Goodbye to a decade of 250% gains
Closing

The last day of 2009 and for that matter this decade saw Indian markets trade well above the dotted line throughout the session and close strongly into the positive. While the BSE Sensex closed higher by around 120 points (up 0.7%), the NSE Nifty gained around 30 points (up 0.6%).

The BSE Midcap and BSE Smallcap indices also registered gains of around 0.3% and 0.6% respectively. While capital goods and auto stocks led the pack of gainers, FMCG and healthcare stocks were at the receiving end today.

Barring Japan, other Asian indices closed in the positive today. European markets have opened on a mixed note. The rupee was trading at 46.63 to the US dollar at the time of writing.

After a dismal 2008 led by the credit crisis that saw countries sinking into recession and stockmarkets plunging, 2009 witnessed a dramatic turnaround. But this turnaround was more pronounced in the global stockmarkets as many of them rallied on expectations that the global economy is on its way to recovery. Emerging markets in general and India in particular notched spectacular gains during the year. Because the US and Europe are still to come out of the slump, investors poured money into emerging economies including India due to the growth potential in these countries. Interestingly, earnings growth of companies, though better than in 2008, did not really grow at the same pace as their valuations. As a result, valuations in the emerging markets have begun to look frothy.

During 2009, the BSE Sensex and the NSE Nifty notched gains of around 80% and 75% respectively. For propagators and believers in long term investing, we have something good to share. The Sensex has recorded gains of almost 250% in the past decade. To put in differently, had you invested money in Sensex stocks at the end of 1999, every Rs 100 would have turned into Rs 350 today. And mind you, this is after the Indian markets faced a scam, a dotcom bubble burst, and very recently a worldwide financial crisis.

Among pharma companies, Dr. Reddy's emerged the top gainer in 2009 with returns of almost 145%. Not only did the company report a strong performance during the financial ended March 2009, it did well during the first half of FY10 as well. The key contributors to growth have been the US, India and Russia and these will continue to enhance the company's performance in the future as well. Having said that, Betapharm in the German market has been under a lot of pressure due to changes in the regulatory landscape in that country and performance of this market in the near term looks uncertain. Dr. Reddy's custom manufacturing business which grew at a subdued pace during the first half is poised to do much better in the second half of this fiscal. Not just that, in the US generics market, the company also stands to benefit from some product launches that have limited competition.

The sector that was witness to one of the one worst investor apathy in 2009 was telecom. The heavyweights in the sector including Tata Communication and Reliance Communication lost 33% and 24% respectively during the year. Bharti Airtel that was amongst the most resilient telecom stocks lost 9%. Whether or not Bharti will continue to be the dominating player after fifteen years is practically an impossible call to make at present. However, one cannot discount the early mover advantage and the result of which the company has a strong reach as well as a good brand positioning. All this, we believe, will help the company in not just surviving the ongoing price war, but also emerging much stronger when the dust settles.

Energy, power stocks energise markets
02:30 pm

Although the Indian markets saw some volatility during the previous two hours of trade, they are still trading well above the dotted line. The overall market breadth remains optimistic as the advance to decline ratio is poised at 1.5 to 1 on the BSE. Presently, buying activity is being witnessed in stocks across sectors led by capital goods, energy and power stocks. Stocks from the healthcare sector are however seeing some pressure.

The BSE-Sensex and the NSE-Nifty are in the green, up by around 120 points (0.7%) and 35 points (0.7%) respectively. The BSE-Midcap and BSE-Smallcap indices are trading higher by 0.2% and 0.7% respectively. The rupee is trading weak at 46.64 to the dollar.

FMCG stocks, which have been among the worst performers in 2009, closed the last trading session of the year with marginal gains. This was led by stocks like Pidilite, HUL, and Dabur. Talking specifically about HUL, India’s largest FMCG company had a tough ride during the year. And its investors were left high and dry as the stock managed a mere 6% gain in an otherwise brilliant year for the broader markets. The reason for this is not far to find.

