Banking stocks lead the rally
Closing

Indian markets closed strong today, led by buying in stocks from the banking and engineering sectors. Metal and pharma stocks however closed in the red. On the broader BSE, there was one gainer for every stock that closed in the negative. Most other key Asian markets closed weak today, led by China (down 0.5%) and Japan (down 0.3%).

The BSE Sensex and NSE Nifty closed with gains of around 120 points (0.7%) and 35 points (0.7%) respectively. Mid and small cap stocks followed suit. The BSE Midcap and BSE Smallcap indices closed up by 0.3% and 0.5% respectively.

The benefits of economic recovery have started flowing into the performance of financial companies. Even companies that have a major focus towards rural areas have benefited from the same. Take for instance Mahindra Finance, one of India's leading non-banking financial companies (NBFCs) focused on the rural and semi-urban regions. The company provides finance for utility vehicles, tractors and cars. As reported by it, for the full year ended March 2010, interest income rose by 12%. The company has also seen a 24% YoY growth on the back of 22% YoY growth in assets under management. However, what ailed the company during the year was a decline in its net interest margin. This declined to 6%, from 6.9% in FY09. Anyways, helped by higher other income and write-back of provisioning, the company grew its net profits by 61% YoY during the year. The stock closed strong today. Other gainers from among its peers included Sundaram Finance and SREI Infra Finance.

Software stocks closed weak today. Key losers included Wipro and TCS. Earlier during the day, a leading business daily reported how these companies, along with Infosys and IBM are competing against each other to get a share of the Bharti-Zain technology deal. Bharti Airtel has invited bids to outsource operations worth over a billion dollars for African assets it recently acquired from Kuwait's Zain Telecom. IBM seems to have an upper edge here as the company is already handling Bharti's Indian and Sri Lankan IT requirements since 2004. But Bharti would still like to get the best deal from these players given the scale of its operations in Africa.

Stocks of fertiliser companies closed strong today. Key gainers included Tata Chemicals, Deepak Fertiliser, and Rallis. Gains in Rallis were seemingly a result of the good financial performance reported by the company for the full year FY10. While sales grew by 5%, net profits were up 41%. The strong performance on the profit front was due to an improvement in operating margins. These improved from 16% in FY09 to 19.4% in FY10 on the back of lower raw material costs. The company has announced a dividend of Rs 10 per share (yield of 0.7%). It has also announced a bonus issue in the ratio of one equity share for every two shares held in the company.

Pharma, metals weigh markets down
01:30 pm

On account of profit booking among index heavy weights, Indian stock markets lost some momentum during previous two hours of the trade. Currently, selling activity is being witnessed among stocks from metal, healthcare, consumer durables and auto sectors. However, stocks from banking, capital goods, energy and IT sectors are managing to find favour.

The BSE-Sensex and the NSE-Nifty are trading higher, up by around 76 points and 19 points respectively. Currently, the BSE-Midcap and BSE-Smallcap indices are trading in the green, higher by 0.2% and 0.4% respectively. The Rupee is trading at 44.49 to the Dollar.

A mid-sized Indian IT company, Mindtree has announced that it will acquire 7Strata, a Chennai based remote infrastructure management firm in an all cash deal worth Rs 72 m. It expects to close the deal by first week of May. As a part of the agreement, the core management and delivery team of 7Strata will become a part of Mindtree Infrastructure and technical support division

We believe that this acquisition will benefit the company in increasing its revenue from infrastructure management services business. It may be noted that Nasscom estimates this industry to have grown by over 80% from US $ 2 bn in 2006 to US$ 7 bn in 2008. In last couple of years, Indian IT companies have gained a lot of business by managing remote IT infrastructure for their clients. While Mindtree generates just 4% of its sales from this segment, IT majors like Infosys and TCS generates as much as 7% to 8% of their revenues from this segment.

As per a press release, Piramal Healthcare has signed an agreement with Bharat Serums and Vaccines (BSV) to acquire its injectible anesthetic products business. The injectible anesthetic business includes Propofol, Bupivacaine and Atracurium Besylate. This business had a sale of Rs 106 m in FY10. Of this, Propofol accounted for about 80%. This acquisition gives Piramal access to key intellectual property developed by BSV for the manufacture of injectible anesthetics products, including process-based intellectual property and business contracts. It also provides Piramal an immediate entry in the Propofol market, which according to estimates is worth US$ 825 m. Presently, BSV sells this product in 30 countries. However, with Piramal’s distribution network, this product is expected to reach 108 countries.

Food inflation hurts Nestle
11:30 am

Markets extended their opening gains during the previous two hours of trade as buying activity persisted across heavyweights. Stocks in banking and oil & gas space are witnessing buying interest while stocks in health care and metal sectors are witnessing some profit booking.

