Market gains ease during the latter half
Closing

Although ending well above the dotted line, the Indian markets shed a portion of their afternoon session gains during the final two hours of trade. The overall market breadth however remained negative as the number of losers outnumbered the gainers by a ratio of 1.3 to 1 on the BSE. While the BSE Sensex closed higher by around 110 points (up 0.6%), the NSE Nifty gained around 35 points (or 0.7%). While midcap stocks ended the day on a firm note (BSE-Midcap Index ended higher by about 0.2%), those from the small cap space saw some pressure as the BSE-Smallcap Index ended lower by about 0.1%. on an overall basis, stocks from the healthcare, metal and capital goods sectors ended higher while those from the realty and auto spaces were amongst the key losers.

As regards global markets, Asian indices closed in the positive today. European indices have opened firm. The rupee was trading at Rs 45.36 to the dollar at the time of writing.

As per a leading business daily, Marico has cut prices of its Shanti Badam Amla hair oil by 25% in an aim to bolster volumes. It must be noted that though Marico is the market leader in the coconut hair oil segment with its brand Parachute, in the value-added hair oils segment (including amla), the company has a small presence. Therefore, this move by the company besides boosting volumes, is also aimed at garnering more market share. As per industry estimates, Marico has a 2.6% volume share in the value-added hair oils as against 22% for Dabur. With the price cut by Marico, the consumer price premium of Dabur's amla hair oil to that of Marico has expanded from around 20% earlier to nearly 60%.

The Indian hair oil market is estimated to be worth Rs 46 bn, of which coconut oil accounts for Rs 19 bn and value-added (almond, amla and others) oils the balance. Given that amla hair oil does not account for a significant portion of Marico's earnings, it is likely that any resulting price war would not affect the company's performance much.

As per a leading business daily, Tata Power and the Indonesian arm of Chevron are some of the bidders for the geothermal power project in Indonesia. Tata is part of the consortium with Indonesian firm PT Supraco Energy. The bids are to build a geothermal power plant in Sorik Merapi, North Sumatra, with initial capacity of 55 MW which will gradually increase to 200 MW. It must be noted that numerous volcanoes in Indonesia means that the country has the potential to produce an estimated 27,000 MW of electricity from geothermal sources. However, this has not really caught on because the high cost of geothermal energy makes energy generated from it pretty expensive. Therefore, it remains to be seen what the positives will be for Tata Power in the event that it is successful in bagging the project.

Infrastructure is vital for India's economic growth and one such area that requires attention is the development of ports. In this regard, the government has highlighted that the capacity of ports is likely to reach 1.5 bn tonnes over the next two years, with a Rs 1,000 bn expansion programme underway for docks and the shipping sector. It must be noted that ports handle around 95% of the country's total trade in terms of volume and 70% in terms of value. Of this, 12 major state-owned ports accounted for 70% of the total traffic. During the last 5 years itself, the total traffic handled by these major ports has grown at a compounded annual growth rate of 9%. What is more, the Shipping Ministry is also contemplating formulation of policies that deal with issues of port efficiency and productivity among other factors. Indeed, if the government successfully executes its plans, the development of ports will certainly give that extra fillip to India's GDP in the future.

FMCG, auto amongst the least favorite
01:30 pm

Indian markets continued to trade in the green during the previous two hours of trade on the back of sustained buying activity. While investors are buying stocks across sectors, those from the healthcare, metal and capital goods spaces are amongst the favourites currently. Stocks from the auto and FMCG spaces are, however, amongst the lowest gainers. The overall market breadth is positive as the advance to decline ratio is poised at 1.2 to 1 on the BSE.

BSE-Sensex is trading higher by 170 points while NSE-Nifty is trading up by 50 points. The BSE-Midcap and BSE-Smallcap indices are trading firm, higher by about 0.6% and 0.4% respectively. The rupee is trading at 45.32 to the US dollar.

