Mid and smallcaps buck the trend
Closing

Indian markets lost all their early gains and joined to the list of losers in Asia by the close of the session today. Heavyweights across sectors including software, telecom, FMCG and commodities witnessed profit booking and dragged the indices lower.

Thus, while the BSE Sensex closed the day with losses in the region of 62 points (down 0.4%), NSE Nifty edged lower by around 13 points. The BSE Midcap and Smallcap indices, however, managed to buck the trend and ended higher by 0.3% and 0.5% today. Losses were also seen amongst most Asian markets today whereas Europe has also opened on a mixed note. The rupee was seen trading at Rs 44.9 to the dollar at the time of writing.

Crompton Greaves, a leading player in the power transmission and distribution (T&D) equipment and services business in India, has continued with its inorganic growth strategy. It has acquired UK-based electrical engineering firm Power Technology Solutions (PTS) for 30 million pounds (Rs 2 bn). This is the company's sixth acquisittion since 2005. Crompton Greaves will gain significant consolidation in the engineering, procurement & maintenance (EPM) segment in UK and get access to newer markets. This acquisition is a step forward towards achieving the company's revenue goal of US$ 8 bn by 2015. Crompton Greaves also has a good track record in turning around companies it has acquired.

Crompton's earlier acquisitions include Belgian-based Pauwels, Hungary's Ganz, Irish-based Microsol Holdings and Sonomatra of France. The acquisition of Pauwels (Belgium) in FY06 and Ganz (Hungary) in FY07 has catapulted Crompton Greaves to be amongst the top ten T&D equipment companies in the world. These inorganic growth initiatives formed an important phase of Crompton Greaves' restructuring strategy, as the company planned to chart out a global presence by acquiring companies with niche presence and having products that complemented its own portfolio.

Sintex Industries a dominant player in the plastic and textile business, is looking to restart two plants of its US subsidiary, Wausaukee Composites, in another 6-7 months. Both the plants manufacture parts of a wind turbine such as cones and nacelles. Although the decline in the wind turbine market has been arrested, the company believes that it will be another six months or so before the demand revives.

Sintex had acquired an 81% stake in Wausaukee in May 2008 for US$ 17 m. Because wind energy is an alternative source of energy, it took a beating when oil prices came down last year. However, Sintex's management has maintained that the overall business environment remains utterly challenging. While commodity prices have come down, the fact that the company is passing on the benefits of the same to customers has meant that realisations are under pressure. Apart from that, volumes have also come under pressure. Only once the company's customers start clearing their inventories there will be an increase in orders.

For the first time Indian pharma companies will be challenging fraudulent patents granted to MNCs and small players. Indian Pharmaceutical Association, which has Ranbaxy, Dr Reddy's and Sun Pharma as its members, will challenge such patent applications in the pre-grant stage itself. Challenging patents after grant is a time-consuming process which is also more expensive.At least 25 pre-grant patent challenges will be filed by the IPA team across four Indian patent offices in April.

A study by IPA claims 86 instances of frivolous patents. These, it says, include patents granted to multinational firms such as Novartis (16 products), Eli Lilly (10), Pfizer (9) and domestic firms Aurobindo (1) and Emcure (1). As pharma companies in Indian compete with their global counterparts in research and development, the patent laws here will also have to get stricter.

Glenmark up on submitting new NDA
01:30 pm

After shedding their early morning losses during the noon session, the Indian markets rose back above the dotted line as buying activity was witnessed in select heavy weights. While stocks from the realty, auto and pharmaceutical spaces are amongst the top gainers, those from the FMCG and IT spaces have been out of favour. Stocks from the banking and capital goods spaces are amongst the lower gainers at present.

The BSE-Sensex is trading higher by around 35 points (0.2%), while the NSE-Nifty is up by about 10 points (0.2%). Stocks from the mid and small cap spaces are trading higher with the BSE-Midcap and BSE-Smallcap indices up by around 0.4% and 0.8% respectively. The rupee is trading at 45.09 to the US dollar.

