Volatility plagues Indian indices
Closing

Indian stockmarkets had a rather volatile trading session today. After opening in the green, markets oscillated to either side of yesterday's close for the larger part of the day. However, renewed buying activity in the afternoon session ensured that the indices closed above the dotted line. While the BSE Sensex closed higher by around 39 points (up 0.2%), the NSE Nifty gained around 21 points (up 0.4%). While the BSE Midcap barely managed to keep its head above water, the BSE Smallcap closed in the red. Gains were largely seen in FMCG and healthcare stocks.

As regards global markets, Asian indices closed mixed today while most European indices have opened in the green. The rupee was trading at Rs 45.14 to the dollar at the time of writing.

Hindalco has announced its FY10 results. For 4QFY10, the company's standalone revenues grew by 43% YoY led by a better product mix and higher realisations. What also contributed to sales growth is the increased production from the brownfield expansion which resulted in higher volumes. While the aluminium business recorded a 31% YoY growth in sales, the copper business grew by 52% YoY. The benefit of higher prices on the LME also played its part in enhancing sales. Net profits increased almost fivefold due to strong performance at the operating level, lower interest costs and depreciation charges. The stock closed marginally lower today.

Pharma stocks closed mixed today. While Dr.Reddy's, Glenmark and Sun Pharma led the pack of gainers, Piramal Healthcare closed into the red. Glenmark and US drugmaker Merck & Co. have settled their patent dispute off court with respect to the latter's cholesterol control drug 'Zetia'. As per the terms of the agreement Merck will refund all litigation costs estimated at up to US$ 20 m. Further, Merck will allow Glenmark to launch the generic version of the drug in 2016, around 134 days before rivals. In that period, Glenmark would be able to maximize revenues and profits from the drug. Merck earns annual revenues to the tune of US$ 2 bn from 'Zetia' and its combinations. The patent on the drug is scheduled to expire in April 2017. It must be noted that many Indian pharma companies in recent times have been settling their patent challenge suits outside of court. This obviates the need to incur more costs and provides some semblance of certainty with respect to revenues.

The month of March 2010 saw India's industrial output grow by a lower than expected 13.5% YoY. There were several reasons for this. One was the partial withdrawal of the stimulus measures by the government during the budget. Second was a slow but steady increase in monetary tightening by the RBI. Both of these seem to have taken their toll on industrial production. However, there may also be a positive side to this. It takes away from the RBI's reasons to increase interest rates, as the IIP numbers are also seen as a proxy for demand led inflation pressure in the economy.

Sensex on a rollercoaster ride
01:30 pm

The Indian markets witnessed high volatility as alternate bouts of selling and buying led the indices to sharply move around the dotted line. After seeing a strong sell off about two hours ago, the Sensex rose sharply into the positive territory as buying intensified. Stocks from the realty, FMCG and healthcare spaces are amongst the top gainers, while those from the power and metal spaces are amongst the top losers.

BSE-Sensex is trading higher by about 45 points (up 0.3%), while the NSE-Nifty is trading higher by about 15 points (up 0.3%). The BSE-Midcap ad the BSe-Smallcap indices are trading lower by 0.3% each. The rupee is trading at 45.24 to the US dollar.

Healthcare stocks are currently trading mixed with Dr. Reddy's, Cadila Healthcare and Glenmark Pharmaceuticals trading firm, while Panacea Biotec and Piramal Healthcare are trading weak. Healthcare major Ranbaxy announced its 1QCY10 (December ending company) yesterday. The company reported strong performance as its revenues increased by 75% YoY during the quarter. Growth was primarily led by strong sales from 2 first-to-file (FTF) products in the US and growth in key geographies. Since the company had the exclusivity for these products with no competition from authorized generics, the revenue growth was robust in the first quarter. The company's operating margins stood at 38% as compared to 0.1% during 1QCY09. The benefit of the 2 FTF products along with cost rationalization measures led to an overall improvement in operating margins. During 1QCY09, the company reported a loss at the bottomline level to the tune of Rs 7.6 bn on the back of a poor operating performance. During 1QCY10, the company recorded net profits of Rs 9.6 bn. In addition, the company recorded a forex gain of Rs 4.5 bn during the latest quarter as against forex losses of Rs 11.3 bn in 1QCY09.

