Persistent selling mars indices
Closing

Indian markets had a weak trading session today as the indices languished in the red throughout the day led by persistent selling across index heavyweights. While the BSE Sensex closed lower by around 48 points (down 0.3%), the NSE Nifty lost around 11 points (down 0.2%). Midcap and small cap stocks were not spared either as they closed lower by 0.3% and 0.2% respectively. Losses were largely seen in auto and oil & gas stocks.

As regards global markets, most Asian indices closed in the red today. European indices have opened on a mixed note. The rupee was trading at Rs 44.36 to the dollar at the time of writing.

Pharma stocks closed mixed today. While Lupin and Sun Pharma found favour, Dr.Reddy's and Ranbaxy closed into the red. Lupin closed higher by 2% today and what is more, the stock has nearly tripled since the rally began in March 2009. Both the domestic and the exports businesses of the company have been performing well and growth prospects look good in the future as well. Besides, in the US market especially, the company has adopted the strategy of focusing on branded generics. Since it is not easy to brand generics in a regulated market like the US, this has ensured that there are not too many players present in this space. As a result, Lupin will have to contend with lesser competition and consequently higher revenues and profits. The company's brand 'Suprax' has already been doing well in the US and products such as 'Antara' and 'AeroChamber' are likely to give more fillip to Lupin's branded portfolio in that market.

Auto stocks closed mixed today. While Tata Motors and Ashok Leyland found favour, Bajaj Auto and Maruti closed into the red. As per a leading business daily, growth of the auto sector is touted to slow down to low double digits in FY11. This is due to the high base effect of FY10. The Society of Indian Automobile Manufacturers (SIAM) is of the view that sustained economic growth and higher disposable incomes will continue to be the growth drivers for the Indian auto industry. However, they expect the auto sector to log in a growth of 10-14% this fiscal as compared to 26% growth that was recorded in FY10. In FY10, commercial vehicles were the top performers as they grew by 38% YoY followed by passenger vehicles, 3-wheelers and 2-wheelers (growth of 26% YoY each). However, major concerns going forward will be the rise in commodity prices which would have an adverse impact on margins.

The rupee has been in the limelight of late for appreciating against the dollar. It has risen by about 17% from its record low in March 2009 and there are expectations that it could gain at least 3% more by the year end. Interestingly, the RBI has refrained from intervening in the forex market to stem this rise. The reasons are not hard to find. India is already grappling with high inflation led by soaring food prices. Intervention by the central bank to stem the appreciation of the rupee would only add to the liquidity and worsen the inflation scenario. Further, an appreciating rupee does have its advantages. This is because imports become cheaper. The fact that India is a net importing country only strengthens the case for the appreciation. This is especially because most of the imports are of commodities, whose prices are expected to rise. Exports, however, could be impacted and the sectors at the receiving end would be software, pharma, textiles and gems and jewellery.

Tata Motors up on good sales nos.
01:30 pm

The Indian markets continued to move downwards on account of sustained selling activity witnessed during the previous two hours of trade. Stocks from the realty, IT, telecom, capital goods and power sectors are the ones that are worst hit by the extensive selling. Nevertheless, stocks from FMCG and consumer durables sectors are managing to hold-on to the gains.

The BSE-Sensex and the NSE-Nifty are trading lower, down by around 93 points and 26 points respectively. The BSE-Midcap and BSE-Smallcap are also trading lower, down by around 0.42% and 0.12% respectively. The rupee is trading at 44.45 to the dollar.

According to a leading business daily, India's largest private sector company Reliance Industries (RIL) is expected to buy a significant stake in Deccan 360, a freight services firm. This firm is an express transportation and logistics company which caters to a plethora of industries like retail, textile, banking and pharmaceuticals. It provides air cargo as well as road service operations in 24 locations across India. It may be noted that Deccan 360 which was evaluating a stake sale option, had RIL, Bharti, and FedEx vying to acquire stake in the company.

Through this collaboration RIL aims to tap into the growing logistics industry in India which is at an inflection point. While such investments do serve as a good diversification option, we believe that RIL's investments in exploration and production (E&P), organised retail and logistics could be the cornerstones of its future growth.

As per a leading daily, Tata Motors' global vehicle sales for March 2010 clocked 101,712 vehicles, an increase of 39% YoY. Sales were aided by robust growth in commercial vehicles as well as in premium brands - Land Rover and Jaguar. Sales of Land Rover and Jaguar surged by 43% YoY with Land Rover leading the sales growth. Land Rover sales grew by 43% YoY to 23,538 vehicles while sales of Jaguar grew by 8% to 4,642 vehicles.

For the fiscal year 2010, Tata Motors sold 872,951 vehicles globally. This is an increase of 19% YoY aided by sales of commercial vehicles which grew by 37% to 413,057 units. Sales of Land Rover and Jaguar, however, fell during this period by 11% YoY due to lower demand as a result of the economic down turn. However, the latest figures indicate that Tata Motors is making a recovery with gains by Jaguar and Land Rover supported by strong sales in the commercial vehicles market. The stock of Tata Motors is finding favour on BSE currently.

Oil & Gas unable to fuel the market
11:30 am

In the last 2 hours of trade the Indian markets remained volatile as they crossed the dotted line and then returned back to the negative territory. Buying interest is seen in FMCG and banking while stocks in oil & gas, realty and power are witnessing massive sell off activity.

The BSE-Sensex is trading lower by 52 points while the NSE-Nifty is trading 19 points below the dotted line. The BSE-Midcap Index is down by 0.2% while the BSE-Smallcap index is trading marginally higher than yesterday's closing. The rupee is trading at 44.48 to the US dollar.

