To 18,000 and back!
Closing

After flirting briefly with the psychologically crucial mark of 18,000 on the Sensex, the indices made a hasty retreat and closed marginally above breakeven for the day. Thus, while Sensex closed with gains in the region of 30 points, NSE Nifty edged higher by around 10 points. BSE Midcap and BSE Small cap indices were also amongst the gainers, edging higher by around 0.5% and 0.7% respectively. Three stocks gained for every two that declined on the Sensex today. Heavyweights like ITC, Reliance and Bharti Airtel contributed the most to the advances made by the Sensex today.

Buoyancy was also witnessed amongst Asian indices as most of them closed the day in the green. Europe however is trading mixed currently. The rupee was seen trading Rs 44.5 to the dollar at the time of writing.

The Indian stock markets seem to be in some sort of a sweet spot currently. While the long term domestic story continues to remain strong, the FIIs are back to their splurging ways what with more and more of them wanting to be a part of the India growth story. The fact that the global markets are a picture of calm right now also seems to be helping matters. It is at times such as these that there is a tendency amongst investors to get complacent and go overboard. Hence, it would help if one takes into account the growth that the underlying stock seems to be pricing in at the current valuations. If it is a good deal greater than what the historical performance suggests, caution needs to be exercised. After all, even the best stocks can go nowhere for years if growth for many years to come is already priced into them.

Tata Motors, the homegrown automotive major traded strong today and closed with gains of a little under 3%. The company, which looked out of sorts a few months back on account of a bloated debt profile and below par M&HCV sales, seems to have turned the corner of late. Not only has it managed to reduce some of its debt by converting it into equity and resorting to stake sale in subsidiaries, overall volumes have also come in pretty good for the company. Infact, volumes have come in so strong over the past few months that the company's commercial vehicles and passenger vehicles divisions have both posted record sales for the fiscal. However, exports have come in higher by just 2% over the corresponding previous fiscal. Furthermore, with overall debt levels still ruling at uncomfortable levels, the company does need a few more quarters of solid growth in its domestic markets so that strong cash flows from the same could be used to pay down excess debt. Looking at the way the Indian market is growing, that may not be a very difficult proposition indeed.

With a decline in the region of 2%, FMCG behemoth HUL yet again ended on the losers' side. Infact, the stock has now become a pretty regular feature on the losers list amongst the index stocks. What more, it is also trading pretty close to its 52-week lows. This at a time when most of the index constituents are flirting with their 52-week high levels. The reason behind the company's poor performance seems to have been the ongoing price war in the detergents space with its arch rival P&G. The war though is currently showing no signs of abatement. Furthermore, it has also come up with some pretty intense competition in its other segments as well. Coupled with these issues is the issue of the company's size. For any sort of growth to happen, the company will require a block buster product, which given the competitive environment, will be hard to come by. However, we should not forget that the company has got some pretty strong brands in its portfolio and given its distribution reach, it would be premature to write the stock off completely.

IT, FMCG drag markets down
01:30 pm

Profit booking took its toll on the Indian markets as they dropped sharply towards the dotted during the previous hour of trade. Stocks that are currently under pressure include those form the IT, FMCG, and banking spaces. Those from the oil & gas and auto spaces are leading the pack of gainers.

While the BSE-Sensex is trading marginally higher, the NSE-Nifty is trading marginally lower. However, stocks from the midcap and smallcap space continue to see interest as the BSE-Midcap and BSE-Smallcap indices are trading higher by about 0.3% and 0.6% respectively. The rupee is trading at 44.49 to the US dollar.

Over the past few days, small cap stocks have been seeing some interest by the investing community. In fact there have been quite a few articles and write ups in business dailies in recent times suggesting that investors consider investing in mid and small caps stocks at present levels. It must be noted that the returns from the BSE-Midcap and BSE-Smallcap indices have been much higher as compared to the returns of the BSE-Sensex. While the BSE-Sensex has moved up by nearly 81% over the last year, the BSE-Midcap and BSE-Smallcap indices have moved up by nearly 130% and 162%. With this upsurge, the valuations have moved up significantly as well. As of yesterday's closing prices, the BSE-Sensex was valued at a price to earnings multiple of about 21.8 times, which by any means is not attractive. The valuations of the BSE-Midcap and BSE-Smallcap indices stood at 19.2 times and 16.3 times respectively.

While on the face of it, the valuations look more attractive, it must be noted that midcaps and smallcaps are relatively much more riskier stocks to invest in as compared to their larger peers. This is on the back of lesser availability of information as well as their size. Looking at the historical valuations of these indices, we believe that valuations are anything but attractive. This is especially when compared to the valuation of their larger peers.

Real estate stocks are currently trading firm led by Orbit Corporation, Ackruti City and DLF. A leading business daily has reported that real estate major Unitech is planning to hive off its non-core businesses such as telecom, SEZs, and list them by issuing shares to its existing shareholders. As per the management, the company will be setting up a restructuring committee to explore and evaluate opportunities for potential merger of subsidiaries, demerger and other forms of restructuring. The management plans to do the same because it believes that the non-core businesses are not really valued in its current market cap which stands at nearly Rs 183 bn. Just for example is the company's stake in its telecom venture Uninor, which is valued at about Rs 40 bn.

Markets trade in a range
11:30 am

While buying activity persisted across index heavyweights during the previous two hours of trade, the movement in the indices was largely rangebound. Currently, stocks from the auto, software and energy sectors are dragging the indices lower, while stocks from the FMCG, realty and power sectors are trading higher.

