Persistent buying buoys indices
Closing

After opening in the green, markets made steady inroads into the positive territory in the ensuing hours led by sustained buying activity across index heavyweights. This ensured that the indices closed well above the dotted line in the final trading hour. While the BSE Sensex closed higher by around 580 points (up 3%), the NSE Nifty gained around 176 points (up 4%). Midcap and small cap stocks also did well to notch gains of 2% and 3% respectively. Gains were largely seen in metals and banking stocks.

As regards global markets, Asian indices closed firm today while the European indices have also opened in the green. The rupee was trading at Rs 44.87 to the dollar at the time of writing.

Pharma major Cipla announced its FY10 results late Friday. The company clocked a subdued 7% YoY topline growth during FY10. The domestic business did reasonably well to grow by 10%. However, exports performance was muted with sales growing by a mere 6% YoY. While exports formulations grew by 7% YoY, exports API growth was flat. Operating margins expanded by 4.5% to 24.2% largely due to a fall in raw material costs and other expenditure (as percentage of sales). The bottomline grew by 39% YoY due to a strong show at the operating level, lower interest costs and extraordinary income received during the year. Cipla had signed an agreement with Piramal Healthcare for the sale of intellectual property rights in India related to the brand ‘i-pill’ for a consideration of Rs 950 m. Thus, even after excluding this extraordinary income, Cipla’s bottomline growth was still strong at 27% YoY during the year. The stock, however, closed lower by 6% today.

Most auto stocks closed firm today with the key gainers being Tata Motors, M&M and TVS Motor. As per a leading business daily, the total domestic vehicle market grew by 25.2% in April as the automobile industry continued to benefit from the overall economic growth witnessed by the country. According to the Society of Indian Automobile Manufacturers (SIAM), domestic car sales witnessed a growth of 39.5% YoY during April. What has fuelled the overall growth in the auto industry has been the increasing thrust on infrastructure, availability of finance and improvement in customer sentiments. However, the likelihood of sustaining such a robust growth in the coming year looks challenging. Plus Indian automakers will have to deal with the problem of rising input costs.

As reported in a leading business daily, top policymakers do not expect the Greek debt crisis to impact India much other than that there could be hiccups in the near term due to likely capital outflows. The major concern for India continues to be inflation and this has been spreading to the non-food items too. Part of the reason for the rise in inflation has been the influx of money from foreign investors especially in equities. Indeed, as far as the Greek sovereign crisis is concerned, any near term selloff by foreign investors should be looked upon as an opportunity by long term investors in India to buy good quality stocks at attractive prices.

Largecaps outperform their peers
01:30 pm

Continuous buying activity led the markets to rise steadily during the previous two hours of trade. The market breadth is extremely optimistic as the overall advance to decline ratio is poised at 3.5 to 1 on the BSE. Stocks across the board are trading firm led by those forming part of the metal, realty, banking and oil and gas spaces. Stocks from the healthcare and FMCG sectors are amongst the lowest gainers at present.

BSE-Sensex is trading higher by 450 points (up 2.7%) while NSE-Nifty is trading 140 points (up 2.8%) above the dotted line. BSE-Midcap Index is trading higher by 2.1% while the BSE-Smallcap index is trading higher by 2.4%. The rupee is trading at 44.96 to the US dollar.

Steel stocks are currently trading firm led by Tata Steel, JSW Steel and SAIL. A leading business daily has reported that steel major, Tata Steel is looking at raising Rs 100 bn through debt in the coming future. The proceeds from this will be mainly used to finance an expansion plan at its Jamshedpur facility. A part of it will also be used to reduce the debt which the company had taken to acquire Corus. It is believed that the company is looking to expand the steel making capacity at its Jamshedpur plant from 6.8 m tonnes to about 10 m tonnes. This capacity is likely to be set up by September 2011. This debt is likely to be taken on the books through tranches – the first one Rs 40 bn through a 15-year bond with an annualised coupon of 10.5%. It is reported that this 3 m will require an investment of Rs 130 bn.

The fact that India continues to be a net importer of steel (despite having good iron reserve) gives a clear indication that steel demand is strong in the country. With the industry witnessing delays in setting up capacities, production of steel has not been growing in line with the demand. In terms of financing the debt, the balance sheet of the company's domestic operations is quite healthy. As such, financing this expansion should not really be a problem.

Banking stocks are currently trading firm led by Kotak Bank, ICICI Bank and Yes Bank. Punjab National Bank declared its 4QFY10 and FY10 results. The bank's interest income grew by 12% YoY aided by a growth of 21% YoY in advances. However, net interest margins expanded by 0.1% as a result of higher proportion of CASA. Fee income grew by 22% YoY while cost to income ratio decreased by 4% to stand at 39% for the year. CAR ratio stood at 14.2% while net NPA climbed by 0.1% to 0.5% of advances for the year. For 4QFY10 the interest income increased by 9.6% while net interest income increased by 40%. The bank's growth has been led by a healthy growth in advances. However, the concern for this bank is low proportion of fee income and slippages in agricultural loans.

