Negative global cues hurt indices
Closing

After a choppy session, Indian indices closed marginally below the dotted line today. While the BSE Sensex closed lower by around 55 points (down 0.3%), the NSE Nifty lost around 14 points (down 0.3%). Midcap and small cap indices did not do any better and had losses of 0.3% and 0.1% respectively. While FMCG and healthcare indices traded firm, banking and auto stocks were at the receiving end. Concerns over the economic aid package for Greece clouded investor sentiments in global markets.

As regards global markets, Asian indices closed largely in the red today. Most European indices have opened on a negative note. The rupee was trading at Rs 44.46 to the dollar at the time of writing.

Infrastructure financing major IDFC declared its FY10 results today. Showing a good traction in loans to infrastructure projects, IDFC grew its net interest income by 21% YoY in FY10. The infrastructure financing institution’s net profits grew by 42% YoY in this fiscal, backed by 55% yoY growth in non fund based income. The institution’s competence in lending for long term projects against banks has aided its growth this fiscal. Meanwhile the RBI has expressed deep concern over asset-liability mismatches (ALMs) in banks’ balance sheets, arising mainly from lending to infrastructure projects. The main concern of the regulator is the huge pipeline of sanctions on which banks are sitting, mostly for core sector projects. With deposit tenures becoming shorter due to low interest rates, mismatches in banks’ balance sheets are likely to get bigger.

Private sector lender Yes Bank also declared its FY10 results today. The bank recorded 55% growth in net interest income on the back of a sterling 79% YoY growth in advances during FY10. The bank’s net profits grew by 57% YoY as also its net interest margins which came in higher at 3.1% (2.9% in FY09). Total Deposits grew by 66% YoY while current and savings account (CASA) deposits comprised 10.5% of deposits at the end of March 2010. The bank has declared its maiden dividend of 15% (Rs 1.5 per share) for the fiscal year 2010.

India, with a total length of 3.3 m kms of roads, has the third-largest road network in the world. The Ministry of Roadways in India had set an ambitious target to build 20 kms of roads per day in FY11. However, a business daily reports, that as per the Ministry, it would now be feasible to build only 12-13 kms of road a day in this fiscal. India will achieve less than half of its target due to problems in acquiring land and awarding contracts. Foreign investors have also shied away from the sector even though the government has allowed 100% FDI. This is due to problems in land acquisition and difficulties in collection of toll tax. In FY11, the government plans to build 3,000 kms of roadways. This cannot be without private sector contribution. The target will need an investment of about Rs 2 trillion annually, of which the government expects 60% to come from the private sector.

Realty, banks drag the markets down
01:30 pm

The Indian markets ventured deeper into the negative territory during the previous two hours of trade on account of profit booking activity across index heavyweights. Currently, stocks from the realty, banking, consumer durables and metal sectors are dragging the markets down, while stocks from the power, FMCG and healthcare sectors are trading in the green.

The BSE-Sensex and the NSE-Nifty are trading lower, shedding around 50 points and 16 points respectively. While the stocks from BSE-Midcap like their larger peers are also trading in red, down by 0.25%, the ones in BSE-Smallcap are trading in the green, marginally up by 0.10%. The rupee is trading at 44.44 to the dollar.

Pantaloon Retail announced its 3QFY10 results yesterday. An all-round growth across all segments of operations resulted in a top line growth of 25.3% YoY during 3QFY10. The company’s 'Value retailing’ and 'Lifestyle retailing’ business segments, which grew by 31% YoY and 38 % YoY were the main drivers of this growth. Its operating margins remained stable at around 10.5% during the quarter. On back of robust topline and operating performance, the company managed to post a significant 62.7% YoY increase in bottomline. The topline and bottomline grew by 23% YoY and 45% YoY during 9MFY10.

It may be noted that lately Pantaloon has embarked upon a restructuring plan in order to streamline its operations into three business verticals - retail, financial services and support activities. In this regard, the company transferred its Value retail business to Future Value Retail Ltd with effect from 1st January, 2010. However, for the ease of YoY comparison, we analysed the results considering the combined performance. Nevertheless, along with restructuring its business, the company aims to revamp its supply chain and increase its return on capital employed to 20% going forward. We believe that this move will enable the company to consolidate Pantaloon’s operations as a pure retail play and improve return to shareholders.

According to a leading business daily, Indian IT majors like Wipro and Tech Mahindra are vying with global players like IBM, HP-EDS for a contract worth around US$ 1 bn from Telecom Corp, New Zealand’s biggest phone company. The telecom company is in discussion with a plethora of global IT players in order to outsource its non-core IT work so as to cut costs and improve profitability. The company’s US$ 1.5 bn IT infrastructure management project with HP-EDS is due to expire this year. It may be noted that this is amongst one of the largest renewal deals being sought by IT players around the world. Deals worth around US$ 10 bn to US$ 12 bn in annual contract values are estimated to expire and renegotiated this year. We believe that given the brand they have established in the field of outsourcing, Indian IT players are strong competitors to their global players at least in the service offering like application development and maintenance and IT infrastructure services.

Maruti presents strong results
11:30 am

The Indian markets continued to remain volatile during the previous two hours as profit booking continued in index heavyweights. While some buying interest was seen in stocks in the FMCG and power space; stocks from the realty, auto and banking sectors are out of favour.