The BSE-Sensex is trading higher by 32 points while the NSE-Nifty is trading higher by 12 points. The BSE-Midcap and BSE-Smallcap indices are trading higher by 1% each. The rupee is trading at 44.44 to the dollar.

Software stocks are trading mixed currently. While Infosys and Wipro are trading in the red, Tech Mahindra is finding favour. As per a leading business daily, Wipro has taken a decision to quit its baby care and vegetable oil business. This move is a part of the company’s strategy to focus on the consumer care division’s personal care segment. While the consumer care division accounts for around 8% of Wipro’s overall revenues, the baby care and the vegetable oil business together contributed less than 3% of the revenues. It must be noted that during 3QFY10 this division reported a muted growth of 2.5% QoQ.

Power stocks are trading firm currently and the key gainers here include Power Grid Corp, NTPC and Tata Power. As per a leading business daily, the joint venture between NTPC and Nuclear Power Corporation of India (NPCIL) is likely to build two 700 MW nuclear power plants at a site identified by the Department of Atomic Energy (DAE). It must be noted that both these companies had entered into a JV in February last year to build nuclear power plants. Given the climate change issues that have cropped up and the need for energy in a growing economy like India, nuclear energy has assumed considerable importance. In this regard, NTPC has envisaged investing around Rs 10 bn for setting up nuclear power plants having capacity of atleast 2,000 MW.

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 slightly below the breakeven mark but soon moved into the green and have managed to stay in the positive since then. Other key Asian markets are trading amidst gains, with Hong Kong (up 1.4%) leading the pack of gainers. The US markets closed marginally lower yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading in the green with banking and auto stocks attracting investors' interest. However, select software stocks are in the red. The BSE-Sensex is trading higher by around 25 points, while the NSE-Nifty is up by about 10 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 1% each. The rupee is trading at 44.35 to the US dollar.

FMCG stocks have opened the day on a positive note. Gainers here include Godrej Consumer and Colgate. As per a leading business daily, Godrej Consumer has acquired the Indonesian household product maker PT Megasari Mamsur and its distribution arm, PT Intrasari Raya. The Rs 6 bn Megasari manufactures household insecticides, wet tissues and air fresheners under the Hit, Mitu and Stella brand names. This is the fifth acquisition for Godrej Consumer. Earlier it has acquired Nigeria based Tura, UK based Keyline, and South Africa based Rapidol and Kinky. The Megasari acquisition is part of Godrej Consumer's strategy to be present in three continents - Asia, Africa and Latin America across the 3 categories of home care, personal wash and hair care. The company will distribute its product range through Megasari's distribution network which reaches to Vietnam, Malaysia, the Philippines and China. It plans to fund the acquisition through a mix of internal accruals and debt. In our view, such acquisitions are an attempt by the second string of Indian FMCG companies to quickly ramp up size and market presence.

Steel stocks have opened the day on a positive note. Gainers here include NMDC and Bhushan Steel. As per a leading business daily, India's largest steel maker SAIL has posted a 8% YoY sales growth in March at 1.4 m tonnes owing to robust demand from automobile and infrastructure sectors. This clearly indicates the revival of industrial activity which had slumped last year due to the economic slowdown. The recent hike in steel prices is also an indication of the increase in demand. Steel majors such as SAIL, Tata Steel, JSW Steel an Essar have recently hiked prices by up to Rs 3,000 per tonne. Prices are expected to rise further due to rising cost of raw materials especially iron ore. At a time when India needs increased quantities of the metal for infrastructure, higher prices will adverse affect the cost structure of host of end users.

Indian auto: On the front foot
Pre-Open

There was a time during the license quota raj when the average Indian got to see new cars and bikes only in the movies. A single model or two dominated each auto category. Be it the Ambassador car or Bajaj scooter or Luna.

India's auto sector has come a long way since then. Now, Indian auto companies come up with more models that we can keep count of. And they don't shy away from acquiring foreign brands or foraying into the overseas markets. International auto majors also look at India as an important destination both as market and as an export hub.

Recently there has been a flurry of activity in the small cars segment. Ford Motor, for instance, has announced plans to make India its manufacturing hub. As per Mr. Alan Mulally, Ford's president and CEO, the global market is shifting towards smaller cars. He also believes that India has a predominant advantage with a 70% market for compact cars. In fact, he believes that the small car market in India will double in the next decade. As per a leading business daily, the company has set a target of 200,000 cars for India by 2010. It also plans to export a large number to the countries in the Asia Pacific and African region.

We heard Maruti's management speak just yesterday how it expects the car market to more than double in a matter of just five years. The company expects the market, which is just 2 m cars a year currently, to reach sales of about 4.6 m cars by 2015. It may be noted that the domestic car industry has grown by 13% annually over the last five years. It will have to clock in an average annual growth of 18% till 2015 to attain the 4.6 m cars target. It expects growth to come in due to India's advantageous demographics and rising household income levels.

However, competition levels in the industry are set to heat up like never before. This is with MNCs like Toyota, Volkswagen, Nissan and Renault along with their domestic counterparts upping investments in the country. Therefore, the fortunes of companies in the industry will be reliant not only on industry growth but also on how they are able to maintain their market share over time. But overall, from an investor's perspective, this is one industry to watch out for in the years ahead.