Markets close with a flourish
Closing

After opening in the positive, markets traded firm throughout the trading session today. While trade in the morning session was rangebound, buying activity steadily increased in the later hours to ensure that the indices closed well above the dotted line. While the BSE Sensex closed higher by around 166 points (up 1%), the NSE Nifty gained around 41 points (up 1%). Midcap and small cap stocks also closed higher with gains of 1% and 2% respectively. Gains were largely seen in IT, metals and capital goods stocks.

As regards global markets, Asian indices closed firm today while European indices have also opened on a strong note. The rupee was trading at Rs 44.88 to the dollar at the time of writing.

Engineering major BHEL announced its provisional flash results for the full year FY10. The company achieved revenues of Rs 340 bn during FY10, thus witnessing a sales increase of 21% YoY during the year. Profit before tax, on the other hand was up 31% YoY. On the bottomline front the company saw an increase of 37% YoY in net profits for FY10 by clocking in profits of Rs 42.8 bn. Consequently, BHEL's earnings per share for FY10 stood at Rs 87.6 compared to Rs 64.1 for FY09. Order inflows during the year remained almost flat at about Rs 590 bn. However, the company's order book at the end of the year stood at 1,438 bn, which is 4.2 times FY10 sales. In a press conference today, the company's management expressed that it is aiming for a turnover of US$ 10 bn to US$ 11 bn by 2011-12 on the back of strong demand from the power generation sector. BHEL gained over 1% on the bourses today.

India's largest and the world's second largest integrated zinc producer Hindustan Zinc announced the commencement of metal production on March 28, 2010 from its hydro-zinc smelter at Dariba Smelting Complex, Rajasthan, which has a capacity of 210,000 tonnes per annum. With the commencement of production, the company's total zinc - lead metal capacity now stands at 964,000 tonnes per annum. The project was completed one quarter ahead of schedule. The commencement of production from this capacity expansion will provide a boost to the company's volumes for FY11. It may be noted that this brings the company within striking distance of its aim of achieving a capacity of 1 MTPA of zinc lead metal capacity. The achievement of this target is set to make the company the largest zinc lead producer in the world. The stock of Hindustan Zinc closed higher by over 3% today.

As the economic scenario improves in India, India's largest cement manufacturer ACC is upbeat about the prospects of real-estate construction in the country. The company believes that on the back of improved demand for residential and commercial property, a lot of heaped up inventory of unsold real estate will be consumed. It is betting big on its ready-made concrete (RMC) business which will get a boost from the spurt in construction of high-end as well as affordable housing in India. It may be noted that ACC postponed its expansion plans for RMC in 2009 as due to recession the realty demand declined sharply particularly in metros and cities.

The company in which Swiss cement major Holcim owns 46% stake has around 90% of its assets in urban India. In CY09, though the company grew its topline and bottomline by 10% and 33% respectively, its concrete business continued to bleed. RMC business has been a laggard for all the cement companies in the industry as most of them are still to breakeven in this segment. Nevertheless, ACC plans to invest Rs 6 bn to increase the number of its RMC units from present 44 to 200 by 2012. The company believes that its RMC segment will become profitable by the end of FY11. We believe that this is a tall feat to achieve given that in India the consumption of RMC is only 5% of the overall cement consumption. This is way too less than the developed markets where RMC consumption is as much as 60% of cement demand.

Smallcaps outpace their larger peers
01:30 pm

The Indian markets continued to gain further ground on account of selected buying amongst heavyweights during the previous two hours of trade. Stocks from the IT, consumer durables, realty and capital goods spaces are leading the pack of gainers, while those from the auto and FMCG sectors are in the red. Stocks from the banking and healthcare spaces are amongst the lowest gainers at present.

BSE-Sensex is trading higher by about 110 (up 0.6%) points while NSE-Nifty is trading higher by about 30 points (up 0.6%). BSE-Midcap Index is up by 0.8% while the BSE-Smallcap index is trading higher by 2.1%. The rupee is trading at 44.92 to the US dollar.

