Volatility plagues Indian markets
Closing

The Indian markets witnessed a volatile session today. After barely managing to stay afloat during the early hours of trade, selling activity subsequently intensified pushing the indices into the red. While the indices did manage to make good their losses in the afternoon session, this foray into the positive was brief as a fresh bout of selling ensured that the markets closed well below the dotted line. While the BSE Sensex closed lower by around 58 points (down 0.3%), the NSE Nifty lost around 19 points (down 0.4%). BSE Midcap and Smallcap indices, however, managed to buck the trend as they registered gains of around 0.3% and 1% respectively. While banking and auto stocks found favour, profit booking was witnessed in FMCG and metals stocks.

The Asian indices closed mixed today, while the European indices have opened on a negative note. The rupee was trading at Rs 46.72 to the dollar at the time of writing.

As per a leading business daily, steel players are expected to increase prices by 3-4% or Rs 1,000-1,500 per tonne in January 2010 in line with rising global prices. In the international markets, prices have risen by 5% in the past month due to an increase in demand. This price hike will be applicable to both long and flat steel products. SAIL plans to hike long product prices by Rs 1,000-1,200 per tonne and flat steel products by Rs 700-1,000 a tonne. Already the company along with Tata Steel had hiked prices of long and flat steel products by up to Rs 2,000 per tonne recently on the back of rising demand. While this will be a positive for steel companies, we believe that industries which consume steel as a raw material such as automobiles, consumer durables and construction will be the ones to bear the brunt of higher prices and consequent impact on margins. Both SAIL and Tata Steel closed lower today.

MNC pharma stocks ended the day on a mixed note. While Aventis and GSK Pharma closed higher, Pfizer and Novartis closed in the red. Aventis closed higher by 4% today and the stock price has doubled since the rally began in March. The company put up a decent performance in 9mCY09 wherein the sales of its domestic business grew by a healthy 14% YoY. Further, as in CY08, the exports business also did well during the nine month period particularly after a string of poor performances in CY06 and CY07. The company has a very strong presence in the chronic therapy segment and many of its key brands have managed to retain market share despite intense competition. Further, the company is increasingly looking to bolster its presence in the rural markets and has launched a rural marketing division for the same.

While rising inflation has increased the prospect of a hike in interest rates, banking behemoth SBI has stated that there will be no hike in lending rates in the next six months as there is surplus liquidity in the market. As reported in a leading business daily, besides strong liquidity, an increase in deposits is also another reason why there will be no hardening of rates. What is more, the bank has stated that credit offtake has been slow, making the case for a rise in lending rates in the short term weak. In our opinion if food inflation does not subside, the RBI might go in for higher interest rates which will compel banks in India to follow suit. SBI closed higher today.

Realty, IT prop up markets
02:30 pm

The markets cut some of their losses on the back of buying activity, thus rising closer to the dotted line during the previous two hours of trade. Currently, selling activity is being witnessed across sectors led by stocks from the capital goods, oil & gas, banking, and FMCG sectors. However, realty, consumer durables, IT and telecom sectors are seeing gains.

The BSE-Sensex is trading down by around 15 points and the NSE-Nifty is down by around 5 points. However, midcap and small cap stocks have managed to buck the trend. Currently, the BSE-Midcap and BSE-Smallcap indices are trading up by 0.3% and 1% respectively. The Rupee is trading at 46.71 to the Dollar.

According to a leading business daily, Indian IT majors are eyeing US$ 10 bn IT outsourcing deals being proposed as IT restructuring project at General Motors (GM). It may be noted that GM invited bids for US$ 15 bn projects in 2006. However, these projects were deferred on account of GM's restructuring. Now the new management under US government plans to restart these IT projects. Indian IT majors like Infosys, TCS, Wipro and Mahindra Satyam which are already amongst GM's IT suppliers are competing with the global giants like IBM, HP-EDS and Capgemini for the same. GM is also looking for vendor consolidation in IT. It might end up working with fewer vendors which have proven track-records. So the competition is expected to get tougher.

These IT projects are expected to comprise of design, applications and seamless migration from older operating systems to newer ones. The IT service providers will also be responsible for newer deliverables like expense reduction, value-generation etc. So the pricing is expected to be outcome based i.e. it will depend on the effectiveness of the solution rather than the number of software professionals deployed. We believe such non-linear projects will be critical for Indian IT companies which are now aiming to decouple their growth from the employee headcount.

Wind turbine major Suzlon is currently trading marginally lower on the bourses. As per a leading business publication, Belgium industrial gearbox maker Hansen Transmissions is looking to increase its presence in the Chinese market after Suzlon cut its stake in the company. Recently Suzlon divested 35% of its 61% stake in Hansen to repay debt taken for its other major acquisition REpower. Suzlon now holds 26% in Hansen. Hansen is planning a Euro 200 m integrated wind turbine gearbox manufacturing plant in China, which is expected to be completed in April 2011. The plant will have an annual production capacity of up to 3,000 MW and an employee strength of about 600 people. The company has also commenced a Euro 270 m project to build an integrated plant for the manufacture of wind turbine gearboxes at Coimbatore which is expected to reach full capacity in April 2011. It may be noted that Hansen supplies gearboxes to four large manufacturers of wind turbines, Vestas, Gamesa, Siemens Wind and Suzlon. With Suzlon’s lesser say in Hansen’s strategic decisions post the selling of its controlling stake in the company, Hansen’s plans for the Chinese market may now be more independent of Suzlon’s interests.

