Sensex at 25-month high
Closing

Indian markets rose to their 25-month high today. This was led by strong buying across realty and auto stocks. Strong cues from other Asian markets that rose as positive economic reports from the US boosted investor optimism also aided Indian stocks. On the broader BSE, three stocks gained for every one that closed in the red.

The BSE Sensex and NSE Nifty closed with strong gains of around 240 points (1.4%) and 80 points (1.5%) respectively. Mid and small cap stocks followed suit. The BSE Midcap and BSE Smallcap indices closed up by 1.5% and 2.0% respectively. The rupee was trading at 44.61 to a US dollar at the time of writing.

Telecom major Bharti Airtel was among the biggest gainers on the Sensex today. Other key gainers included Tata Steel and Hero Honda. Gains in Bharti followed reports that the company has outsourced its network upgradation task to Ericsson. The deal is worth US$ 1.3 bn, and is the Swedish company’s third billion-dollar deal with the Indian telecom market leader. Ericsson already manages Bharti’s networks in 15 of 22 telecom circles in India. The deal signals yet another instance when Bharti is looking at improving productivity by outsourcing its non-core requirements to external service providers. Interestingly, this deal comes very close to the company signing a final deal to acquire Zain Africa’s assets in a US$ 10.7 bn transaction.

Power stocks were also in demand today. Key gainers here included Reliance Infrastructure, NHPC, and Tata Power. Gains in Reliance Infra (REL) followed reports that the company has commissioned a 600 MW (megawatt) power plant unit for the Haryana Power Generation Corp. in Hissar, Haryana. As per reports, this is currently the largest thermal power generating unit in the country, and is part of the bigger project of 1,200 MW that is estimated to cost around Rs 38 bn. REL is currently working on projects worth Rs 190 bn, which includes 6 power projects. REL’s stock is also in the limelight post the Rs 18 bn cash infusion into the company by the promoter group. This has taken the promoter holding in the company from 38% to 43%.

Stocks from the banking sector also gained strongly today. Major gainers here included ICICI Bank, Yes Bank, and Bank of Baroda. Earlier during the day, in a meeting with the RBI, several Indian bank chiefs indicated that credit growth during FY11 will be over 20% YoY. The bankers also hinted that they do not expect interest rates to go up soon. Interestingly, this meeting comes just ahead of the RBI’s annual monetary policy meeting scheduled for April 20 to discuss on issues including outlook on credit, deposit growth, lending rates, economic growth and inflation.

IT stocks buck the trend
01:30 pm

The Indian markets continued their upwards journey steadily during the previous two hours of trade. Buying activity continued in stocks across sectors. Stocks from the realty, auto, oil & gas and metal spaces are currently amongst the top gainers. However, those forming part of the BSE-Capital Goods and BSE-IT indices are seeing some pressure as the indices are trading lower.

The BSE-Sensex is trading higher by 150 points (up 0.8%), while the NSE-Nifty is trading higher by 45 points (up 0.9%). The BSE-Midcap and BSE-Smallcap indices are trading higher by 1.1% and 1.7% respectively. The rupee is trading at 44.68 to the US dollar.

Healthcare stocks are currently trading firm led by Biocon, Piramal Healthcare, Cipla and Ranbaxy. Gains in Biocon are seen on the back of an agreement between the company, CIMAB S.A. (a Cuban company) and Biocon S.A (Biocon's arm). Biocon S.A. is reportedly acquiring the 49% stake held by CIMAB in Biocon Biopharmaceuticals Pvt. Ltd (BBPL). Post this acquisition, BBPL will become a wholly owned subsidiary of the company. BBPL is a joint venture engaged in manufacturing products based on the monoclonal antibodies in their facility in Bangalore.

As per the company's management, this deal will help the company to expand the development of bio-similars. Bio-similars are cheaper generic versions of branded biotech (drugs made from microorganisms) products. It must be noted that BBPL recorded revenues of Rs 186 m during FY09. At the bottomline level, it recorded a loss of Rs 51 m.

Bajaj Auto is currently leading among the auto stocks on the back of it setting a strong sales target for the next fiscal year. The company has earmarked its sales volume target of 4 m vehicles for the next fiscal. This indirectly translates into a 40% YoY growth. During FY10, the company recorded sales volumes of 2.9 m vehicles. Although, majority of sales for the company were contributed from its two brands - Discover and Pulsar. Of this target, the company is estimating export business to grow by only 11% YoY. Exports formed around 35% to its total revenues during FY09. Indirectly, this means that the company’s management is expecting majority of incremental growth to come from the domestic segment. Given that the company does not have a very strong presence in the rural areas as compared to industry leader Hero Honda, this volume target may be a tad too ambitious.

Persistent buying aids indices
11:30 am

Continued buying activity led the Indian markets to rise higher 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 auto, metals and banking spaces. Healthcare and power stocks are amongst the lowest gainers at present.

The BSE-Sensex is trading higher by 120 points while the NSE-Nifty is trading higher by 40 points. The BSE-Midcap and BSE-Smallcap indices are trading higher by 1% and 1.5% respectively. The rupee is trading at 44.72 to the US dollar.

As per a leading business daily, Wockhardt's plan to sell its nutrition business to US-based Abbott Laboratories for about Rs 6.5 bn has been terminated. This is because Wockhardt was unable to resolve debt restructuring issues with some of its lenders. The deal hit a roadblock after differences regarding rights on the sale proceeds cropped up between the Wockhardt's secured and unsecured creditors.