Auto stocks are currently trading mixed with TVS Motor and Ashok Leyland trading firm while Maruti Suzuki and Bajaj Auto are trading weak. A leading business daily has reported that the flagship product of the joint venture between Mahindra & Mahindra and Renault, the Logan is likely to see some alterations made to it. This would mainly be due to the poor sales volumes of this car since its launch. It is reported that M&M had been asking its partner to make certain changes to the vehicle for a while now. This includes shortening the length of the car as well as increasing localisation. However, Renault was not in favour of making these alterations as it did not wish to make changes to the vehicle only for one region (India). This is considering that the car is sold worldwide and is believed to be selling well.

The Logan in its present form, measures about 4.2 metres. As per the leading business daily's sources, the company is internally evaluating the shortened version of the car, which is likely to be less than 4 metres long. This would enable the company to price the car at a more attractive rate considering that it would qualify for the lowest excise slab of 10%. Renault is believed to already have set an ambitious target of selling 15,000 units during FY11. During the year till date i.e. from April to February this year, the JV company sold barely 6,000 units.

Telecom stocks are currently trading firm led by Idea Cellular and Bharti Airtel. A leading business daily has reported that Bharti Airtel has issued a term sheet to banks to raise up to US$ 8.5 bn in offshore loans to fund the deal. As per the report, the six-year offshore facility has four tranches and carries a blended average life of 4.75 years, with a margin ranging from 176 basis points to 179 bps over Libor. This means that the company has opted not to borrow from the domestic market. It is believed that the company has received strong response from offshore lenders. In addition, it is reported that these funds would reduce execution risk (considering that payments would be made in foreign currency).

In another development related to the Zain's African asset acquisition, Bharti Airtel is believed to overcome one of the hurdles that was created over purchasing the same - the issue relating to Zain Nigeria's minority shareholders. South Africa-based Econet Wireless Holdings, the minority shareholder in Zain Nigeria had objected to the asset sale. It is believed that now this issue has been resolved between all the related parties. However details regarding the same have not been divulged. However, at the same time, Econet has stated that it has not been contacted by Zain towards resolving this issue out of court. It must be noted that there may be a lot of speculation going around. We are awaiting an official statement from the company itself.

Metals, realty bouy the markets
11:30 am

Persistent buying activity in the index heavyweights kept the markets buoyant during the previous two hours of trade. While buying is being seen across all sectors, metals, capital goods, realty, healthcare and power are leading the gainers.

The BSE-Sensex and NSE-Nifty are trading in the positive, up by around 172 points and 54 points respectively. The BSE-Midcap and BSE-Smallcap indices are trading higher by around 0.8% each. The Rupee is trading at 46.38 to the Dollar.

According to a leading business daily, Indian telecom major RComm, has crossed the 100 m subscriber mark for its wireless telecom services. It has aggressive plans to add other 100 m customers in the next 1,000 days. To this end it aims to strengthen its presence in the domestic market through inorganic as well as organic route. It is also ready for India based acquisitions and is scouting for optimum targets. However, the company does not have any immediate plans to expand its operations in the foreign markets.

RComm believes that Indian telecom market which is very vast and dynamic brings huge opportunity for telecom provider of its size. Nevertheless it is believed to be open to overseas acquisitions as well. The company believes that as new telecom players enter the lucrative Indian markets, price wars are all set to intensify further. The company reported a lackluster performance during 3QFY10 on account of falling ARPU (average revenues per user) and MOU (average minutes of usage). Its MOU and ARPU fell by 21% and 41% YoY respectively in 3QFY10.

The stock of L&T is finding favor amongst investors currently. According to a leading business daily, L&T has bagged a Rs 10 bn order from ONGC for its Mumbai High North (MHN) re-development project. It may be noted that ONGC is augmenting its production from MHN through latest hydrocarbon lift technique coupled with increased reservoir recovery. L&T has been awarded contract for 4 of ONGC's well platform in MHN.

L&T will be responsible for complete engineering, procurement, fabrication and installation of these platforms with total in-house capabilities. The company outbid a number of competitors in the international competitive bidding process. We believe that though such big orders improve the company's order book visibility; how well they contribute to revenues depend on L&T's execution efficiency. The company reported a dismal sales performance during 3QFY10 on account of issues like delays in handing over of project sites, delays in financial closures and funds not being put up by customers during execution.