Metals drive up the markets
11:30 am

The benchmark indices continued their climb upwards in the previous two hours of trade. Buying interest is seen across the board lead by stocks from the metal, realty and banking space. Only stocks from the healthcare space are seen trading in the red, albeit marginally. BSE-Sensex is trading higher by 291 points while NSE-Nifty is trading 95 points above the dotted line. BSE-Midcap Index is trading higher by 1.8% while BSE-Smallcap index is trading 2% above Friday’s closing. The rupee is trading at 45.04 to the US dollar.

As per a leading financial daily, Maruti Suzuki has asked its 200 odd vendors to reduce costs across the board. With increase in competition, the company has taken stringent measures to contain its costs. Now to maintain its competitive edge the company has asked its vendors to also cut their component costs by 3%. This cut would work out to be a saving of Rs 7,000 per car at FY10 production levels. However, as per the company, this cut is necessary to maintain car prices as the company is facing a rising raw material costs scenario. The company is also working on a new engine which will be more fuel efficient. Maruti is facing competition in its small car segment. With these measures, the company is seen concentrating on combining value for money with performance to maintain its leadership in the small car market.

NIIT Ltd announced its results last Friday. Sales during the full year FY10 grew by 4% YoY. The company’s operating margins grew at a faster pace of 32% YoY on the back of a slow increase in expenditure (1% YoY). Operating margins during FY10 stood at 13.1% as compared to 10.3%, on the back of efficient cost containment measures and decrease in headcount. The company’s net profits during the year remained flat. Bottomline performance was mainly impacted by higher forex losses and depreciation costs.

Growth during the year was mainly on the back of a 45% YoY increase in sales of its school learning business. However, this segment is the company’s lowest contributor to sales. The largest contributor to sales is the corporate learning solution segment. This witnessed a sales decline of 6% YoY. The key reason behind the same is the continued weakness in corporate spending globally. During the quarter ending March 2010, the company reported a 2% YoY decline in sales. However, profits grew by 41% YoY on the back of a 31% YoY increase in margins.

Positive start to the week
09:30 am

The Indian markets have started today's session on an extremely positive note. The benchmark indices opened above the breakeven mark and soon moved further into the green. They have managed to hold on to their gains since then. Other key Asian markets are in the green with Japan (up 1.3%) leading the pack of gainers. The US markets closed lower by 1.3% last Friday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with metal and banking majors finding investors' favour. The BSE-Sensex is trading higher by around 227 points, while the NSE-Nifty is up by about 72 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 1.6% and 1.9% respectively. The rupee is trading at 45.43 to the US dollar.

FMCG stocks have opened the day on a positive note. Gainers here include Henkel India and P&G Hygiene. As per a leading business daily, FMCG major Dabur plans to acquire companies in the personal care and healthcare space in the Middle East and Africa this fiscal. The company is in talks with several companies. Dabur is flexible about the size of the deals and will raise funds if necessary for large transactions. It may be noted that it had announced plans last year of spending Rs 10 bn for acquisitions but could not find suitable deals. In our view, acquisitions in Middle East and Africa make sense for the company as it already has a presence there. In fact, these regions account for nearly 50% of its overseas revenues, which in turn account for about 20% of the company's topline.

Retailing stocks have also opened the day on a positive note. Gainers here include Trent and Pantaloon. As per a leading business daily, Titan plans to spend Rs 10 bn in the next five years with an increased focus on international markets. The amount will be spent on marketing and retail, sales and distribution, and research and development. It is part of the company's plan to become the world's third largest watch company. In fact, it aims to become the number one watch brand by 2015 in the mid-market segment in 8 out of the 26 countries in which it operates outside India. Consequently, it has set a target of reaching Rs 3 bn in international revenues from the present Rs 1 bn. However, India will remain Titan's core. It has a 65% share of the Indian watch market. Hence, the company wants to increase its 'World of Titan' stores from 295 stores now to 325, by the end of FY11. It also wants to increase its 'Fast Track stores' stores from 24 stores now to 100 by the end of FY11.

Treat this volatility as your friend
Pre-Open

The European crisis has come like a shocker to the global stock markets. Emerging markets like India haven't been spared either. And with the crisis not looking to get over quickly, investors remain on tenterhooks as of now. The last week saw global markets crash under this stress. Except China, most other key global indices closed the week with losses of 5-10%. The BSE-Sensex was down around 5%.

As we enter a new week, news flows from the global markets remain not so good. While there have been some positive earnings reports coming out of Indian companies, markets seem to be least interested in them. The topmost concern remains the European crisis and whether it could lead to another worldwide crash in stocks. In short, the overall sentiment seems dicey to say the least.

Indian markets are already at their lowest in two months. Stocks from realty and commodities sectors have been among the worst hit during this period. Realty stocks have been under pressure due to fear of higher interest rate given the rising inflation. As for commodity stocks, these have been weighed down by the global concerns, chiefly led by fear of an extension of slowdown in the western world.

So what are you doing now as the markets move on a correction path? Being brave and investing fresh money? Or being cautious and waiting on the sidelines for the markets to correct further? Or being fearful and selling off your investments that you had originally bought for the long term?

The thought of losing money in a correction seems a terrifying prospect to most investors. But going by history, such a fear seems misplaced especially if one is invested into quality companies. Your real fear as a long-term investor should be not having enough saved to meet the financial needs of your children, or to live comfortably after retirement.

Not only can periods of high volatility like the current one be tamed, these can even create some great opportunities for long term profits.