Strong buying gives the final push
Closing

While trading for a larger part of the day was volatile due to alternate bouts of buying and selling, strong buying activity in the final trading hours ensured that the indices closed well above the dotted line. While the BSE Sensex closed higher by around 59 points, the NSE Nifty gained around 17 points. Midcap and small cap stocks also closed higher today. Barring IT stocks, gains were seen in stocks across sectors.

As regards global markets, most Asian indices closed firm today while European indices have also opened on a strong note. The rupee was trading at Rs 45.49 to the dollar at the time of writing.

As per a leading business daily, one of the country’s largest steel companies SAIL is in talks with Korean steel major Posco to set up a steel plant near the former’s existing steel making facility at Bokaro in Jharkhand. This will be under the joint venture route. Since Posco has run into difficulties in acquiring land in Orissa, the company has turned to SAIL to form a joint venture. These talks have been initiated as part of the memorandum of understanding (MoU) signed between the two companies in 2007. This was to establish a strategic alliance for cooperating with each other on a wide range of areas such as exchange of manpower, raw material sourcing, marketing cooperation and other areas of mutual interest.

While the talks are still in a very nascent stage, Posco is believed to have proposed a 3 m tonne facility under the JV route with an investment of around Rs 120 bn. While SAIL will be able to leverage on Posco’s technological expertise, for Posco it will be a solution to gain a foothold in India. SAIL, along with its peer Tata Steel closed firm today.

Engineering stocks closed mixed today. While the key gainers here included Blue Star, Suzlon and Voltas, L&T closed in the red. As per a leading business daily, engineering major L&T has bagged a road project worth Rs 14 bn from the National Highway Authority of India (NHAI). The scope of this contract includes build 6-lane highways and these would be operated on a build, operate and design basis. This project is expected to be completed within 30 months.

While this is a positive for L&T and will enable it to enhance sales in the long term, execution is the key. Infact, the company’s overall sales were impacted in 3QFY10 as execution of various projectswent through rough patches during the quarter leading to consequent delays.

As per a leading business daily, Bajaj Auto is looking to achieve sales of 4 m bikes and three-wheelers in FY11. This would represent a 40% growth over FY10. Exports are expected to increase by 100,000 units to 1 m vehicles in the next fiscal. The company is of the view that its ‘twin brand focus’ on the Pulsar and Discover motorcycles would continue next fiscal too given that they have been the key growth drivers over the last three quarters. These two brands have helped the company nearly double its share in the two-wheeler market to over 35% which could touch 40% if the growth momentum continues. The stock closed 1% higher today.

Markets back at the neutral zone
01:30 pm

Selling activity led the Indian markets to shed their gains and drop into the neutral zone during the previous two hours of trade. However, the overall advance to decline ratio stands at about 1.2 times, indicating that the market breadth is still positive. Currently, stocks form the FMCG, auto and telecom spaces are leading the pack of gainers, while those from the realty and IT spaces are amongst the key losers.

The BSE-Sensex is currently trading higher by around 5 points, while the NSE-Nifty is trading marginally lower. 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 0.1% and 0.6% respectively. The rupee is trading at 45.47 to the US dollar.

Banking stocks are currently trading weak led by ICICI Bank, Kotak Bank and Axis Bank. A leading business daily has reported that the fast growing private sector bank, Yes Bank is looking at aggressively increasing its employee size over the next year. The bank, which currently has an employee base of about 3,000 people, plans to scale it up to 4,000 by the end of this year. The new 1,000 odd recruit would include about 500 of managerial level recruits while the balance would be involved in retail service and sales.

As per the management, this strong increase in employee base is in line with the bank's growth plan for the next five years. In addition, the management also discussed some of the industries that the bank has identified as the future growth drivers. These include industries like SMEs, agri-business, infrastructure, energy, healthcare and communications. For the short term, the bank's cost to income ratio is likely to get impacted on the back of the aggressive increase in employees. During 9mFY10, the bank's cost to income ratio stood at 37% as compared to 47% during 9mFY09. This was however mainly due to improved productivity and operating leverage.

Telecom stocks are currently in demand as the companies put in their application bid for the forthcoming 3G spectrum auctions. These auctions are scheduled for April 9. All the telecom majors, Bharti Airtel, Vodafone, Reliance Communications and Tata Teleservices have submitted their applications yesterday, while other players such as Aircel, Idea Cellular, Videocon, amongst others are likely to put in their bids today, the last day for application. Considering that only three slots will be up for sale across the nation with an exception of few states where four slots will be up for sale, there is bound to be an interesting round of auctions. This is especially considering that there are far more players looking to grab some spectrum as compared to what is available. The reserve price for pan-India spectrum has been fixed at Rs 35 bn or about US$ 770 m. Considering that most of the incumbent GSM players have a pan-India presence, they would all be vying for the pan-India spectrum. This could easily set the bid prices to soar. And what makes it even worse is the fact that the price set for this spectrum is already considered to be too high in the first place. Plus, considering that some of the telecom players have been hiving off their passive infrastructure businesses to raise capital for various reasons (including bidding for the spectrum), only confirms the fact that they are ready with their war chest.

Healthcare, FMCG aid the indices
11:30 am

Despite some volatility, the Indian markets managed to hold on to opening gains and traded on a strong note during the previous two hours of trade. Currently, buying activity is being witnessed across all sectors with stocks from consumer durables, healthcare, FMCG, realty, auto and capital goods sectors leading the pack of gainers. Realty and IT sectors are the only ones to be on the receiving end.

