India trails Asian gainers
Closing

Although the Indian indices managed to stay afloat till the end of the session today, their gains paled in comparison to their peers in Asia. Select realty and automobile companies managed to gain investor interest. Telecom stocks bore the brunt of uncertainty over the TRAI recommendations. While the BSE Sensex closed higher by around 70 points (up 0.4%), the NSE Nifty gained around 22 points (up 0.4%). Midcap and small cap stocks fared marginally better with gains of around 1% each.

As regards global markets, other Asian markets also closed in the red today with China and Japan being the key gainers. European markets have opened higher. The rupee was trading at Rs 45.13 to the dollar at the time of writing.

In a statement that should soothe Indian investors' nerves, the RBI deputy governor Dr Subir Gokarn has said that the Greek crisis will not have any impact on the central bank's policy approach to monetary tightening. He said that the RBI's pace of exit from the loose monetary policy takes into account that the global economy is still not stable. The central bank therefore prefers baby steps to normalise monetary policy. This assurance comes in good time when the market is expecting the RBI to tighten liquidity more swiftly and sharply.

The Indian banking sector is set to witness more competition, not just from the PSU and private sector players. But also from the foreign entities operating here. This is particularly when it comes to raising capital for growth. Britain-based Standard Chartered Bank's initial public offering (IPO) in India will open from May 25 to 28. The sale of shares through Indian Depositary Receipts (IDRs) will be the country's first such issue. The bank will issue 240 m IDRs, with every 10 IDRs representing one share of Standard Chartered Plc. The success of this issue will determine whether more foreign banks line up for capital issues. What it means is that domestic banks will have to prove their worth to compete for their capital needs. Private sector banks like ICICI Bank and Yes Bank closed higher today.

Novartis has announced its FY10 results. The company has reported 7.3% YoY and 12% YoY growth in sales and net profits respectively. Its EBDITA margins improve marginally by 0.7% to 21% due to a fall in raw material costs and other expenditure (as percentage of sales). The revenues for FY10 grew by a subdued 7% YoY and were largely led by the pharmaceutical and animal health businesses. Revenues from the pharma division, which accounts for 70% of total sales, grew by 8% YoY. The robust 22% YoY growth in the animal health division could be attributed to various marketing initiatives undertaken by the company. Having said that, revenues from the generics division fell sharply by 36% YoY.

In the pharma business, the company has chalked a strategy of driving growth through life cycle management of existing products and in-licensing opportunities. In the OTC segment, while consolidation of existing brands and launch of new products in various categories is expected to augur well for this business, overcoming competitive pressures will be the key challenge going forward.

Investors eye small, midcap stocks
01:30 pm

Although trading well above the dotted line, the Indian markets did see some pressure as the indices shed the gains that were seen during the previous two hours of trade. The market breadth is positive at present as there are 2.2 gainers for every loser on the overall BSE. In terms of sector specific stocks, buying is seen in stocks across the board led by those from the realty, auto and healthcare spaces. Stocks from the oil and gas and metal spaces are amongst the lowest gainers at present.

The BSE-Sensex is trading up by 125 points (up 0.7%) while NSE-Nifty is trading 35 points (up 0.7%) above the dotted line. Stocks from the small and midcap spaces seem to be in demand as the BSE-Midcap and BSE-Smallcap indices are both trading up by 1.3%. The rupee is trading at 44.96 to the US dollar.

Engineering stocks are currently trading firm led by Crompton Greaves, Praj Industries and ABB. Blue Star announced its results yesterday. The company reported a 22% YoY revenue growth during 4QFY10, while revenues for the full year FY10 grew by 1% YoY. The company's electro-mechanical projects & packaged air-conditioning systems (EMPS) business led to the strong growth during the quarter. Revenues of this segment increased by 25% YoY. For the full year, revenues of this segment increased by 4% YoY. The EMPS division contributed to nearly 71% of sales as against 69% during the previous year.