Markets up on Asian cues
09:30 am

The Indian markets have started today's session on an extremely positive note. The benchmark indices opened above the breakeven mark and have moved higher into the positive territory since then. Other key Asian markets are trading in the green with Indonesia (up 2.1%) leading the pack of gainers. The US markets closed higher by 0.4% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with construction and software stocks attracting investors' interest. The BSE-Sensex is trading higher by around 120 points, while the NSE-Nifty is up by about 35 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 0.7% each. The rupee is trading at 45.43 to the US dollar.

Aluminium stocks have opened the day on a positive note. Gainers here include Hindalco and Nalco. As per a leading business daily, India's largest aluminium maker Hindalco has received loan approvals of over Rs 100 bn from more than 10 banks. The debt will have a tenure of 10 years at an interest rate of 11.25%, slightly lower than SBI's prime lending rate of 11.75%. The company plans to raise a debt of Rs 49 bn for its Utkal alumina refinery project in Orissa. Since the approval is more than the amount required by Hindalco, it is likely to be proportionately shared by the banks. It may be noted that Hindalco is going through a major expansion program. It plans to invest over Rs 230 bn in the next three years, including other new plants in Orissa, Madhya Pradesh and Jharkhand.

Energy stocks have opened the day on a positive note. Gainers here include Gujarat Gas and Castrol. As per a leading business daily, Reliance Industries has lost out in the race to acquire a stake in Canada's Value Creation. It was interested in buying a stake for US$ 2 bn in Value Creation's Terre de Grace oil sands block. However, UK based giant BP bagged the deal. It may be noted that Reliance Industries has been on the look out for assets overseas but has not been successful in its recent attempts, including for the bankrupt petrochemical major LyondellBasell. The value of most of the target assets have gone up with the revival in the global economy. In our opinion, the desire to achieve greater economies of scale must be tempered with reasonable valuations. At a time when the valuations of the target assets are moving beyond its reach, it makes sense for Reliance Industries to step back.

Do investors need 61 mutual funds?
Pre-Open

How many stocks should an investor have in his portfolio? In this famous book 'The Intelligent Investor' published in 1949, Benjamin Graham suggested 30. He opined that adequate diversification can be achieved with 10 to 30 stocks. Though some other money managers claim 15 is sufficient, others say the number is 30 stocks. However, most agree that the benefit of risk and volatility reduction peaks around 20 to 30 stocks.

Leave aside stocks, what does an investor do when he has 5 dozen mutual funds to choose from? Alas the Indian mutual fund industry seems to be going by the maxim- 'the more the merrier'.

Currently just about 7.6% of India's savings is invested in equities and mutual funds. 80% of the investors hail from metros and Tier I cities. As against this, nearly half of the Indian population invests in bank deposits. The latter comprises 57% of the nation's savings. It thus seems appalling that the mutual fund regulator in India is seeking to register 23 new applicants in the over-crowded sector already accommodating more than 3 dozen members.

The combined average asset under management of the 37 fund houses currently operating in India stood at Rs 7.6 trillion at the end of January 2010. This data from the Association of Mutual Funds in India suggests that of every Rs 100 of the country's GDP, Rs 14 is being invested in mutual funds. There is therefore very little logic for mutual fund investors to seek other options unless the new funds offer much higher returns or more preservation of capital or lower cost of asset management.

But most importantly, none of the new mutual fund applicants seem to have reasonable experience in managing retail assets. This stacks the odds against them. While banks like Axis Bank, Union Bank and IDBI Bank may claim to have the formula for replicating HDFC's or SBI's success in asset management, they may get it wrong. Engineering company L&T and steel manufacturer Jaypee have a lot to learn lest they lose their reputation and investors' money in managing equities. Brokers like India Infoline, Prime Securities, Karvy, ASK and Reliance Money have obvious reasons to get the mutual fund license. The faster the funds' portfolios are churned, the more money the broking arm will make!

Therefore it is not too difficult to figure out why players in Indian financial markets are trying to rake in all the possible licenses – be it in banking or asset management. While some of them may succeed in putting their funds to better use and multiplying shareholder wealth, others may fail miserably. It is therefore upon the regulators to get more cautious. It is for the SEBI to question whether 61 mutual funds will make diversification easier for Indian investors.