Wockhardt's nutrition category comprises brands like Farex, Dexolac, Nusobee infant formulas and Protinex. Last year this division had reported revenues of around Rs 1.5 bn. The move to sell the nutrition business was actually a part of the company’s plans to divest its non-core businesses to retire debt as the debt equity ratio was as high as 4.2 in CY08. Last year, the company had sold off two non-core businesses - animal health to French company Vetoquinol and its German subsidiary Esparma to another German company Lindopharm. Wockhardt has been divesting its non-core businesses as it plans to raise Rs 7.9 bn as part of its corporate debt restructuring (CDR) programme. The company has a total debt burden of Rs 37 bn. The stock, along with its peers Cadila Healthcare, Biocon and Dr. Reddy's, is trading higher currently.

Passenger car manufacturer, Maruti Suzuki had planned to raise the prices of its vehicles across different models. On April 2, the company made the announcement with respect to the hike as a move to pass on part of the increase in costs to customers. The company’s manufacturing cost has increased on account of higher input costs and expenses from the introduction of the new Bharat Stage IV emission norm. The price hike is less likely to impact the company’s volumes considering the strong demand for the company’s different models. The company had last week announced its sales volumes for the month of March and the full year FY10. For the full year sales volume growth stood at 29% YoY. Domestic sales grew by about 21% YoY, while exports grew by about 111% YoY. The stock of Maruti Suzuki is trading marginally lower on the bourses currently.

Strong start to the week
09:30 am

The Indian markets have started today's session on a strong note. The benchmark indices opened at the breakeven mark but quickly raced into the green and have held on to their gains since then. Other key Asian markets are trading in the positive with Singapore (up 2.3%) leading the pack of gainers. The US markets closed higher by 0.7% last Thursday.

Currently in India, heavyweights from the BSE-Sensex are trading in the green with power and construction stocks attracting buying interest. The BSE-Sensex is trading higher by around 100 points, while the NSE-Nifty is up by about 30 points. Buying is also being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.8% and 1.1% respectively. The rupee is trading at 44.72 to the US dollar.

Steel stocks have opened the day on a positive note. Gainers here include Tata Steel and NMDC. As per a leading business daily, India's largest iron ore producer NMDC has hiked its base prices by 34% to 56%. NMDC calculates its prices by taking the percentage increase or decrease in international prices accepted by Japan for the company's products and adjusts for foreign exchange variation. It may be noted that prices were last raised by 16% this January. They are likely to be raised further in some time. NMDC supplies iron ore to most domestic steel producers that do not have captive mines, such as Essar Steel, Ispat Industries, JSW Steel and Rashtriya Ispat Nigam. Due to the higher iron ore prices, steel producers have increased prices by Rs 2,500 per tonne from April 1.

Energy stocks have opened the day on a positive note. Gainers here include Indraprastha Gas and Gujarat Gas. As per a leading business daily, the state owned oil marketing companies (OMCs) - Indian Oil, BPCL and HPCL - could together post a loss of Rs 800 bn in FY11. For FY10, the losses on the sale of auto and cooking fuels are likely to amount to Rs 480 bn, which would be higher in FY11 if crude oil prices continue to hover in the region of US$ 85 per barrel. It may be noted that the government continues to force the OMCs to price fuels below their input costs. As a result, petrol is sold at a loss of around Rs 6 per litre and diesel at a loss of Rs 4.6 per litre. Kerosene leads to an under recovery of Rs 18 per litre, while cooking gas is sold at a loss of Rs 265 per cylinder. It may be noted that the government has indicated that it will no longer give oil bonds to compensate the OMCs for their losses. In our view, at some point fuel prices will have to be deregulated. But the timing is difficult to predict given the political backlash it is going to generate.

A bigger concern for India
Pre-Open

The Prime Minister recently spoke at the RBI's platinum jubilee celebrations. He applauded the central bank's proactive stance that kept India away from the direct impact of the global financial crisis. As he said, "Ensuring that the Indian financial system remained stable in these very difficult times was a major achievement in financial and economic management."

There's no denying that the RBI has played a wonderful role in protecting the Indian economy when all hell broke loose worldwide. But as we stand now, it is facing a dilemma of sorts. As the economy revives and recovers, inflation is rearing its head again. This has forced the RBI to rethink its low interest rate stance. But on the other hand, higher rates are seen by many as putting a spanner in the growth momentum.

So the RBI is in a fix! While it recently took some of its rates higher, its decision was mixed with caution. But with inflation not looking to drop down anytime soon, it is expected to raise rates further in the next few months. How impactful will this be for India Inc. is yet to be seen. We believe that with the Indian economy flush with cheap global and local money, and Indian companies not being as aggressive on expanding capacities, a slightly higher interest rate won't really impact the growth momentum.

Higher interest rates is not what we believe is the biggest concern for the Indian economy currently. A bigger issue is the economy's absorptive capacity of the cheap money that's flowing in from the foreign markets. What we have seen in the past is that higher foreign inflows have led to bubbles in the Indian asset markets - like property and stocks. What India wants is that a large part of these inflows are used to create proper infrastructure within the country. Not to create asset bubbles!