Inflation numbers spoil the party
Closing

A bout of profit booking during the closing hours resulted in Indian markets coming off the day's highs and settling marginally in the positive. Thus, while BSE Sensex closed with gains of around 100 points (up 0.6%), NSE Nifty edged higher by around 25 points (0.5%). BSE's small and mid cap indices however ended almost flat. On the Sensex, the advance to decline ratio was evenly split with one stock gaining for every one that declined.

As far as global markets are concerned, while Asian indices closed mixed, Europe is trading in the red currently. The rupee was trading at Rs 44.5 to the US dollar at the time of writing.

Today was the third day in a row when the markets closed higher for the day. However, just as it appeared that today's gains are going to be the most meaningful, the indices scaled back significantly, thus leading to yet another marginally higher closing. The last minute decline seemed to have been sparked off by news of India's food inflation topping 17.7% for the week ended April 10 as opposed to 17.2% in the prior week. This is certainly not good news as it could force RBI to go in for another round of rate hikes much before expected. And since this could also hurt economic growth, investors scurried for cover and resorted to profit booking at the fag end of the day.

Hindustan Zinc, India's largest zinc producer announced its FY10 results late yesterday. The company has put up a strong show backed by higher metal prices. Net sales grew by 41% YoY during the year whereas operating margins witnessed a 10% jump. Thanks to this strong operating performance, net profits came in higher by 48% YoY during the year. Average prices of zinc stood at US$ 1,936, up 24% YoY. Similarly, average prices of lead stood at US$ 1,990, up 20% YOY. Thus, the increase in both volumes as well as prices during the year came together to help the company post a 41% YoY growth in topline. The company's expansion plans are progressing well and post completion of these, Hindustan Zinc will be the world's largest integrated zinc-lead producer with a total smelting capacity of 1.064 mtpa. The stock ended strong today.

Bharat Forge, India's largest automotive component player closed weak today. This seemed a result of the company's plans to raise funds through a QIP issue. Since this would entail equity dilution, the plan has not gone down well with investors. It should be noted that just few days back, the company redeemed FCCBs worth US$ 131 m, which included a principal component of US$ 102 m and redemption premium of US$ 29 m. The FCCBs under discussion were issued way back in 2005 and were optionally convertible into GDRs/equity shares. However, FCCBs to the tune of just US$ 17.8 m were converted into equity, with the company choosing to redeem the rest. Thus, the recent QIP issue seems targeted towards raising funds for the FCCB redemption.

Energy, auto drive the gains
01:30 pm

The Indian markets continued to move upwards on account of sustained buying activity witnessed during the previous two hours of trade. The stocks from the energy, auto, FMCG and banking sectors are leading the pack of gainers. The stocks from the realty sector are the only ones languishing in the red.

The BSE-Sensex and the NSE-Nifty are trading higher, up by around 205 points and 56 points respectively. The BSE-Midcap and BSE-Smallcap are also trading higher, up by around 0.5% and 0.7% respectively. The rupee is trading at 44.4 to the dollar.

According to a leading business daily, pharmaceutical major Lupin has got USFDA's nod for its anti-depression drug 'Imipramine Pamoate' capsules. Mumbai based drug major's subsidiary in the US, Lupin Pharmaceuticals has won US health regulator's nod for marketing the anti-depression drug in the US in a number of strengths (75 mg to 150 mg). This drug is a generic equivalent of an anti-depressant 'Tofranil-PM' which had annual sales of around US$ 39 m for CY09. We believe that this is a positive for the company as US continues to be its leading market. In 3QFY10, Lupin registered a growth of 76% in sales of branded generics in the US. Going forward, we expect Lupin's growth to be driven by increasing scale of its US generics business and the other geographies that the company has ventured into, namely Europe, Africa, Asia and Australia. Currently Lupin is trading in the red on BSE.

India's largest vertically integrated media and entertainment company, Zee Entertainment declared its FY10 results yesterday. The company saw a topline growth of 1% YoY despite a 32% YoY decline in revenue from syndication, film distribution and education sales in FY10. The company's advertising revenue grew by 1% YoY, while subscription revenue grew by 9% YoY. Zee Entertainment managed to expand EBITDA margins by 3% on back of lower programming, operating and staff costs. Backed by higher operating margins and lower finance charges, its bottomline grew by 19% YoY during FY10. However, it may be noted that the numbers of 4QFY10 and FY10 include the results of the regional general entertainment channel business (R-GEC) acquired from Zee News which makes the financial numbers a little less comparable.

Nevertheless, during 4QFY10 the company saw a significant uptick in advertising revenues which grew by 54% YoY during the period. Going forward, though we expect the advertising front to remain tightly linked to the volatile macroeconomic environment, subscription numbers will continue to remain strong. Over the long term, we believe that the TV broadcasting sector will continue to grow and that Zee will be able to capitalise on the same given its strong position in the sector. Zee Entertainment is trading in the green.

Oil & Gas powers market
11:30 am

In the last 2 hours of trade the markets crossed the dotted line as buyers returned to the markets. Heavy buying activity was witnessed as market sentiments improved. Stocks in the oil & gas and FMCG space are witnessing buyer interest while investors are seen booking profits on stocks in the power and realty space.