The largecap auto stocks are currently trading weak led by M&M, Maruti Suzuki and Bajaj Auto. Passenger car major Maruti Suzuki announced its volumes sales numbers for the month of March and full year. During the month, the company sold 95,123 vehicles, as compared to about 85,669 units during the same month last year. This translates into 11% YoY growth in volumes during the month. While domestic sales volumes increased by about 7.7% YoY, exports grew at a faster pace of 32% YoY. The latter contributed to about 16% of total sales as compared to about 14% during March 2009. Domestic sales slowed down this month, mainly due to the slowdown in volumes of its A2 segment (which includes models such as Alto, WagonR, Estilo, Swift, AStar and Ritz), which saw volumes drop by about 1% YoY.

It must be noted that this segment contributed to about 58% of total volumes during the month of March 2010 (65% last year). As for the full year, the sales volume growth stood at 29% YoY. Domestic sales grew by about 21% YoY, while exports grew by about 111% YoY. It must be noted that exports formed about 9% of sales volumes during FY09. During FY10, exports formed about 14.5% of total sales volumes.

Stocks of tyre manufacturers are trading firm led by Apollo Tyres and Ceat. The stock of Apollo Tyres is trading higher on accent of it hiking prices of its products. A leading business daily has reported that the company has increased prices by about 2% to 4% across categories. These price hikes are mainly towards offsetting the rise in rubber prices. It may be noted that rubber forms nearly 40% of total cost of a tyre. It is further reported that the management is mulling over another round of price hikes to control the impact of higher costs.

Considering that there is an overall shortage of tyres in the auto sector, coupled with the fact that the government has imposed a higher duty on tyre imports, volumes of the tyre manufacturers are not likely to get affected with such price hikes. As it is, they are able to pass on costs to the car manufacturers.

IT holds the market firm
11:30 am

Indian markets continue to trade above the dotted line in the last two hours of trade. Buying interest was seen in stocks in the IT, consumer durable and realty space. However, stocks in the FMCG and auto sector seemed out of favor with investors as they were trading in the red.

BSE-Sensex is trading higher by 60 points while NSE-Nifty is trading higher by 17 points. BSE-Midcap Index is up by 0.6% while the BSE-Smallcap index is trading 1.7% above yesterday’s closing. The rupee is trading at 44.93 to the US dollar

According to a report by management consulting firm, Tata Strategic Management Group, Health and Wellness (H&W) foods market in India has the potential to reach Rs 550 bn by the year 2015 up from the current Rs 100 bn. This represents an increase of 40% every year. New product development, technological advances in ingredient introductions and regulatory support are expected to drive this growth. We believe that India’s awareness of lifestyle diseases is increasing. Herein lies an opportunity for companies like Marico who are already present in the market and are expanding their line of health foods under the Saffola brand.

According to an estimate by leading consulting firm Deloitte Touche Tohmatsu, more than 15,600 new hotel rooms are set to be added to the hospitality market in 2010. This supply is 15% of the total hotel inventory in India and is spread across 92 hotels. Further, according to the firm, India has close to 415 projects or 68,480 rooms in various stages of development. It is believed that Indian Hotels, Taj GVK, Oriental Hotels EIH Limited, Hotel Leelaventure, ITC Hotels, Starwood and Marriott International are set to add over 3,000 rooms between them. The balance would be added by Hyatt, Accor, Intercontinental Hotel Group and a few foreign budget chains. Of the total upcoming room pipeline, 45% is located in the top 5 cities which are Bengaluru, Pune, Mumbai, Chennai and New Delhi. On the occupancy side, the average occupancy across 11 key cities in January 2010 was 68% (58% in January 2009). This is far below the peak occupancy rates of 79% in January 2008. With the room addition and increase in occupancy rates, we see a rebound in the hotel industry. However, with new room additions, we are unlikely to see the peak room rate witnessed 2 years back.

India opens on a strong note
09:30 am

In line with their Asian counterparts, the Indian markets have opened on quite a strong note today. The BSE Sensex is trading higher by around 100 points today (up 0.5%) while NSE Nifty has edged higher by around 30 points (up 0.5%). Gains are also being seen all across Asia currently. Heavyweights like Reliance and Infosys are driving the gains on the Sensex currently. The BSE Midcap and Small cap indices are also trading higher, as both are up in the region of 1% presently.