FMCG is the top gaining sector this morning with Godrej Consumer Products being the top gainer in the market. VST Industries declared its yearly results. The company’s sales for FY10 shot up by 24% YoY while the operating profit zoomed by 34% YoY. This increase was primarily due to fall in other expenditure as a result of foreign exchange gains. Lower staff costs as a percentage of sales also helped increase operating profits. However, higher tobacco prices continue to rule and capped the company's operating profit growth. The company, however, had a dismal show at the net profit level as extraordinary expenses in the form of VRS ensured that bottomline growth remained flat. However when adjusted for all extraordinary items and foreign currency gains the company's bottomline grew by 3.7% YoY.

Stocks in the auto sector are trading weak led by Amtek Auto and Apollo Tyres. According to a leading business daily, India's third largest two-wheeler major TVS Motor is betting big on the scooter segment. The company is aiming to increase its market share in the scooter segment from the present 22% to 30% by the end of FY11. It expects to grow the average sales in this segment to 150,000 units per month, leading to a 50% YoY growth in this segment in FY11.

It may be noted that the company recently un-veiled a new unisex scooter "Wego" which will be first launched in Maharashtra followed by other states within the next 3 months. It is priced at Rs 42,361 (ex-showroom). TVS Motor targets to sell 20,000 units of 'Wego' per month. We believe that success of new launches will further buoy the company's two-wheeler segment which grew at an industry beating rate of 42% YoY in 3QFY10.

Markets start on a negative note
09:30 am

The Indian markets have started today's session on a negative note. The benchmark indices opened at the breakeven mark, stumbled into the red and have not been able to move into the positive since then. Other key Asian markets are trading in the red with Japan (down 1.4%) leading the pack of losers. The US markets closed higher by 0.2% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading weak with banking majors bearing the brunt of selling activity. However, auto and software heavyweights are finding favour. The BSE-Sensex is trading lower by around 80 points, while the NSE-Nifty is down by about 25 points. The rupee is trading at 44.44 to the US dollar.

Steel stocks have opened the day on a positive note. Gainers here include NMDC and JSW Steel. As per a leading business daily, SAIL is in talks with South Korean steel giant Posco and Japan's Kobe Steel to jointly set up steel plants. Finex from Posco and ITMK3 from Kobe Steel are new iron making technology that SAIL could benefit from. FINEX technology uses iron ore fines and low quality coal to produce high grade steel. SAIL could further process it to make specialised steel. Similarly, ITMK3 (Iron Making Technology Mark Three) uses iron ore fines and thermal coal to produce high grade steel. The final decision on the joint ventures is yet to be made and will hinge on techno economic viability. It may be noted that Posco has recently approached SAIL to set up a Rs 150 bn steel plant in Bokaro. This is after over 4 years of delay due to land acquisition issues in its Rs 540 bn Orissa project.

Energy stocks have opened the day on a positive note. Gainers here include Castrol and Petronet LNG. Castrol has announced its 1QCY10 results. Its topline increased by 29%YoY during 1QCY10 due to higher volumes as well as realisations. The volume growth was driven by its investments in brand and marketing, especially the program built around Castrol's global FIFA World Cup 2010 sponsorship. Operating margins expanded to 27%, from 23% in 1QCY09 on the back of a 5% (as a percentage of sales) decline in raw material costs. Besides favorable cost of materials, a combination of premium product mix and higher unit realisation also helped. Other income declined by 15% during the quarter. Castrol's bottomline registered a whopping 54% YoY growth during 1QCY10 due to expansion in operating margins.

India to stash away crude oil
Pre-Open

The US has it. So do Japan and China. India will join their ranks with the completion of a strategic crude oil storage by October, 2011. The under-ground storages are being built at Visakhapatnam in Andhra Pradesh and Mangalore and Padur in Karnataka. A 1.3 m tonne facility will be ready in Visakhapatnam by October 2011. The huge underground cavity will be almost 10 storey tall and 3.3 km long. The 1.6 m tonne facility in Mangalore will be ready by late 2012. A 2.5 m tonne facility at close by Padur will also come up by that time. Together they will store about 5.3 m tonnes of crude oil. That is equal to about 14 days of India's oil requirement. It may be noted a 14 day reserve is still quite small compared to US stockpile of about 90 days. The project is likely to cost about Rs 30 bn.

A strategic crude oil storage is protection from supply disruptions. Given our reliance on foreign sources of supply, that makes sense. It can also be used to store oil when prices are low and sell when they rise. Although there was a proposal to build a 45 day storage, given the cost escalation it is likely that we will have to be content with current capacity for now.

Gas producers want more

The debate over pricing the gas produced from the KG basin rages on. About two years ago, an empowered group of ministers set the price for Reliance Industries KG basin gas at US$ 4.2 per British thermal units (mBtu). That was met with a lot of opposition from users who felt the price should have been much lower. Now ONGC, which has 10 gas finds in the region, has joined the fray. It wants prices in the region of US$ 7 per mBtu. It believes current prices are much too low to make investments viable. It maybe noted that imported liquefied natural gas costs about US$ 9 per mBtu.

It doesn't come as a surprise that producers of a commodity want higher prices. Which producer doesn't? But the question remains whether it will go down well with the users. They found US$ 4.2 per mBtu expensive. But Gujarat State Petroleum Corp will begin gas production from its KG basin block before ONGC. So, the next round in the pricing debate will begin soon enough.