FMCG stocks are currently trading mixed with P&G Hygiene, HUL and Marico Industries trading firm, while Godrej Consumer Products and Pidilite Industries are trading weak. As per a leading financial daily, Godrej Consumer Products Limited (GCPL) is in talks with private equity investors to raise US$ 125 m. These investors include US giants Carlyle Group and Blackstone, as well as India's ChrysCapital and Standard Chartered Private Equity. JM Financial has been hired by GCPL to arrange this deal. It may be recalled that the company had recently taken approval from its board to raise upto Rs 30 bn in debt and equity for its inorganic growth plans. This fresh capital is expected to finance new acquisitions. The company has stated recently that it has been looking for possible acquisitions in Latin America. Furthermore, it was in the news recently that Godrej was in talks with an Argentine company, Issue Group Co, a family-owned business which specializes in hair coloration, for a possible buyout. It is possible we could hear news from Latin America soon.

Volatility hits markets
11:30 am

In the last two hours of trade, the benchmark indices pared their opening gains, briefly trading in the red and then returning to the positive territory. Defensive stocks are seeing buying interest as heavyweights stocks from healthcare and FMCG space lead the gainers. Buying interest is seen in the smallcap space. Stocks from power and metals are leading the losers as investors are booking profits in these stocks.

BSE-Sensex is trading in the green albeit marginally. BSE-Midcap Index is trading lower by 0.2% while BSE-Smallcap index is trading marginally above yesterday's closing. The rupee is trading at 45.32 to the US dollar.

As per a leading daily, HUL may add Rs 3,200 m to its sales following the roll out of its concept stores. The company's trade initiative dubbed "Perfect Stores" is set to be launched at 80,000 store locations, spread over 72 cities. This marketing initiative was started about 3 years ago and is HUL's last mile go-to-market strategy. The company through "Perfect Stores" aims to rationalize its distribution network by making it more efficient, deliver stocks to retailers faster and reduce inventory on store shelves. The objective is to raise sales in these stores by 30%. In fact, national roll-out began early this month and in the first week itself, HUL created around 20,000 Perfect Stores.

The company's focus on general retail trade is one amongst the many initiatives the company is taking to double its revenue. However, it may be noted that HUL's 9mFY10 sales were Rs 132,080 m. Hence on an annualized basis this initiative would add roughly 2% to the company's top line.

Oracle Financial Services announced its 4QFY10 and FY10 numbers recently. The company reported a 4% QoQ growth in revenues during the quarter. However, revenues dropped by 2% YoY for the full year. Growth during the year was mainly hampered by a 12% YoY decline in revenues of its services business, which contributed to about 32% of revenues. Growth during the quarter was driven by the strong surge in product business revenues. The company's operating margins expand by 1% QoQ during 4QFY10. During the full year the margins expanded by 9% YoY. This was on the back of effective all-round cost containment, decrease in headcount and greater proportion of revenue from product business, which garners higher margins. The company took a hit on the bottom line front, as its profits fell by 31% QoQ during 4QFY10. This was mainly due to forex losses and a higher tax outgo. For the full year, profits increased by 5% YoY in FY10.

Markets begin on a positive note
09:30 am

The Indian markets have started today's session on a positive note. The benchmark indices opened in the negative but soon moved into the green. These have managed to add to their gains since then. Other key Asian markets are in the red with China (down 1.2%) leading the pack of losers. The US markets closed lower by 0.3% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with auto and software majors finding investors' favour. However, telecom giants are facing the brunt of selling activity. The BSE-Sensex is trading higher by around 80 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 0.7% respectively. The rupee is trading at 45.24 to the US dollar.

