Commodities buoy Indian markets
Closing

After a lukewarm start, the Indian stocks went on to add to the strength in the benchmark indices during the closing hours of trade today. Commodity stocks in particular were the ones that evinced investor interest in the latter half of the session. Select auto and pharma stocks also managed to tread higher. IT stocks however weighed heavy on the indices as the strengthening rupee dampened earnings estimates for the sector. The rupee strengthened to its highest level against the US dollar in nearly 19 months today.

Thus, while the BSE Sensex closed the day with gains in the region of 67 points (up 0.4%), NSE Nifty edged higher by around 21 points. While the BSE Midcap index ended flat, the Smallcap ended marginally lower today. Gains were also seen amongst most Asian markets today whereas Europe has also opened on a positive note. The rupee was seen trading at Rs 45.0 to the dollar at the time of writing.

Cement stocks ended mixed today. While Ultratech, ACC and Ambuja Cement found favour, India Cements closed into the red. As per a leading business daily, cement companies in India are looking to export cement to Sri Lanka given that there has arisen an overcapacity situation in India as a result of which capacity utilization has come down. Moreover, opportunity also exists in Sri Lanka as infrastructure has to be built in that country given that it has been afflicted by war. For instance, Madras Cements is already shipping cement to Sri Lanka, while India Cements and Dalmia Cement have got the approvals from the country's quality certification body, which is a precursor for shipping cement.

It must be noted that capacity utilization in the cement sector has dropped in the past one year. To put things into perspective, while in February 2009, capacity utilization was quite robust at 88.1%, the same has considerably fallen to 66.5% in February 2010.

Even as India's Planning Commission envisages greater private investment in infrastructure projects during the 12th Five-Year Plan, it has scaled down private investment targets in the current plan period. As per a business daily, railways, water and highways will now see the least private investment among all infrastructure sectors as a percentage of total investment until 2012. The private sector is now expected to contribute only around 16% of the Rs 2.8 trillion total investment in highways, from an earlier estimate of 34% contribution. Estimated private investment in railways has declined from 19.2% of total expenditure to just over 4%, while private investment targets for airports are down from 70% to 64% of total expenditure. Delay in awarding projects and long gestation periods have been cited as the main reason for lesser interest from the private sector.

The country's largest lender, SBI, has set in motion the process of merging associate bank State Bank of Indore with itself. The behemoth has agreed to give 34 shares of the parent company to minority shareholders for every 100 shares of the associate bank. For this purpose, SBI would issue up to 1.16 lakh shares (0.02% of outstanding shares) to the minority shareholders of State Bank of Indore.

The merger would lead to SBI's issued capital increasing marginally by Rs 1.2 m. This will be the second such merger of its associate banks after SBI merged State Bank of Saurashtra with itself in August 2008. SBI currently holds 98% stake in State Bank of Indore. Post this merger, SBI will be left with five associate banks, which it plans to merge with itself gradually.

Banking, auto take Sensex higher
01:30 pm

Continued buying activity led the Indian markets to rise higher into the positive during the previous two hours of trade. Barring IT, stocks across the sectors have managed to record gains today. Those leading the pack include stocks from the consumer durables, banking and auto spaces. Healthcare and power stocks are amongst the lowest gainers at present.

BSE-Sensex is trading higher by 130 points (or 0.8%), while NSE-Nifty is trading higher by 40 points (or 0.8%). The BSE-Midcap and BSE-Smallcap indices are trading higher, up by about 0.4% each. The rupee is trading at 45.02 to the US dollar.

Engineering stocks are currently trading mixed with Blue Star', Praj Industries and BHEL leading the pack of gainers, while Punj Lloyd, TRFand Crompton Greaves are amongst the key losers. The stock of Punj Lloyd is in the news today on the back of it deciding to sell its stake in Pipavav Shipyard. The company's management has mentioned that this is a strategic decision for both the companies. For Punj Lloyd - it will allow the company to exit its non-core business. And for Pipavav Shipyard, it will allow the company to have a single promoter to focus on the future of the company. What is ironic is that Punj Lloyd's management believes that Pipavav Shipyard is at a very critical juncture and is poised for a very explosive growth. So what's the reason to exit the investment at this time? We fail to understand. The managements of both the companies have denied any disputes or disagreement as a reason for the same.

The company purchased 19.43% stake in Pipavav Shipyard during 2007 at a cost of Rs 3.5 bn or Rs 27 per share. However, it has sold this stake at about Rs 6.6 bn or about Rs 50.75 per share. While the company has been able to make a good profit on this investment, the stock is still trading lower. Investors seem to be disappointed with the fact that Punj Lloyd has sold its stake at a price which is way lower than the IPO price of about Rs 58 per share.

Auto stocks are currently trading firm led by Mahindra & Mahindra (M&M), Maruti Suzuki and Bajaj Auto. A leading business daily has reported that auto major M&M is likely to freeze its investments in its joint venture (JV) with Renault. M&M holds a 51% stake in the JV. The business daily has reported that the future investments will be carried out only by Renault. This move is likely to give less control to M&M in the JV as it could end up giving up its majority stake and management control in the venture to its French partner, Renault over time. It must be noted that no official statement has been made by the companies. However, they are expected to make a statement during the first week of April.

In addition, the two companies are in discussion to let Renault use part of the 50,000 unit facility in Nashik to make other vehicles. This is considering that much of the capacity is sitting idle as the Logan sales have been constantly declining. During the period April to February 2010, sales of the JV's vehicle, the Logan, have decline by nearly 60% YoY to a little less than 5,000 units.

