Dull end to the day
Closing

What seemed like yet another good day for Indian markets early today, ended with a whimper! Selling pressure in stocks from the engineering and energy sectors led the markets to lose most of their early morning gains. On the broader BSE, two stocks gained today for every one that closed in the red.

The BSE Sensex and NSE Nifty closed with gains of 12 points (0.1%) and 13 points (0.2%) respectively. Mid and small cap stocks followed suit. The BSE Midcap and BSE Smallcap indices closed up by 0.9% and 1.4% respectively. The rupee was trading at 44.43 to a US dollar at the time of writing this.

Software stocks closed mixed today. Gains were seen in HCL Tech and Wipro. However, TCS and Infosys saw some selling pressure. Earlier, TCS had announced that it has won a large contract from the British engine-maker Rolls Royce. As part of the deal, TCS will provide software solutions in the engineering domain to Rolls Royce global manufacturing operations. While no further details have been provided by the company, this deal signifies the company's rising presence in the engineering solutions space.

Real estate stocks also closed mixed today. While gains were seen in Unitech and Ansal Housing, selling pressure was seen in BL Kashyap and Mahindra Lifespace. Gains in Unitech followed the company's announcement of demerging its non-core infrastructure business. This includes the company's operations in telecom, transmission towers, hotels, amusement parks, and special economic zones. As per the company's management, and as one would have expected them to say, the objective behind this demerger is to unlock value of non-core businesses. The company plans to eventually list the new demerged entity - Unitech Infra - on the stock exchanges. The company's board has approved the swap ratio of 1:1. This means that existing shareholders of Unitech would get equivalent number of shares of face value of Rs 2 each of Unitech Infra Ltd.

Leading paper manufacture BILT announced its results for the third quarter ended March 2010 yesterday. The company's sales grew by 51% YoY during the quarter. This was largely due to a boost in volumes as its capacity expansions at Bhigwan and Ballarpur came on stream during 9mFY10. As a result, its overall paper business witnessed sales growing by 39% YoY. After a dismal FY09, performance of Unit Kamalapuram (manufactures rayon grade pulp) bounced back as sales from this division grew seven-fold. Operating margins declined marginally by 0.5% due to higher raw material costs (as percentage of sales). All this boosted net profits which grew by a robust 148% YoY. Profits were also helped by a significant reduction in tax expenses. For 9mFY10, overall performance was more subdued with revenues growing by 29% YoY and net profits remaining flat. Operating margins during the nine month period shrank by 1.7%.

Zee eyes inorganic growth
01:30 pm

After the strong momentum witnessed during the early hours today, Indian stock markets failed to hold on to the gains post noon. Unabated profit booking activity in index heavyweights led to the benchmark indices pare almost all of the opening gains during previous two hours of the trade. Currently, selling activity is being witnessed among capital goods, oil & gas, IT and metal sectors However, stocks from realty, consumer durables, auto and banking sectors are managing to find favour.

The BSE-Sensex and the NSE-Nifty are trading higher, up by around 13 points and 6 points respectively. Currently, the BSE-Midcap and BSE-Smallcap indices are trading is the green, higher by 0.4% and 1.3% respectively. The Rupee is trading at 44.43 to the Dollar.

According to a leading business daily, India's top listed television broadcaster Zee Entertainment is planning to acquire another general entertainment channel 9X which is owned by INX Media Pvt. It is believed to have secured an in-principle approval from its board to go ahead with the acquisition.

We believe that this is a prudent move for the company as given that we expect the TV broadcasting sector to continue to grow within the overall Indian media industry. The Indian media industry is set to grow at a CAGR of 12.5% per annum in the next 5 years. Zee Entertainment is believed to be able to capitalise on the same given its strong position in the sector. Zee Entertainment is trading high, up by around 3% on BSE currently.