Operating margins during the quarter contracted by 1.3% YoY mainly on account of higher cost of traded goods. As for FY10, operating margins expanded by 0.5% YoY and stood at 10.9%. Net profits during the quarter grew by 18% YoY owing to higher depreciation costs and the contraction in operating margins. Higher other income and lower interest costs helped in the faster increase in bottomline as compared to the 9% YoY increase in operating profits during the quarter. Profits for the full year grew by 10% YoY. As of March 2010, the company had an order backlog of Rs 17.3 bn which is nearly 0.7 times its FY10 revenues. The company's backlog grew by 29% YoY as compared to the previous year.

Operating margins during the quarter contracted by 1.3% YoY mainly on account of higher cost of traded goods. As for FY10, operating margins expanded by 0.5% YoY and stood at 10.9%. Net profits during the quarter grew by 18% YoY owing to higher depreciation costs and the contraction in operating margins. Higher other income and lower interest costs helped in the faster increase in bottomline as compared to the 9% YoY increase in operating profits during the quarter. Profits for the full year grew by 10% YoY. As of March 2010, the company had an order backlog of Rs 17.3 bn which is nearly 0.7 times its FY10 revenues. The company's backlog grew by 29% YoY as compared to the previous year.

Auto stocks are currently trading firm led by Mahindra and Mahindra, Ashok Leyland and Tata Motors. A leading daily has reported that the management of Mahindra and Mahindra is looking to relaunch its passenger car Logan in a new avatar. It is believed that the company will rename the vehicle, give it a makeover and also cut the size to less than 4 metres. The latter will help in reducing the excise duty on the vehicle, thereby reducing the overall cost of the vehicle. It must be noted that the sales volumes of the vehicle have not been anywhere close to the initial target set by the company. This is despite the Indian auto industry seeing its best year in FY10. To put things in perspective, only 303 units were sold during the month of April 2010. This was a 45% YoY decline as compared to the corresponding month last year.

As per the company's management, the company will focus on building a new campaign in the short term. The name of the vehicle will be changed in December, around the time when Renault exits the picture. It must be noted that M&M bought out Renault's (its partner) stake in the joint venture recently. And within a week of it doing so the company reduced the vehicle's price. However, on an overall basis, all these developments will not have a significant development on the company's overall operations.

Godrej top gainer on acquisition news
11:30 am

The benchmark indices were seen holding on to their opening gains in the previous two hours of trade. Buying interest is seen across the board with stocks from the realty, auto and consumer durables sectors witnessing maximum interest. On the other hand, stocks from FMCG sector are trading subdued.

BSE-Sensex is trading up by 126 points while NSE-Nifty is trading 36 points above the dotted line. BSE-Midcap and BSE-Smallcap indices are both trading up by 1.1%. The rupee is trading at 45.03 to the US dollar.

As per a press release, Godrej Consumer Products (GCPL) has entered into an agreement to purchase the 51% stake of Sara Lee in its joint venture, Godrej Sara Lee Limited (GSLL). As per this agreement, GCPL will have to pay Euro 185 m or about Rs 10.5 b for this transaction. GSLL had Rs 9.7 bn in sales in FY10 and the net profit was Rs 1.3 bn for the same period. Hence the price translates to about 16 times earnings. With this acquisition, Godrej will own 100% state in the JV.

It may be recalled, Sara Lee is in the process of selling off its personal care business to concentrate on its foods business. However, as per the agreement, Godrej will continue to have the distribution rights for Sara Lee products till 2012. Beyond 2012, Godrej will have the option of either continuing with the distribution rights or selling them. Godrej is expected to raise money for this deal through equity dilution and private equity.

India's largest aluminum manufacturer Hindalco announced its FY10 results. The company's standalone top line grew by 7% YoY. This performance came on the back of increase in volumes and better product mix. However, the operating profit fell by 3% YoY. This was a result of lower aluminum prices and higher prices of raw material. The operating profits were also affected as a result of lower realization for by-products and lower fertilizer subsidiary. However, low-cost brownfield expansions and higher capacity utilizations helped support operating income. The company's net profits fell by 14% YoY as a result of lower operating income and lower other income. The fall in net profits could have been higher but for lower interest costs and lower tax expense. While the demand for aluminum is expected to be strong in the coming years, lower realisations as a result of marco-economic reasons are a concern.

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 above the breakeven mark and have managed to hold on to their gains since then. Other key Asian markets are also in the positive with Japan (up 1.5%) leading the pack of gainers. The US markets closed higher by 1.4% yesterday.