The BSE-Sensex and the NSE-Nifty are currently trading higher by around 32 points and 10 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 0.4% and 0.7% respectively. The rupee is trading at 45.45 to the US dollar.

Currently, engineering and construction major, Punj Lloyd is trading in the green. According to a leading business daily, Punj Lloyd has won an order worth US$ 40 m from Abu Dhabi Gas Industries (GASCO).As per the deal, Punj Lloyd will be responsible for engineering, procurement and construction of NGI Project in UAE.

Punj Lloyd provides integrated design, engineering, procurement, construction and project management services for the energy industry and also infrastructure projects. It may be noted that the company recently announced that it expects to gather work-orders to the tune of Rs 30 bn from energy sector in both domestic and overseas markets in FY11. Further, around half of these orders are expected to come from state-owned ONGC. The company is upbeat about the investment happening in the infrastructure, power and energy sectors in India. Going forward, it sees a lot of potential for growth in these sectors and aims to aggressively tap these markets in India and abroad. Though we are enthused by the company’s focus on infrastructure market, recurring and unexpected cost overruns and project delays remain a big concern.

According to a leading business daily, state-owned lender, Union Bank of India (UBI) is in talks with various asset reconstruction companies (ARCs) in order to sell a part of its bad loans as an attempt to clean its balance sheet. To this end, the bank plans to sell off Rs 1 bn of its bad loans by end of this fiscal i.e. March 2010. It may be noted that it has already sold Rs 2 bn worth bad assets so far in FY10. The bidding process for this asset sell-off is underway.

As of now, the bank has a gross NPA (non-performing assets) level of 2.4% with the net NPAs standing at 1.21%. It has a loan book of arounf Rs 430 bn with a total deposit-base standing at Rs 670 bn. We believe this restructuring attempt for cleaning its loan book is a prudent move by the bank. If it manages to curb the deterioration of margins and asset quality, with its healthy mix of current and savings account, it is poised to do well going forward. Currently, UBI is trading in the red.

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 Japan (up 0.7%) leading the pack of gainers. The US markets closed higher by 0.4% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading in the green with telecom and metal stocks attracting investors' interest. The BSE-Sensex is trading higher by around 25 points, while the NSE-Nifty is up by about 7 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 45.47 to the US dollar.

Pharma stocks have opened the day on a positive note. Gainers here include Dr. Reddy's and Glenmark Pharma. Of late, Indian pharma companies have been receiving US Food and Drug Administration (US FDA) approvals for their generic versions of existing drugs. As per a leading business daily, Dr. Reddy's has received the approval for the generic version of Sanofi-Aventis' allergy drug Allegra. It will be launched in the US in 1QFY11. Glenmark Pharma has also received approval for the generic version of Schwarz Pharma's Uniretic. The Moexipril Hydrochloride tablets used for treating hypertension. The company will begin shipping immediately. Glenmark had recently received approval for the generic version of GSK's Requip tablets. This is a positive development for the Indian pharma industry given the problems with the US FDA several players have had in the recent past.

Software stocks have opened the day on a positive note. Gainers here include Patni Computers and HCL Infosys. As per a leading business daily, leading IT companies are hiring more non-engineers in a bid to lower staff cost. Non-engineering graduates could account for nearly 20% to 25% of the staff at TCS, Wipro and Infosys over the next one to two years, up from the current 10%. It may be noted that technical manpower is not strictly required in several highly automated tasks like software testing and computer infrastructure management. In fact, Wipro already plans to shift nearly 40% of its software services to readymade templates that can cater to additional customers without having to hire additional staff. In our view, this is an attempt by IT majors to move to a non-linear business model where business growth is not tied to growth in the number of employees.

Commodities key to India's growth
Pre-Open

Everyone seems convinced of the India growth story. "China is going to burst, the future belongs to India," some experts say. Maybe the future does belong to India. But growth cannot happen in a vacuum. At some point India's infrastructure needs to back up the growth in the service sector. And critical to infrastructure are basic commodities like oil & gas and iron & steel.

Let us first take oil & gas. More than 70% of India's crude oil requirements come from abroad. When it comes to domestic exploration and production activity, we take one step forward and two steps back. Several years ago, the government began a series of auction of prospective blocks. It has been a lukewarm success. True, the gas find at KG basin is a result of the auction. But several rounds have received poor response because the government has not ironed out key issues like taxation, pricing and production sharing agreements. When it comes to marketing the refined petroleum products, subsidies result in heavy losses for existing players like Indian Oil, BPCL and HPCL. Private players think twice before walking into the trap.

Now consider another key industry for infrastructure - iron & steel. India needs to produce large quantities of steel to build the roads, ports and power plants it requires. India has bountiful iron ore reserves. So, foreign dependence is not a problem here. The problem lies elsewhere. States take forever to grant mineral licenses and resolve land acquisition issues. Several large foreign steel makers have lined up projects for years. They are now getting restless with the interminable delay.

As per the Wall Street Journal, the world's largest steel maker ArcelorMittal is likely to relocate its proposed 12 m tonne per annum (mtpa) plant in Jharkhand that has been stalled for 2 years. The company requires 8,000 acres and locals at the original site are unwilling to part with the land. Korean major Posco which plans to come up with a 12 mtpa plant in Orissa has now waited for years. Frustrated by the delay, it is now exploring new grounds. As per PTI, it is teaming up with SAIL to start a plant in Jharkhand.

The Indian growth story has all several things going for it. The softer infrastructure - a democratic polity, the judicial system, a young workforce, a vast consuming class - is there. But it is high time policymakers focused on the hard infrastructure. For that we need basic commodities. It is high time we get our act together.