HCL Technologies, India's fourth largest IT services exporter announced its 3QFY10 results today. It's fiscal year ends in June. The company witnessed a marginal 1% QoQ growth in the topline primarily backed by the robust performance of its Infrastructure services business offering which clocked in a growth of 11% QoQ during 3QFY10. However, the weak performance by company's BPO division which registered a fall of 13% QoQ dented its topline and bottomline. Nevertheless, HCL Tech's consolidated profits jumped by 16% QoQ, hugely bolstered by favorable forex movement.

While the company witnessed decent traction for its services in the manufacturing, media and healthcare domains in the US and Asia Pacific, continued weakness in banking and financial services and geographies like Europe remain a cause of concern. Nevertheless, we believe that company's 9MFY10 performance suggests an uptick from the lows it witnessed during the peak of global recession. The stock of HCL Technologies is up 7% on BSE today.

BHEL keen to diversify revenues
11:30 am

The benchmark indices shed some of their opening gains during the previous two hours of trade as investors booked profits. Apprehension over the performance of companies during the earnings season seems to be keeping investors on the sidelines. Stocks in the realty and banking space continue to enjoy investor interest while stocks in the capital goods space are witnessing a sell-off by investors.

BSE-Sensex is trading higher by 38 points while NSE-Nifty is trading 16 points above the dotted line. BSE-Midcap Index is up by 0.9% while the BSE-Smallcap index is trading 1.4% above yesterday’s closing. The rupee is trading at 44.38 to the US dollar

As per a leading daily, BHEL is looking to form four to five joint ventures by the end of 2010 to diversify into the railway business. This is a step taken by the state owned heavy industry giant to reduce its dependence on the power equipment business. As per a company official, the Indian Railways will have a stake of 26% in these joint ventures while the remaining stake will be held by BHEL and its third partner. These joint ventures will bid for railway projects for manufacturing of diesel and electric locomotives, railways ancillary, electrical multiple units (EMU) and coaches, including those for metro networks coming up in various urban cities.

One project which the company is set to bid for is the setting up of a facility at Kanchrapara in West Bengal for the manufacture of EMU and coaches. This project will supply 500 units to the railways every year and already around 150 acres of land has been earmarked for this factory. This is a positive step for BHEL as it would help the company diversify its revenue stream.

As per a leading daily, the average gas tariff charged by for GAIL India for its piped gas is likely to rise by 40% next year. This is a result of the Petroleum and Natural Gas Regulatory Board (PNGRB) provisionally approving the new gas carriage charges. The new charges of Rs 53.65 per tcf (thousand cubic feet) is an increase of 88% over the old rates and will be applicable on GAIL’s parallel pipeline being laid along the existing 1,100 km line in northern and western India. However, the regulators have lowered the tariff on GAIL’s old pipeline by 11% to Rs 25.46.

According to regulations, tariffs are set on the basis of a fixed return on the amount invested by companies (usually 12% per year). In case of the new pipeline, GAIL has claimed an investment of Rs 91.6 bn while PNGRB has approved an investment of Rs 36 bn for the old pipeline. The fear was, due to supply of gas to fertilizer plants, the tariff would be reduced. However, an increase in tariff rates is a positive surprise for the company. A note of caution in this case is that the approval of tariffs for the new pipeline is provisional and will be fixed on the basis of actual investment made. Moreover, in the past the Petroleum Ministry has overturned decisions by PNGRB. We would like to wait and watch to see if such a thing happens in this case as well.

Markets start on a positive note
09:30 am

The Indian markets have started today's session on a positive note. The benchmark indices opened above the breakeven mark and have managed to hold on to their gains since then. Other key Asian markets are also trading in the positive with Japan (up 1.5%) leading the pack of gainers. The US markets closed higher by 0.2% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with construction and metal majors finding favour. The BSE-Sensex is trading higher by around 50 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 1% respectively. The rupee is trading at 44.5 to the US dollar.