The company seems to have misjudged the preference of its consumers and ended up with the wrong strategy during the year. With rising raw material costs, it increased prices of its products while shifting focus to premium products which were perceived to be recession proof. However, consumers in an effort to find value offerings either switched brands or down traded. This benefited HUL's competitors, who absorbed rising costs and took hit on their margins but were able to gain market share. The result was that HUL lost its customers and now faces the daunting task of regaining its lost market share.

Engineering stocks are currently trading mixed. The gainers are being led by Praj and Elecon engineering. Sanghvi Movers and Shanti Gears are however seeing profit booking currently. Amongst engineering and capital goods stocks in the BSE Sensex, L&T has turned out to be the top gainer for the year 2009. At the start of 2009, the stock traded at about Rs 775. At the time, the effects of the credit crisis here in India were close to their peak in terms of both; the psychological effect on investors’ minds and the ground realities in the business world. This had a profound impact on L&T. The company is from the capital goods sector, which is reliant to a large extent on large sized capital investments by its customers. Credit is the life blood of capital intensive investments by businesses.

In a world where banks were being almost begged by the RBI to not stop lending, it goes without saying that the outlook for investments, and consequently the outlook for a capital goods company like L&T, was considered to be dismal. It is this outlook that led L&T’s stock price to fall down to a low level of about 15 times its FY09 earnings. Once this outlook began to change with the easing of the credit crisis and the favourable outcome of the country’s general elections, L&T’s earlier beaten down price laid the ground for a swift and substantial recovery. The result? The stock has ended the year with a swanky gain of about 117%, thus making it to the list of one of the top gainers amongst the Sensex companies for 2009.

2010 will be better for IT
12:30 pm

After witnessing a strong start today, the Indian stock markets remained in the party mood during previous two hours of trade. They continued to trade above the dotted line on account of persistent buying activity in the index heavyweights lead by consumer durables, oil & gas, capital goods and auto sectors.All the sectors are trading in green currently.

BSE sensex and NSE Nifty traded in the green, up by 154 point and 46 points respectively. The BSE-Midcap and BSE-Smallcap are trading up by 0.8% and 1.3% respectively. The rupee is trading at 46.65 to the dollar.

As per a leading business daily, India's largest IT company is expecting 2010 to bring cheers to the IT industry. TCS' top management hints that it is seeing a significant pickup in IT demand as the clients are re-opening and in many cases increasing IT budgets which saw a standstill around same time last year. The banking and financial services sector which has been a top spender for IT was beaten out of shape during the financial crisis.

However, in a turnaround, it has become a lot more promising on account of a spurt of mergers and acquisitions happening there. IT spend is expected to increase on account of cost improvement initiatives and growth opportunities that the clients are seeking. TCS' top guns believe that growth in 2010 will primarily be volume driven i.e. more amount of outsourcing will be done.

Pricing is expected to remain stable for next few quarters, while it might go northwards later in the year on back of increase in demand. The company sees a lot of opportunities in the healthcare, pharma, utilities, retail and logistics sectors. However, manufacturing and telecom sectors are expected to remain muted for some time to come. The company plans to ramp up its hiring as well as salary hike plans on account of improved visibility in demand. On account of the recent financial performances by the Indian IT majors as well as their guidance for the short-term, we believe IT industry is all set to register a double digit growth in 2010.

According to a leading business daily, Indian steel makers like Tata Steel and SAIL are expecting prices of this critical building material to rise in 2010 on account of improved economic activity leading to pickup in demand. It may be noted that Tata Steel increased its steel prices by Rs 2,000 per tonne last week. Steel Authority of India (SAIL) withdrew its Rs 750-1,500 a tonne Rs rebate it offered since November 2009. An increase in raw material cost has also triggered this price hike. The price of the primary raw materials like coking coal and iron ore are expected to jump by 20-30% in 2010 as compared to their cost in 2009. This coupled with a significant demand recovery in the US and China is expected to boost steel price. Domestic demand is also on an upswing on back of a number of infrastructure projects being undertaken. We believe that this bodes well for the Indian steel makers which went through a slack period during early this year on account of simultaneous recession in the US, Europe and Japan.