BSE-Sensex is trading lower by 11 points while NSE-Nifty is trading 3 points below the dotted line. However, BSE-Midcap Index is up by 0.2% while the BSE-Smallcap index is trading 0.4% above yesterday's closing. The rupee is trading at 44.41 to the US dollar.

Maruti Suzuki released its 4QFY10 results yesterday. The company's topline during the quarter grew by 31% YoY on the back of a 22% YoY increase in volumes. Operating profits jumped by 147% during the quarter as operating margins expanded by 6.2% on the back of lower costs as a percentage of sales. Net profit grew by 170% YoY during the quarter. The performance of the quarter was aided by a lot of tailwinds like low interest rate environment, low base effect, government incentives and buoyant economic environment. However, we believe that FY10 was an aberration and going forward, the growth should be as its long term average.

As per a leading daily, Dr Reddy's Laboratories (DRL) has launched the generic version of hypertension drug Lotrel in the US market. The drug will be launched in capsules of 2.5mg/10mg, 5mg/10mg, 5mg/20mg and 10mg/20mg strengths. DRL will be facing competition from Teva, Lupin, Sandoz and Novartis who are already marketing the drug in the US. While DRL's officials have declined to divulge the target sales of this drug, the market is believed to be worth US$ 527 m. While the market is large, DRL will have to face stiff competition, more so as Mylan and Colbalt are also looking to enter this market.

Markets begin on a weak note
09:30 am

The Indian markets have started today’s session on a negative note. The benchmark indices opened below the breakeven mark and slipped further into the red. Despite a fight back, they have not managed to breach the dotted line since then. Other key Asian markets are trading in the red with China (down 2.3%) leading the pack of losers. The US markets closed marginally higher yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading weak with banking and metal majors facing the brunt of selling activity. The BSE-Sensex is trading lower by around 28 points, while the NSE-Nifty is down by about 6 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 0.2% respectively. The rupee is trading at 44.39 to the US dollar.

Energy stocks have opened the day on a positive note. Gainers here include ONGC and Gujarat Gas. ONGC has reported an ultimate oil and gas reserve accretion of 87 m tonnes for FY10. It may be noted that ultimate reserves is a geological concept of oil and gas that can be theoretically supposed to exist in a given field. It does not take into account technical, economic or time constraints. The accretion is due to discoveries in Assam, Krishna Godavari onland, Kutch offshore and Mumbai offshore. The company produced 25 m tonnes of crude oil and 23 bn cubic meters of gas in FY10. It may be noted that the company faces the challenge of maintaining production levels from its ageing oil and gas fields in India. As a result, a key area of focus for the company is acquiring oil and gas assets abroad.

FMCG stocks have opened the day on a positive note. Gainers here include Godrej Consumer and Colgate. Godrej Consumer announced its 4QFY10 results. The company reported topline growth of 47% YoY during the quarter on the back of strong growth in its overseas business as well as due to the inclusion of the financials of Godrej Sara Lee Ltd. Operating margin improved by 0.7% YoY due to lower raw material and staff costs, partially offset by higher advertising expenditure and higher other expenditure. Net profit for FY10 grew by 96% YoY due to higher topline growth, higher other income and lower interest outgo. The strong growth is due to a stronger presence in smaller towns as well as the launch of several new offerings.

World Bank backs emerging nations
Pre-Open

The might of the developing nations is gradually making its presence felt. Members of the World Bank have agreed to support a US$ 5.1 bn increase in its operating capital and to give developing economies a greater say in running the antipoverty institution. China will now become the bank’s third-largest shareholder, ahead of Germany, but after the US and Japan. What is more, countries like Brazil, India, Indonesia and Vietnam will also have greater representation.

This is hardly surprising. Developing nations (especially the BRIC nations) had been growing at a scorching pace before the crisis erupted and their resilience was evident during the crisis as well. Even though these nations reported a slowdown in growth when the crisis heightened, the growth rate was still way above that of the rich world, which had slumped into recession. Little wonder then countries such as China and India began demanding a greater say in matters pertaining to the IMF and the World Bank. And that these countries will now have more representation in affairs of the World only highlights the growing acceptance of the clout that the emerging nations are likely to have in the future.

Disinvestment blues
The Indian government had set an ambitious target as far as its disinvestment plans were concerned. It was planning to come out with one public issue every third week in FY11. But given the lukewarm response that many issues from state-run companies have received, the target has now been scaled down to 8 companies this year. What is more, the government was aiming to mop up Rs 400 bn from disinvestment proceeds; a target which seems like a tall order now.

A significant part of the disinvestment target would be met through stake sales in companies such as Coal India Ltd (CIL) and Steel Authority of India Ltd (SAIL). The other big issues would be BSNL and MMTC. However, all is not hunky dory. The government will have to deal with challenges such as finding the right valuations for its issues and sorting out trade union issues. In FY10, the government had raised Rs 236 bn by selling its stake in five companies. This was around Rs 14 bn lower than its target of Rs 250 bn. NMDC was the biggest issue in that fiscal. This fiscal too, this is another of the various targets that the government looks likely to miss.