. As per a leading business daily, BHEL has bagged a Rs 33 bn contract to set up 376 MW captive power plant at Indian Oil's upcoming refinery at Paradip, Orissa. The project involves design, engineering, manufacture, supply, erection and commissioning of the captive power plant along with the civil work. The equipment for the project will be supplied by BHEL's plants in Hyderabad, Trichy, Ranipet, Bhopal, Jhansi and the electronics division, Bangalore. This development further adds to the revenue visibility of BHEL, which had an order backlog of Rs 1,340 bn at the end of December 2009. That amounts to about 4.8 times its FY09 annual sales.

The Chinese are cautious on the yuan
Pre-Open

The Chinese exchange rate has once again become a matter of contention. It is well documented that the Chinese follow an artificial exchange rate policy wherein the yuan has been pegged to the US dollar. The US has been crying foul for quite some time now. And now as the US continues to be mired in a slump, the Chinese forex policy is once again taking the centrestage.

Noted economist Nouriel Roubini is of the view that China will limit the yuan's appreciation to 4% during the next 12 months because of a 'super cautious' outlook on the global economy. According to him, this appreciation will be less than what they did in 2005 when everything was going on smoothly. To tackle the crisis, the Chinese banks have been indiscriminate in their lending especially to real estate players. Plus, the stockmarkets have also zoomed to unprecedented levels. Therefore, possible inflation in the dragon nation has emerged as a key concern. However, Roubini has pointed out that what is disconcerting is the export-led growth model, a weak currency and lower interest rates. What is more, it is not possible to change China's business model overnight and it could take 3-5 years for a meaningful change to take place.

From a Chinese point of view, the case for appreciation does not look very strong. For starters a large chunk of the country's exports is to the developed world notably the US. In the latter, consumption and demand has not really picked up as Americans are wary of loosening their purse strings given that the job scenario is shaky. This means that an appreciation of the Chinese yuan would make Chinese goods more expensive to Americans. This would then strengthen the latter's case for not consuming more. China's central bank, in the meanwhile, has stated that although such mechanism will be abandoned sooner or later, they intend to be very cautious with respect to the timing. The US, for sure, cannot expect China to bow down to its wishes anytime soon!

Indian government has been on a spending spree

There is a big difference between what happens in one year and in ten years. Take government expenditure for example. In FY11, the government's expenditure on subsidies, grants to states and union territories, grants to foreign governments, defence and pension is not expected to rise by much, But in the past ten years, these have grown in the region of 200% or more. This coupled with the stimulus measures that were injected into the Indian economy meant that the fiscal deficit will rise to 6.9% of GDP in FY10. However, in the recent Budget, the government unveiled a roadmap for reducing India's fiscal deficit over the next few years. As against an estimated figure of 6.9% and 5.5% of GDP in FY10 and FY11 respectively, the rolling targets for fiscal deficit were pegged at 4.8% and 4.1% for FY12 and FY13 respectively. What the government needs to ensure, however, is that the spending on critical sectors such as agriculture, education and healthcare does not get curtailed. But that could prove to be easier said than done.