Healthcare stocks are currently trading firm led by Glenmark Pharmaceuticals, Torrent Pharma, Sun Pharma and Piramal Healthcare. The stock of Glenmark Pharmaceuticals is leading the gainers list on the announcement of its subsidiary Glenmark Generics submitting a new drug application (NDA) for Oxycodone Hydrochloride capsules and liquid solutions. The company submitted this application to the USFDA (Food and Drug Administration). The company's management is of the view that the FDA should take about 10 months to approve this drug. Once launched, Glenmark could be the only one selling Oxycodone. As per the company's management, the current market size is US$ 16 m (or about Rs 740 m). This would be a positive development for the company and will play a part in enhancing sales from the highly competitive US market.

Telecom stocks are currently trading firm led by Tata Communications, Bharti Airtel and Reliance Communications. The Department of Telecom (DoT) recently released the list of applicants that have qualified for bidding for the upcoming 3G and BWA (broadband wireless access) spectrum. All the companies that have put in their applications have cleared the round. As such, nine applications have been received for 3G spectrum and eleven applications for BWA. Mock auctions are scheduled for the 5th and 6th of April, followed by the start of the 3G auction on 9th April. BWA auctions are scheduled to begin two days after the closure of the 3G auctions.

As it turns out, six companies out of the nine that have put in applications to bid for 3G auctions would be bidding for spectrum on a pan-India basis. The reserve price for the same has been fixed at Rs 35 bn. These six companies are Bharti Airtel, Reliance Telecom (part of Reliance Communications), Idea Cellular, Tata Teleservices, Aircel and Vodafone Essar. However, considering that only three slots will be put up on sale (four slots will be available in five service areas) it definitely will be an interesting round of bidding. The other two companies have put in application for selected circles only. Similar would be the case for the BWA spectrum as only two slots are up for sale across the country. It is reported that eight companies have applied for spectrum across the country. The reserve price for the same is Rs 17.5 bn.

Metals, Oil & Gas weigh down markets
11:30 am

The Indian markets shed their early morning gains and moved into the negative territory during the previous hour of trade. While most of the stocks across sectors are trading low, stocks forming part of the BSE-Auto and BSE-Capital Goods indices have managed to find some interest. Stocks from the BSE-Metal and BSE-Oil & Gas indices are amongst the key losers.

The BSE-Sensex is trading lower by around 20 points, while the NSE-Nifty is down by about 10 points. Stocks from mid and small cap spaces are however trading marginally higher with the BSE-Midcap and BSE-Smallcap indices up by around 0.2% and 0.7% respectively. The rupee is trading at 45.14 to the US dollar.

Tata Motors has announced that the company has extinguished Rs 15 bn worth of debt as bond holders chose to convert their bonds into shares before maturity. This debt was in the form of Japanese Yen bonds and US Dollar series bonds. While 93% of Japanese Yen bonds were converted, 76% of the US Dollar series bonds were converted. Those bondholders who did not go for conversion would continue to hold their bonds till maturity. As a result of the conversion, Tata Motors issued 26.6 m equity shares. This conversion represents an equity dilution of 5% while reducing the company’s total debt by 7.5%. It may be noted that these bonds will mature in FY11. With this conversion, Tata Motors has reduced its indebtedness bringing some relief to the company’s highly leveraged balance sheet.

As per a leading financial daily, ITC has tied up with Dominican Republic’s La Aurora to sell cigars in India. The cigars which will be manufactured in the Caribbean will be imported to India and sold by ITC. The cigars will be rolled out under the Armenteros brand and will be made to ITC’s specifications, available exclusively at tobacco selling outlets, select hotels, fine-dining restaurants and exclusive clubs. While the market is nascent and worth only Rs 300 m, the category is seeing an upsurge in demand with a new section of upwardly mobile Indian consumers exploring cigars as a category. With this tie up, ITC will become the first Indian company to enter this category which up till now has been dominated by foreign imports.