Auto stocks have opened the day on a positive note. Gainers here include TVS Motor and Escorts. As per a leading business daily, M&M has achieved a 25% market share in the light commercial vehicle (LCV) segment in the northern and western regions. This is on the back of the company's mini truck Maxximo, which was launched in these markets about a month back. M&M has recently launched Maxximo in the eastern region and plans to introduce it in the southern region as well. The company has a capacity about 2,500 mini trucks per month at its Chakan plant. It plans to increase capacity if demand remains strong in the next few months. The size of India's mini truck market is about 130,000 vehicles per annum. It has been growing at a rate above 25% YoY reflecting the booming auto market in India.

Banking stocks have opened the day on a positive note. Gainers here include Axis Bank and Yes Bank. Axis Bank announced its FY10 results yesterday. It reported a net interest income growth of 7% YoY on the back of a 28% YoY growth in advances. With a higher proportion of current and savings accounts, the differential in lending and borrowing rates aided the improvement in the bank's net interest margin (NIM) by a healthy 0.5%. NIM moved up to 3.8% in FY10 from 3.3% in FY09. Net profits grew by 39% YoY backed by higher other income (up 36% YoY), as well as a cut back on provisioning. Net NPA to advances moved marginally higher at 0.36% at the end of FY10 as against 0.35% in FY09. Capital adequacy ratio remained comfortable at 15.8% at the end of FY10.

India to grow by 8% in FY11: RBI
Pre-Open

It may have raised interest rates but it still is pretty bullish on the country's growth prospects. We are referring to India's central bank, RBI. Yesterday, it hiked both short term rates as well as cash reserve ratio by 25 bps each. The move was deemed necessary to temper price expectations. But it also maintained a pretty bullish tone on the domestic economy. India's central bank believes that India can grow by 8% in FY11 and that too with an upward bias. This coming from as conservative an institution as India's central bank is indeed heartening. The banks also maintained that India must have grown in the range of 7.2%-7.5% in the recently concluded fiscal.

RBI has based its optimism on the improvement on the exports front and a broad based industrial recovery. Needless to say, the later also hinges a great deal on how the monsoons pan out. Thus, the progress of the monsoons is central to India achieving an 8% growth. Besides, the growth could also be at risk if commodity and crude prices harden too much, too soon. This, in a nutshell is the major problem that we have with respect to the Indian economy. On its own, it can easily grow in the region of 6%-7%. But to grow beyond that, it tends to take support of factors like normal monsoons and benign crude prices. And this is certainly not a good sign. In order to employ its millions, India will have to go quickly on a higher growth. Thus, big bang reforms and not prayers that few factors play out in its favour is the need of the hour. We wait for the day when RBI projects India's growth in the region of 9%-10% and that too, without any caveats.

Are auto's best days behind it?

Hero Honda, India's largest two-wheeler manufacturer kick started the results season for the auto industry when it announced its results two days back. And the industry wouldn't have asked for a better beginning. The company ended up posting record numbers. However, it may not be alone. Almost all the auto companies are likely to post another impressive set of numbers. And why wouldn't they? The year FY10 has given them perhaps not a single reason to complain. Demand remained buoyant, cost pressures were minimal and plants were running at near full capacity. Little wonder, the sector players made merry.

But perhaps not anymore. There are signs that cost pressures are on the rise. Commodities like steel and rubber that are key inputs for the industry have already hardened in the past few days. Infact, there are news that tyre manufacturers are contemplating a price hike so that rubber price inflation can be tackled. Soon, other component suppliers could follow suit. Also, volume growth may not be as buoyant as the recent past as factors like higher interest rates and a high base effect make their presence felt. Furthermore, most of the players may have to go in for capacity expansion, thus putting pressure on cash flows. Last but not the least, current valuations do not seem to be incorporating a fair degree of margin of safety in them. In other words, they do look expensive on a historical basis. This thus begs the question, are auto's best days behind it or the industry could spring some positive surprise in the quarters to come. Well, only time will tell.