Currently in India, heavyweights from the BSE-Sensex are trading strong with auto and metal majors finding investors' favour. The BSE-Sensex is trading higher by around 140 points, while the NSE-Nifty is up by about 40 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 0.8% and 0.9% respectively. The rupee is trading at 44.85 to the US dollar.

Steel stocks have opened the day on a positive note. Gainers here include Tata Steel and JSW Steel. As per a leading business daily, Tata Steel plans to switch to a business model driven by quarterly contracts. It plans to switch to quarterly contracts for raw material suppliers from the existing annual pricing system. Contracts with key buyers like the railways and the auto sector will also be made a quarterly affair. Retail buyers already operate under a monthly time frame. This decision comes on the back of dramatic pricing policies of key global raw material suppliers, who are trying to cash in on the rising steel demand. It may be noted that BHP Billiton, Rio Tinto and Vale control the global iron ore industry. The coking coal industry is controlled by BHP Billiton, Rio Tinto, Anglo American and Xstrata. Iron ore prices have increased 30% since December 2009 to US$ 143 per tonne, while coking coal has increased 16% to US$ 220 per tonne. In our view, the switch to quarterly contracts will help Tata Steel pass on the rising costs, although it remains to be seen how buyers react to such a move.

Mid-cap engineering stocks have also opened the day on a positive note. Gainers here include Finolex Cables and Havells. Havells announced its FY10 results yesterday. The company has reported a 13% YoY growth in topline during the year. The biggest contribution came from the switchgears and the lighting and fixtures segment. Switchgear revenues increased by 16% YoY in FY10. Lighting & Fixtures revenues increased by 32% YoY due to increased sales of both Luminaries and CFL. On the margins front, while lower material cost was a common factor behind the margin improvement across segments, better product mix also helped matters in segments like lighting and fixtures. Besides improved operating performance, greater economies of scale and lower interest charges contributed to the robust growth in bottomline, which grew by 56% YoY during FY10.

Inflation to come down rapidly: FM
Pre-Open

The developed world and India seem to be engaged in entirely different battles right now. The developed world is fighting hard to stave off a potentially deflationary spiral. India, on the other hand, wants to bring inflation under control. Looks like India is going to emerge victorious, at least in the near term. No less than the country's FM has endorsed such a view.

Addressing a meeting of an industry body, the FM said that he expects inflation based on CPI to decline rapidly on the back of fall in the price of food items. It should be noted that India's food inflation, based on wholesale prices had scaled to as much as 20% few months back, creating a huge furore amongst its denizens. The number now stands in the vicinity of 16%, made possible due to arrival of fresh crops in the market. The CPI is expected to slip even more going forward as food prices come down further.

The fall in CPI is also likely to be a positive for the economic outlook in the near term as this would mean lesser tinkering of the interest rates by the RBI and hence, a more conducive environment for growth. While the IMF in its latest outlook has projected India's GDP growth to grow by 8.8% in 2010 and 8.5% in 2011, the FM is hopeful of an even better performance. Clearly, optimism seems to be back in all its glory amongst the policymakers in India. However, it will not take more than a sub-par monsoon to reduce even the best laid plans to a nought. Thus, optimism needs to be tempered to that extent.

Look who supports a Gold standard?

It is quite common these days to blame politicians for most of the ills plaguing the world economy. To most of us, they come across as ill equipped to handle economic matters and hence, are prone to messing things up, as they are doing right now. Thus, it comes as a pleasant surprise if a politician of an extremely high standing gives some valuable insights on matters economic. One such person is the former US President, Bill Clinton.

In a recent interview, Bill revealed an economic side of his that would be a rarity in political circles. Clinton sounded like a hardcore supporter of Gold and observed that the current financial crisis in the US had its roots in the US coming off the gold standard. While he did try to cover up for it by stating that the US came off the gold standard for reasons of economic management, he more or less said the same thing that most economic experts of repute are trying to highlight these days. For the world to have any reasonable chance of enjoying a long period of stable economic growth the excesses of the past should be allowed to die their natural death and the government should stop postponing the pain by resorting to money printing. If only Messrs. Obama and Merkel could take Bill Clinton a little more seriously.