Indian mkts lead the Asian pack
09:30 am

The Indian markets have started today's session on a strong note. The benchmark indices quickly marched into the green right from the start and have held on to their gains since then. Other key Asian markets are trading in the green with Japan (up 0.4%) leading the pack of gainers. The US markets closed marginally higher yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading in the green with auto, consumer durables and realty stocks attracting investors' interest. The BSE-Sensex is trading higher by around 80 points, while the NSE-Nifty is up by about 20 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 0.8% respectively. The rupee is trading at 45.10 to the US dollar.

As per a leading business daily, the telecom department plans to levy a 2% R&D cess on mobile bills in order to boost manufacturing of indigenous telecom equipment in India. If implemented, this would further burden the mobile users who are already paying 12% service tax and 2% education cess on their mobile bills. The levy of R&D cess would increase the share of indigenous telecom equipment which has fallen dramatically from FY 2004 and reduce security threat posed by the imported hardware. We believe, although the levy of R&D cess will create a hole in the subscribers pocket by increasing their mobile bills, the move is likely to transform India into telecom manufacturing hub. However, for Indian telecom companies like Bharti Airtel, the effect of this move should be negligible.

As per a leading business daily, cement manufacturers are likely to increase prices third time in a row this year to undo the jump in input costs. The hike in prices would be to the extent of Rs 7 per bag. Input cost such as coal has witnessed a sharp jump, which has led to higher cost of production. Moreover, freight charges have also gone up. In the cement industry rise in cost is generally a pass through. Thus, this hike in prices is said to be more a result of higher cost of production and transportation. The Indian cement industry is growing at the rate of 8% to 10%. The hike in prices is less likely to impact dispatches in the near term considering the strong demand for the commodity. The government's increased focus on infrastructural activity is likely to sustain the demand growth.

We believe that prices may stay firm in the near term owing to strong demand. We expect cement industry to sustain this kind of volume growth. However, once the planned capacities become operational there might be some pressure in the medium to long term on cement prices. As per Cement Manufacturers' Association, about 110 m tonnes (MT) of cement capacity would be added to the existing capacity of 240 MT over the next three years. Cement stocks are currently trading higher led by Madras Cements and JK Lakshmi Cements.

US recovery will take more time
Pre-Open

All is not likely to be well with the US for some time to come. According to Charles Evans, the President of the Federal Reserve Bank of Chicago, the US jobless rate may remain higher than 9% at the end of 2010. This means that the Fed, which has already stated its intention to keep interest rates low for an extended period of time, will be all the more wary of tinkering with interest rates now. As reported on Bloomberg, the unemployment rate in the US is expected to hover around 9.25% at the end of 2010 and drop to 7% plus at the end of 2011.

The US economy lost 8.4 m jobs since the recession began in December 2007. This is the most of any downturn in the postwar era. Further, GDP shrank for five of the six quarters through June 2009. And Evans opines that the subsequent rebound has been driven mostly by a restocking of inventories. This means that the US still has a long way to go before it can boast of a sustainable recovery.

Given that the US is still in recession, the Fed is not too worried about its loose monetary policy unleashing inflation in the near term atleast. But it would be interesting to see how long the Fed will keep interest rates close to zero. After all, while inflation may not be a problem now it will haunt the US in the future. Further, the US will also have the headache of having to deal with a record deficit; the lowering of which is certainly not going to be an easy task. Indeed, challenging times lie ahead for the US government and the central bank.

FM is gunning for strong growth in India's GDP

The Finance Minister Pranab Mukherjee is keen that India goes back to doing what it did for 3 consecutive years before the crisis erupted - growing at 9% plus. After that, he has set a more ambitious goal of growing in double digits. While the intentions are in the right direction, the going may not be that easy given the various challenges that the country faces. One is obviously infrastructure and power. The other is the ability of agriculture, manufacturing and services to grow at a sustainable pace in the future. Inflation and a ballooning deficit are also serious threats to be considered.

The RBI has already displayed its ability to prevent Indian banks from sharing the same fate as that of its developed peers. But it will now see its mettle tested in terms of tackling inflation. From a long term perspective, the government will have to ensure that the social sectors are developed so that they can make a meaningful contribution to India's growth. Which is why bringing down the deficit assumes paramount importance so as to make the necessary investments in education and healthcare.