BSE-Sensex is trading higher by 126 points while NSE-Nifty is trading 36 points above the dotted line. BSE-Midcap Index is up by 0.6% while the BSE-Smallcap index is trading 0.8% above yesterday's closing. The rupee is trading at 44.56 to the US dollar

Nestle India released its 1QCY10 results yesterday. The company posted a healthy 17% YoY sales growth with the domestic business growing by 16.7% YoY and exports growing by 20.4% YoY. The growth in the company's top line has largely been volume driven. During the quarter, the company's operating profit was under pressure due to rising raw material prices especially of milk, sugar and wheat. However, Nestle consciously decided against passing on food inflation to its customers and instead focused on expanding volumes. As a result of this strategy, the company's bottom line grew by only 2.3% YoY. The company has also declared an interim dividend of Rs 9 during the quarter. While food inflation is expected to come down, the company will have to take corrective action to protect its bottomline.

India's third largest IT exporter, Wipro announced its FY10 and 4QFY10 results today. Though the performance in 4QFY10 remained muted on account of headwinds of wage increases, rupee appreciation and the impact of cross currency movements, the company managed to post robust performance for FY10. While topline remained flat for 4QFY10, its net profits declined by 1% QoQ on account of margin contraction. Nevertheless, during FY10, the topline and the bottomline increased by 6% YoY and 18.5% YoY respectively.

The robust performance for the fiscal was driven by Wipro's IT services division which contributed around 75% of Wipro's consolidated revenues and grew by 6% YoY. Wipro's IT products division which contributes over 14% to company's topline registered a robust growth of 11% YoY. Consumer care and lighting division grew by 14% YoY during FY10. It appears that the business environment is returning to normal for Wipro and its peers in the Indian IT industry. The company expects its revenues from IT services to grow by 2% to 4% (in dollar terms) in 1QFY11.

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 below the breakeven mark but quickly moved into the positive. They have managed to stay in the green since then. Other key Asian markets are trading in the red with Hong Kong (down 0.7%) leading the pack of losers. The US markets closed higher by 0.1% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with software and banking majors finding investors' favour. The BSE-Sensex is trading higher by around 90 points, while the NSE-Nifty is up by about 25 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 0.8% respectively. The rupee is trading at 44.52 to the US dollar.

Engineering stocks have opened the day on a positive note. Gainers here include Ingersoll Rand and Bharat Bijlee. As per a leading business daily, L&T plans to realign its electrical and electronics business division (EBG) with L&T Power, its wholly owned subsidiary in power equipment manufacturing. The EBG division offers solutions for the power sector in low and medium voltage categories. It recorded sales of Rs 26 bn in FY09. It had an order book of Rs 27 bn at the end of FY09. L&T Power plans to increase its existing manufacturing capacity of steam turbine generators and boiler-turbines-generators from the current 4,000 MW (megawatt) to 6,000 MW in two years. The move aims at bringing more synergy within the L&T group. It will help leverage the company's internal strengths in the power sector. It may be noted that L&T had recently reorganised its business under vertical divisions in order to spur growth. These divisions, termed 'operating companies', have their own internal boards.

Cement stocks have opened the day on a positive note. Gainers here include Shree Cement and Prism Cement. ACC announced its 1QCY10 results yesterday. On a standalone basis, the company reported a topline growth of merely 2.3% YoY led by higher cement prices. Non-availability of wagons resulted in lower dispatches for the company. Operating profits declined by 3.9% YoY, as cost of operation grew at a faster pace as compared to growth in sales. However, net profit posted a growth led by 20% YoY jump in other income. During the quarter, the company has acquired 100% stake in Encore Cement & Additives Pvt. Ltd. This company is engaged in manufacturing and supply of ground slag. ACC also acquired 45% stake in Asian Concretes and Cements Pvt. Ltd for a consideration of Rs 3.7 bn. In our view, the upcoming capacities are expected to exert downward pressure on cement prices, apart from resulting in lower utilisation levels.

Indian cities unprepared for growth
Pre-Open

Yes, the India growth story continues unabated. At a time when the developed world is really struggling. But within India, genuine growth is limited to urban pockets. We do get to read about the hinterland clocking double digit growth. But say that to the hordes of migrants who move to the large cities in search of work. In fact, most cities are finding it simply too difficult to cope with the pressure. For two reasons - the influx is are too large and most cities have never really prepared for it.

Sadly, the situation is set to get even worse in the future. It is estimated that 590 m Indians will live in cities by 2030, up from 340 m currently. In the next 20 years, about 68 Indian cities will have a population of more than 1 m, from 42 cities currently.

This calls for expansion of India's urban infrastructure. As per a recent study by McKinsey, Indian cities need US$ 1.2 trillion over the next 20 years to cope with the situation. Currently, India spends only US$ 17 per head in its cities to build infrastructure. Compare that to China which has a capital spend of US$ 116. As per the study, India will have to ramp up its spend to US$ 134 per head.

Two things are possible if Indian cities do not expand to take in the additional job seekers. The quality of life in cities will continue to get worse. Something that is already bad, many would say. The other possibility is that it could get so bad that job seekers eventually stop migrating. But that wouldn't solve the problem. Cities are likely to generate 70% of the new jobs. Those living in smaller centers will find it difficult to get employment. Rising unemployment is a recipe for disaster in a country with a young population.

The only other country which has seen urbanisation on this scale is China. And they have built large, dazzling cities in response. While we may talk about building world-class cities, the truth is that not enough is being done. Certainly, not with the seriousness with which the Chinese went about it. At some point we will also have to. If not, the state of our urban infrastructure could turn out to be India's biggest roadblock.