The rupee was seen trading at Rs 44.9 to the dollar at the time of writing.

L&T, the private sector infrastructure major is trading higher by around 1% on the bourses currently. The buoyancy seems to be a consequence of a news item in a leading daily that the company has become the first private sector player to boast of an order book of Rs 1,000 bn. It should be noted that the government backed power equipment maker BHEL is the only company ahead of L&T, having an order book that is 50% higher than the private sector behemoth. L&T seems to be a beneficiary of the big infrastructure and capex cycle that is underway in the country currently and given the growth that lies ahead in the infrastructure and industrial spaces in the country, we won't be surprised if the order book swells even more from the current levels. However, the company will have to be very careful of the execution part as it has shown to be little stressed on that front in recent times.

As per a leading business daily, pharma major Ranbaxy is planning to hire nearly 1,500 marketing executives to expand its sales team by at least 50%. This is with the intention of giving a fillip to its marketing prowess and regaining some lost market share in the domestic markets. As per reports, this recruitment effort will be led by the company's top management. It would be pertinent to note here that Ranbaxy is looking at new rural markets and deeper penetration in interior regions of the country. The company will hire a combination of medical representatives, regional managers and area managers by July to boost sales in the rural markets. These plans have to be seen in light of the fact that the company in recent times has run into a numerous problems in its overseas operations, especially the US. In that backdrop, the company might now be looking to more aggressively tap the domestic market by strengthening its presence in rural India. The stock of Ranbaxy is trading marginally higher on the bourses currently.

Don't get lured by IPO discounts
Pre-Open

The government thinks it has got the formula right. Given its ambitious infrastructure outlay target that hinges on disinvestment proceeds, the success of the PSU's market offerings are paramount. Be it IPOs of unlisted PSUs or follow on offering of the listed ones. The government intends to mop up Rs 400 bn from public issues in FY11 against Rs 235 bn mobilised in FY10. The offerings of NHPC, NTPC, Oil India and REC early this year that did not offer any discount to retail investors, missed out on their favour. The result was that institutional investors like LIC had to bail out the issues.

The response was much better in the case of the NMDC issue which offered a bargain to the retail applicants of the FPO. Investors under the impression that a discount on IPO / FPO price is equal to a sale on a product in a supermarket often fall in this trap. The government plans to cash in on this hypothesis and offer up to 10% discount on every forthcoming issue of a PSU.

Well we have nothing against such "discounts". All that we would like to reiterate is that the discounts do not make the offerings substantially more attractive that the offer price. And thus cannot be the sole reason to apply for the IPO/ FPO. Also, neither are PSU IPOs bad because they are government-managed companies. Nor are they good because the government is being generous in pricing. Ignoring such misconceptions, retail investors should long for healthy long term sustainable businesses available at reasonable bargains.

Savings Accounts may not be bad investments

If you have been keeping only the minimum balance necessary for retaining your savings account so far, probably your strategy should change. From today (April 1 , 2010) Indian banks are expected to account for interest on savings accounts on daily balance rather than the earlier system of minimum balance.

Although the interest on savings accounts remains unchanged at 3.5%, depositors will earn more interest income from these accounts. Until now, banks paid interest on minimum balance between the 10th and the last day of the month and the average payout worked out to 2.9%. By paying interest on daily balances, customers will get the actual return. Further, as returns on these deposits are not subject to tax deduction at source (TDS), high net worth individuals may choose these accounts over other short-term instruments such as mutual funds and term deposits.

Most banks, PSUs and private, have been aggressively targeting low-cost deposits which comprise savings account and current account deposits. The idea is to keep interest costs low. Well, that may also not change if account holders keep larger balances in their account thus offering the banks more float for short term requirements. Thus the new interest rate regime on savings account is expected to be a win-win situation for customers as well as banks. Particularly, private sector banks like HDFC Bank and Axis Bank and PSUs like SBI and PNB may reap the larger benefit of this on their margins in the near term.