Markets off to a positive start

Thu, 3 Dec 10:30 am

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The Indian markets have started on a positive note as the benchmark indices opened above the breakeven mark. Moreover, there have been no signs of any negative movement towards the dotted line since then. Asia is currently trading a mixed bag with Japan (up 2.9%) leading the pack of gainers, while China (down 0.4%) is in the red. The US markets closed 0.2% lower yesterday.

Currently, in India, heavyweights from the BSE-Sensex are trading a mixed bag with metal and telecom stocks leading the pack of gainers. Select auto and software majors are in the red. The BSE-Sensex is trading higher by 120 points, while the NSE-Nifty is up by 34 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 1% each. The rupee is trading at 46.22 to the US dollar.

Auto stocks have opened the day on a mixed note. Gainers here include TVS Motor and Ashok Leyland, while Tata Motors is in the red. As per a leading business daily, India's largest car maker Maruti Suzuki plans to increase its production capacity by almost 75% in the next five years. That would take its production levels up to 1.5 to 1.75 m units per annum by 2015. The company believes that the Indian car market would reach the size of about 3 m units by then. The increase in production capacity will help the company retain its current market share of about 50%. It may be noted that the company's second plant at Manesar will be commissioned by the end of FY10, taking its overall production capacity to 1 m units. Further capacity addition is likely to come at its Manesar complex and will entail significant capital expenditure. In our view, this move is in response to the increasing competition in the compact car segment from Tata Nano as well as future roll outs from Toyota, Honda, Volkswagen and Ford. Given that the segment accounts for almost 80% of all passenger vehicles sold in India, Maruti is justified in trying to preserve its market share.

Pharma stocks have opened the day on a positive note. Gainers here include Cadila Healthcare and Indoco Remedies. As per a leading business daily, the government is considering banning advertisements for emergency contraceptive pills (ECPs) such as Cipla's i-pill and Mankind Pharma's Unwanted 72. This step is being considered after complaints that indiscriminate use of ECPs leads to several side-effects. It may be noted that the drug technical advisory board, which was set up to look into the matter, recently said that it would frame guidelines for the advertisement and ask companies to explain the health hazards in order to discourage indiscriminate use. In our view, this development could have some impact on Cipla's topline given it dominates the ECP market. Last year, the ECP market was 8 m units strong, recording a 275% YoY jump in volumes.