Strong start to the decade's last day
10:30 am

The Indian markets have started on a strong note. The benchmark indices opened well above the breakeven mark and have managed to progress deeper into the positive territory since then. Asia is currently trading in the green with Hong Kong (up 1.6%) leading the pack of gainers. The US markets closed marginally higher yesterday.

Currently, in India, heavyweights from the BSE-Sensex are trading in the green with power and auto stocks leading the pack of gainers. The BSE-Sensex is trading higher by 137 points, while the NSE-Nifty is up by 37 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 1.1% respectively. The rupee is trading at 46.66 to the US dollar.

Auto stocks have opened the day on a positive note. Gainers here include Ashok Leyland and M&M. As per a leading business daily, M&M plans to launch a 1 tonne light commercial vehicle (LCV), Maxximo. It is built on a completely new platform and features a new engine. Production has already started at M&M’s Chakan facility and will be commercially available by mid-January. It may be noted that the 1 to 1.5 tonne LCV segment is witnessing keen interest from several companies including Tata Motors, Bajaj Auto, Ashok Leyland, Piaggio and Hindustan Motors. At Rs 240,000, Tata Motors’ 1 tonne Ace leads the market with a monthly sale of over 10,000 units. In fact, it has over 90% market share of the segment. Given that the 1 tonne LCV segment is likely to grow by 15% to 20% over the next few years, we believe it makes sense for M&M to launch Maxximo to fill the gap in its portfolio.

Power stocks have opened the day on a positive note. Gainers here include NTPC and Power Grid. As per a leading business daily, the government is set to allow NTPC to sell around 10% of the power it generates at market-determined prices. The decision is likely to come in the next three weeks. It may be noted that presently 85% capacity of NTPC is sold to state electricity boards via long-term power purchase agreements. The rates are fixed at around Rs 1.8 per unit and are lower than market-set prices of Rs 6 to Rs 9. The centre gives the remaining 15% capacity to power deficit states. It is out of this share that NTPC will carve out the 10%. In our view, this is a positive development as it will boost the company’s bottomline. Interestingly, it will also help the government garner better valuations for the 5% stake sale that it plans.

First thing that will strike you in 2010
Pre-Open

Most likely, Monday, January 4th 2010 is when you would have recovered from the new year celebrations and the weekend that follows. It will also be the day when Indian stock markets first open at 9 am. The leading association of brokers, Association of National Exchanges Members of India (ANMI), has made a last ditch attempt to stick to the current timings. But the stock exchanges have reiterated that markets would open 55 minutes earlier. Given the keen competition, they are vying to garner as much volumes for themselves as possible.

ANMI believes the new timings should be put on hold given the state of banking channels. It is also likely to increase the stress on manpower and increase transaction costs. In fact, it has conducted surveys wherein 62% of the brokers feel that the new timings should be deferred. Interestingly, banks will have to modify their working hours for the success of new working hours of the exchanges. How that is received by their employee unions will be interesting to see.

We believe long term investors do not need to lose sleep over the entire episode. Too much attention is paid to market pyrotechnics anyways. The time could be better spent understanding the long term economics of businesses and also in ironing out one's behavioral flaws.

All public sector banks to feature on exchanges
Speaking of stock exchanges and banks, United Bank of India (UBI) and Punjab & Sind Bank (PSB) are the only two public sector banks which are not yet listed on the stock exchanges. Not for very long though. As per a leading business daily, Kolkata based UBI has filed a draft red herring prospectus for an initial public offering (IPO). This will bring down the government's stake to 84.2%.

The IPO will mop up resource to the tune of Rs 3.5 to Rs 4 bn. It will be launched in late January or early February 2010. The bank will also look at a follow-on-public offering (FPO) at a later stage to raise more capital. PSB has also sought government approval for its proposed IPO. It plans to come out with the issue in April. Its size is likely to be Rs 5 bn.

In our view, this exercise will help capitalise the banks without borrowing at high rates and give the entities an opportunity to enhance their capital adequacy ratios. It will also help them expand their operations and compete with their private sector peers.