Late buying fuels Indian indices

Thu, 5 Jul Closing

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Indian equity markets began the day's proceedings on a cautious note. Some volatility prevailed in the morning session as they oscillated to either side of yesterday's close. However, post noon, the indices began to get a firm grip and notched gains as buying picked pace across index heavyweights. The final trading hour saw the indices hold on to the gains and close above the dotted line. While the Sensex today closed higher by around 76 points, the NSE-Nifty today closed higher by 25 points. The BSE Mid Cap and the BSE Small Cap, also did well and notched gains of 1% and 2% respectively. Gains were largely seen in FMCG and banking stocks.

As regards global markets, Asian indices closed mixed today while European indices have also opened mixed. The rupee was trading at Rs 55.04 to the dollar at the time of writing.

Auto stocks closed mixed today. While TVS Motors and Ashok Leyland led the pack of gainers, Bajaj Auto and Mahindra & Mahindra (M&M) closed in the red. As per a leading business daily, Ashok Leyland has unveiled plans of investing Rs 40 bn in capex over the next three years. Out of this, Rs 12 bn of capex has already been completed. Out of the remaining, Rs 18 bn will be the capex required by its JV with Nissan. For this, Rs 8 bn will be funded through debt, the balance Rs 10 bn through equity. In this, the outflow for Ashok Leyland will however be restricted to the tune of Rs 5 bn. For the main company, around Rs 21 bn worth of capex has been planned for medium and heavy commercial vehicles. Out of this Rs 9.5 bn has already been completed. Rs 3 bn will be spent on setting up a plant in Tamil Nadu and this will be for FY13. The balance will be spent over the next 2 years. The rationale for setting up the plant in Tamil Nadu is to avail of tax benefits. Tamil Nadu offers waiving value added taxes for a 14-year period, after which Ashok Leyland would have to pay back the total amount waived without paying any interest.

MNC pharma stocks also closed mixed today. While Novartis and Abbott India closed firm, GSK Pharma and Pfizer were out of favour. The domestic pharma market is once again set for a major change. The Indian government has put in place a US$ 5.4 bn policy to provide free medicines to its people. The idea is to make medicines accessible to the poorer sections of the society especially since 40% of the people live below the poverty line. While this spells good news for the Indian population, MNC pharma companies in India stand to lose the most. This new policy is set to ensure that government clinics and state run hospitals prescribe free generic drugs. Doctors not doing so will be punished. From what it appears private clinics and hospitals do not fall under this ambit and will be able to prescribe branded medicines. This development will certainly cause MNC companies to re-think their strategies in emerging markets. Indeed, with R&D pipelines drying up, most of these global companies in recent times were banking on emerging markets to provide the much needed boost. But with some recent setbacks in terms of being granted patents in India, MNC pharma companies are likely to revaluate business prospects in these markets.