Markets consolidate gains
11:30 am

Indian markets continued to trade above the dotted line in the last two hours of trade. Buying actively was seen in the consumer durable, auto and metal space, while stocks in the IT space were trading in the red.

BSE-Sensex is trading higher by 52 points while NSE-Nifty is trading higher by 17 points. BSE-Midcap Index is up by 0.41% while the BSE-Smallcap index is trading 0.39% above previous session’s closing. The rupee is trading at 45.12 to the US dollar.

According to a financial daily, P&G is planning to launch its flagship brand Crest in India. The Rs 160 bn oral care market in India is largely consolidated with Colgate, HUL and Dabur controlling 90% of the market. However, P&G is already aggressively planning the launch of the toothpaste. The company has given the manufacturing contract to a third party and is talking to distributors and conducting market studies. It is expected that the company would price the product aggressively to garner market share even in the initial days. Moreover, the future group recently launched its own brand of toothpaste called Sach. While no new toothpaste has been able to establish itself in the last 20 years, we see the oral care space becoming more competitive in the coming days with these new entrants.

The zing seems to be back in the hospitality sector. Indian Hotels Company Ltd (IHCL), is expected to launch 15 new properties in the next 12-14 months. Of these 15, 10 properties will be branded Vivanta by Taj and 5 will be branded Gateway. Vivanta by Taj is an upper upscale/premium brand while Gateway is an upscale brand. The company expects a surge in corporate and leisure travelers and has already started work on these properties. Moreover, it has been reported that international hotel chains are making a fresh foray into India. With these launches, it is becoming clear that the sector is on an upswing

Strong start to the week
09:30 am

The Indian markets have started today's session on a strong note. The benchmark indices opened slightly below the breakeven mark but quickly marched into the green and have added to their gains since then. Other key Asian markets are trading in the green with China (up 1.9%) leading the pack of gainers. The US markets closed marginally higher last Friday.

Currently in India, heavyweights from the BSE-Sensex are trading in the green with auto and metal stocks attracting investors' interest. The BSE-Sensex is trading higher by around 68 points, while the NSE-Nifty is up by about 18 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 0.6% and 0.7% respectively. The rupee is trading at 45.12 to the US dollar.

Steel stocks have opened the day on a positive note. Gainers here include JSW Steel and Tata Steel. As per a leading business daily, Tata steel plans to raise US$ 500 m through a global depository receipt (GDR) issue in six months. It had earlier raised the same amount eight months ago, which was used to expand its Jamshedpur plant. These GDRs are listed on the London Stock Exchange. In our view, the new issue is part of the company's effort to reduce its financial leverage. It had a gross debt of US$ 12.9 bn as on 31st December, 2009. Much of it traces back to the US$ 12.1 bn acquisition of Corus in 2007. Tata Steel plans to reduce it debt by US$ 2 bn over the next two years. With the steel market in Europe continuing to languish, Tata Steel has to rely on capital raising rather than generating cash from operations to control its debt situation in the near term.

Energy stocks have opened the day on a positive note. Gainers here include Indraprastha Gas and Chennai Petroleum. As per a leading business daily, GAIL and Maharashtra Industrial Development Corporation (MIDC) have formed a joint venture to lay gas infrastructure in Maharashtra. To begin with, they plan to focus on MIDC's industrial estates across the entire state. Later, they will seek the approval of gas regulatory board PNGRB to expand elsewhere as well. GAIL and MIDC will hold 25% each in the joint venture. The balance will be offered to strategic investors. In our view, this development will help the cause of the gas based power projects of 10,000 MW capacity proposed in Maharashtra. It also highlights the leading role GAIL plays in developing the gas infrastructure in India.

The biggest economic threat is...
Pre-Open

This may bring to your mind problems related to high leverage, cheap liquidity, rising inflation and the like. But the gravest problem facing global economy is far from these. And as per investors like Jim Rogers it has the potential to derail global growth. It also holds promise of leading to social unrest. We are referring to food scarcity. With the world's biggest food producers producing lesser food and instead concentrating on other segments of the economy, food scarcity has come to be the most perilous threat.

Ironically, the economies that carry the weight of global growth on their shoulders also have the potential to feed the world. The BRIC nations supply nearly half of the basic food requirements of the world. Be it wheat or meat. These nations house 42% of the world's population and produce between 30% to 40% of all major food crops consumed around the world. However, this share has been gradually falling as the economies get more industrialized.

Take the case of India for instance. For the first time ever, India's manufacturing will contribute more to its GDP than agriculture this year. While one may perceive it to be the result of faster industrial and service sector growth, the reason underlies a productivity disaster in India's agriculture output. Soil is getting insensitive to the use of fertilizers and dependence on monsoons has barely come down. The truth is that while India has freed industry, agriculture remains a tightly controlled sector. Just to give an example, fixed prices exist for 25 commodities even now and input like fertilizers are subsidized. The result is that there is no incentive for the farmer to switch to other crops. Interestingly however, the Prime Minister's Economic Advisory Council (EAC) is of the belief that a revival in farm output in the next fiscal will help the Indian economy move closer to the 8% growth rate.

Nonetheless, the BRIC nations have now have agreed to boost efforts to achieve food security and increase their role in global farming. The respective agricultural ministers will share information on technology and farm related inputs in the coming days.

We believe that improved growth in industrial activity is certainly critical to long term growth of Indian economy. However, India is also the nation with the world's second largest population. Further, it is endowed with one of the most agriculturally conducive natural environments. Given these, Indian policymakers have their primary duty in ensuring food security for the nation. But nothing like coordinating with other large producers to ensure food security for the world.