Engineering stocks have opened the day on a positive note. Gainers here include Alfa Laval and Voltas. As per a leading business daily, L&T has won an international order worth Rs 8.5 bn from the public works authority of Qatar for advanced waste water treatment and urban reuse. The project will be executed on a turnkey basis and is scheduled to be operational by 2012. It includes design, supply, procurement, construction, testing and commissioning of the Doha south sewage treatment works phase-II expansion. The technology for the project is being provided by US-based ITT Corporation. It may be noted that L&T's international revenues have grown at a fast clip over the last few years. The company has been especially active in the Gulf and Middle East and has benefited from the infrastructure and construction boom in these regions. In our view, this will become a platform for the company to bid for more contracts of large size and complex nature.

Pharma stocks have also opened the day on a positive note. Gainers here include Dr. Reddy's and Cadila Healthcare. Piramal Healthcare announced its FY10 results. The company posted a revenue growth of 12% YoY in FY10 largely driven by the domestic branded formulations and global critical care businesses. Revenues from the custom manufacturing business fell by 17% YoY during the year. Operating margins fell marginally by 0.4% due to a rise in raw material and staff costs (as percentage of sales). While net profits registered a growth of 52% YoY, the same is largely due to forex losses reported in FY09 as against gains in FY10. Thus, excluding this and extraordinary expenses, net profits grew by 7% YoY. The company's board has recommended a dividend of Rs 5.4 per equity share.

The GDP indicator on wheels
Pre-Open

If there is any number that clearly indicates the potential of India's GDP growth, it's this. It is a growth number that is purely a multiple of an economy's GDP growth. Companies from the sector sporting this growth have featured amongst the highest profit earners during the latest quarter's results. It is thus with good reason that investors keep a close eye on the auto numbers in India and China these days. That is besides those coming from the US and Europe.

Auto numbers in Asia do seem quite strong when compared to those in the West. However, it has its own set of challenges. Increasing raw material costs and inflation are some of the major problems. With China and Indian growing at a rapid pace, these countries need to make huge investments to curtail emissions. Bringing the vehicles' emission in line with global standards even over a long duration could cost billions of dollars. This would in turn strain the automakers to spend more on cleaner technologies. The challenge is even steep in an economy like India where more than 70% of the demand is for small cars. Or those that offer maximum value for money.

India recently posted its highest ever car sales figure in the decade. The auto manufacturers' association (SIAM) expects the growth to sustain. The key levers being easy availability of finance at affordable rates. While passenger car sales have grown by 40% YoY, commercial vehicles too rode a swell of investments in infrastructure. The sales of the latter grew more than 64% YoY. The key concern for SIAM now is strains on capacity.

China, the world's largest automotive market posted a 33% increase in car sales in April 2010. The China Association of Auto Manufacturers (CAAM) forecasts 10% annual growth in sales in 2010. But both Chinese and Indian car manufacturers could be up for some disappointment. This is given the unwillingness of respective central banks to let the inflation numbers go berserk. A quick uptick in interest rates could easily shave off several percentage points from the auto sales growth.

Car manufacturers in Japan, US and Europe have also seen better days in recent times. Same time last year the US auto industry was facing its worst turmoil. Behemoths like and GM and Chrysler were en-route to bankruptcy filings. But with bailouts and small cars filling in assembly lines, these car makers too are foreseeing improved profits.

Thus the global automotive industry seems to have put the economic crisis at the back of its mind now. Nonetheless, it cannot ignore the impact of GDP growth and interest rates on its growth numbers. The global economy is far from showing signs of stability. And inflation is threatening to make financing expensive. Thus it will be a long time before the industry completely recovers from its vulnerable state. The only way to remain profitable is to be proactive in aligning with future demand. Only such measures could help the players avert another crisis.