BSE-Sensex is trading higher by 114 points while NSE-Nifty is trading 31 points above the dotted line. BSE-Midcap Index is up by 0.4% while the BSE-Smallcap index is trading 0.8% above yesterday's closing. The rupee is trading at 44.46 to the US dollar

As per a leading daily, Exide is facing labor problems which are affecting its production. As a result of a go-slow agitation by workers at Exide's Bawal unit, production has fallen to a fourth of its installed capacity. The Bawal unit in Haryana has an installed capacity of 16,000 units per day and supplies batteries to Hero Honda Motors and Honda Motorcycle and Scooter India (HMSI). As per the company's management, the go-slow agitation which has been declared illegal by the state government has been due to outside instigation. This is in spite of the company signing a three year agreement with the workers. As per reports Hero Honda's dispatches is suffering due to this agitation. The company has between 5,000 and 8,000 vehicles which need to be fitted with batteries before being dispatched to its dealers. Bawal is home to several auto part makers. In the past this region has witnessed a lot of labor agitation which has resulted in slow production and also closing of factories.

As per a leading financial daily, the EIH Ltd. owned Oberoi Mumbai Hotel is reopening after 17 months spent for reconstruction. EIH has spent close to Rs 1.7 bn on repairs of the hotel which was closed after the 26th November terrorist attack. The hotel was insured for a year for loss of revenue and reconstruction and so far the company has received Rs 620 m from the insurance company. The number of rooms in the hotel has been brought down from 327 to 287 while the number of suites has been increased from 22 to 73. The restaurants have also been reconstructed and the hotel is scheduled to reopen on the 24th of this month. It should be noted that Oberoi Mumbai is an important property for the company as a large portion of its revenues are derived from its Trident, Mumbai and Oberoi, Mumbai properties. We believe that the reopening of this property is going to be a positive for the company, more so as we are seeing an increase in foreign traffic as the effects of the economic slowdown recede.

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 above the breakeven mark but slipped soon thereafter. They have not managed to return into the positive since then. Other key Asian markets are trading in the red with Japan (down 1.9%) leading the pack of losers. The US markets closed marginally higher yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading weak with metal and power majors facing the brunt of selling activity. However, select FMCG and auto stocks are in the green. The BSE-Sensex is trading lower by around 31 points, while the NSE-Nifty is down by about 15 points. However, buying interest is being witnessed among mid and small cap stocks as the BSE-Midcap and BSE-Smallcap indices are trading higher by 0.1% and 0.3% respectively. The rupee is trading at 44.56 to the US dollar.

Energy stocks have opened the day on a negative note. Losers here include Castrol and GAIL. As per a leading business daily, Reliance Industries along with its joint venture partner, Atlas Energy, plans to buy 42,344 acres in the gas-rich Marcellus shale. They will buy acreages in Pennsylvania, US at an average price of US $4,532 per acre. It may be noted that Reliance Industries has agreed to pay US$ 1.7 bn to Atlas Energy for a 40% stake in its Marcellus shale operations. Overall, the joint venture would control 343,000 acres of gas fields. Marcellus shale is estimated to hold enough natural gas to satisfy US demand for a decade. Reliance Industries has been keen on acquiring energy assets overseas in order to expand operations and achieve scale. The Indian petrochemical giant has tried and failed to acquire a few other energy companies in the recent past before achieving a breakthrough of sorts with Atlas Energy.

Auto stocks have opened the day on a positive note. Gainers here include M&M and Escorts. TVS motor announced its FY10 results yesterday. Topline grew by 18% YoY during the period. A growth of 13% in two-wheeler sales was the key driver. It is usually the motorcycles segment that drives company's volumes. However, that was not the case this time around. Scooters shone and grew by nearly 20%. Due to the company's high operating leverage, operating profits grew by an impressive 39% as margins expanded by nearly 1%. Bottomline jumped nearly threefold on the back of an 18% growth in topline. Had it not been for the one time exceptional loss of Rs 462 m, the growth in net profits would have been even higher.

This time it's not food inflation
Pre-Open

In another first of sorts, the central bank of India has set a trend most of its peers would find hard to follow. That of sharing its logic behind using monetary tools. But that's not the end of it. Since the last quarter, the RBI has also invited comments and suggestions from researchers on how it can better broadcast economic data.

In its second such interaction with us, the RBI governor Dr Subbarao spoke at length on his prime concerns. The former Ministry of Finance official also explained in detail as to what exactly is stoking inflation despite cooling food prices. According to him, it is no more food but manufactured goods that are governing price rises. He also fears that an erratic monsoon could result in further shortage of food. This coupled with increased demand for non-food products could make the RBI's job more challenging. Nonetheless, the RBI is now determined to measure inflation at consumers' level as also publish data on an ongoing basis. This is against its current practice of setting year end targets. For instance, the RBI's inflation (WPI) target for March 2011 is 5.5%.

Besides manufactured goods, rising interest costs may also weigh heavy on your budget. With the RBI getting increasingly worried about managing excessive capital inflows, interest costs are bound to move up. The credit to infrastructure projects has risen from 8% to 13% of bank loans in the past year. These will also be funded largely through higher cost deposits.

Other key factors that could affect RBI's inflation fighting are the global economic recovery and commodity prices. The RBI does not expect the recovery of developed economies to be very smooth. Having said that, the rise in commodity prices paints a very uncertain picture.

However, what is enthusing is that the RBI is not being a silent spectator to economic chaos unlike its peers in the US. In a much regulated manner, the Indian central bank is taking steps in the right direction. Be it managing liquidity to accommodate government borrowings or controlling volatility in forex rates. Call it baby steps or anything else; we believe the well timed moves can save many blushes in the days ahead.