Mid-cap and small-cap buck the trend
12:30 pm

Unabated selling activity in index heavyweights pushed the benchmark indices below the dotted line during the previous two hours of trade. Currently, selling activity is being witnessed across sectors led by stocks from the metal, oil & gas, banking, and FMCG sectors. However, realty, consumer durables, IT and telecom sectors are managing to garner investors' interest.

The BSE-Sensex is trading down by around 55 points and the NSE-Nifty is down by around 15 points. However, midcap and small cap stocks have managed to buck the trend. Currently, the BSE-Midcap and BSE-Smallcap indices are trading up by 0.45% and 0.95% respectively. The Rupee is trading at 46.73 to the Dollar.

As per a leading business daily, engineering major BHEL is in talks with China's largest manufacturer of high-voltage transformers Tebian Electric Apparatus Stock Co. Ltd (TBEA) to jointly manufacture equipment in India. If successful, this deal would lead to the first India-China public sector initiative in power equipment manufacturing. While BHEL has the capacity to make transformers of up to 400 kV, TBEA manufactures electric power transformers of up to 1,000 kV. A collaboration with TBEA will enable BHEL to compete with companies such as Siemens and ABB in the high-voltage segment. It may be noted that BHEL is looking to bag orders for building power transmission links across India and has been in talks with Japan's Toshiba Corp. to form a JV. The company plans to capitalise on a surge in demand for transmission equipment that is expected to emerge with the country's incremental power generation capacity that is expected to come up going forward. However, the transformer business currently contributes a small part - roughly 4% - to the company's overall revenues. BHEL is currently trading marginally lower on the bourses.

According to a leading business daily, Essel Propack (EPL), the world's second largest manufacturer of laminated tubes has sold its investments in the overseas medical device business. Essel Propack which is a part of US$ 2.4 bn Essel Group is expected to get over Rs 2 bn from its medical device business. It acquired the medical devices operations of Tacpro Inc USA and Avalon Medical Services Pte Ltd, Singapore in May 2006. The takeover was deemed strategic given EPL's polymer-based packaging business and higher grades of the same raw material being core to the catheters (for non-invasive surgery). This business had contributed 11% to total revenue in CY08. However the recent disinvestment is expected to rope in some cash for the company which has been lately restructuring its debt. Moreover, the decision is strategic in the sense that the company had been facing difficulties in sustaining profitability at its overseas operations. The stock is trading higher currently.

India mirrors mixed Asia
10:30 am

The Indian markets have started on a shaky note. The benchmark indices opened above the breakeven mark, fell below the dotted line but have managed to return to the positive territory since then. Asia is currently trading a mixed bag with China (up 1.1%) leading the pack of gainers. However, Hong Kong (down 0.4%) is in the red. The US markets closed marginally lower yesterday.

Currently, in India, heavyweights from the BSE-Sensex are trading a mixed bag with software, metal and banking stocks leading the pack of gainers. However, auto majors are in the red. The BSE-Sensex is trading higher by 18 points, while the NSE-Nifty is up by 4 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 0.5% and 0.8% respectively. The rupee is trading at 46.74 to the US dollar.

Energy stocks have opened the day on a mixed note. Gainers here include Gujarat Gas and Petronet LNG. However, Castrol is in the red. As per a leading business daily, ONGC and GAIL plan to take a 12.5% stake in the pipeline project in Myanmar to transport natural gas from the Bay of Bengal. They will invest US$ 251 m in the 870 km pipeline that China is building at a cost of US$ 2 bn for moving gas from the A-1 and A-3 blocks in offshore Myanmar to mainland China. Both ONGC and GAIL are part of the consortium that is developing the gas blocks. Existing discoveries in the blocks are expected to produce 500 m standard cubic feet of gas per day for 19 years. It may be noted that while India was also keen to buy the production, eventually it was awarded to China at US$ 7.72 per m British thermal unit at the landfall point in Myanmar. In our view, this is part of the larger drive by the two emerging giants to secure energy and mineral assets across the globe. So far, China has been more successful and has established its presence in numerous Asian and African nations.

Pharma stocks have opened the day on a mixed note. Gainers here include Panacea Biotec and IPCA Labs. However, Sun Pharma is in the red. As per a leading business daily, Ranbaxy has sold its 83% stake in its Chinese joint venture (JV) Ranbaxy (Guangzhou China) Ltd. The JV had sales of US$ 20 m in 2008. The company had recently announced its exit from a Japanese JV, Nihon Pharmaceutical Industry Co Ltd. Apparently, the stake sales are part of the company’s effort to develop a new business model after the acquisition by Daiichi Sankyo. As Daiichi Sankyo itself has a strong presence in Japan and China, Ranbaxy’s resources are better utilised in other geographies.