Todays Market from Equitymaster

Todays Market from Equitymaster http://www.equitymaster.com/tm.asp The happenings in the stock markets, including a pre-open and closing commentary. Todays Market from Equitymaster http://www.equitymaster.com/icons/eqtm_small1.gif http://www.equitymaster.com/tm.asp http://blogs.law.harvard.edu/tech/rss Realty & auto stocks lead losses http://www.equitymaster.com/tm/tm.asp?date=5/21/2013&title=Realty--auto-stocks-lead-losses

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Backed by persistent selling, Indian share markets widened losses in the post-noon trading session. Majority of the sectoral indices are trading in the red with realty, auto and power stocks being the major losers whereas IT and consumer durables are the only stocks trading in the green.

BSE-Sensex is down 64 points and NSE-Nifty is trading down 28 points. Both BSE Mid Cap and BSE Small Cap indices are trading down by 0.3%. The rupee is trading at 55.0 to the US dollar.

Majority of the FMCG stocks are trading in the green, with Emami and Marico among the top gainers whereas Colgate and Godrej Consumer are trading in the red. As per a leading financial daily, Nestle will be investing Rs 2.5 bn in expansion and modernization of its existing milk plant in Moga, Punjab over a period of two years. The company has already invested Rs 2.5 bn in the said plant. Currently, the company has been procuring milk from 1.1 lakh dairy farmers across the state. Nestle has so far made investments to the tune of Rs 95 bn to scale up its capacities. Nestle scrip is trading up by 2.3%.

Most of the automobile stocks are trading in the red, with Tata Motors and Maruti Suzuki being the major losers. As per a leading financial daily, Tata Motors has launched the new premium hatchback Vista D90 in Nepal at price of Rs 17 lakhs. Reportedly, the company is hopeful that the car will have good demand in this market, as the company is already getting enquires about the launch of this model. The Vista D90 is powered by a 1.3 litre quadrajet diesel engine. The company claims the car gives a mileage of 21 km/litre of fuel. The launch of this model would further expand the company's portfolio in Nepal. Vista D90 was already launched in Indian markets in the beginning of the year. Tata Motors scrip is trading down by 2.3%.

This article (Realty & auto stocks lead losses) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.]]> Tue, 21 May 2013 08:00:00 GMT http://www.equitymaster.com/tm/tm.asp?date=5/21/2013&title=Realty--auto-stocks-lead-losses Indian share markets shed initial gains http://www.equitymaster.com/tm/tm.asp?date=5/21/2013&title=Indian-share-markets-shed-initial-gains

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Indian share markets have shed initial gains during the previous two hours of trade. IT and oil and gas are leading the pack of winners while realty and auto are facing the maximum selling pressures.

The BSE-Sensex is down by 20 points and NSE-Nifty is down by 12 points. BSE Mid Cap index is trading down by 0.1% while BSE Small Cap index is trading down by 0.2%. The rupee is trading at 55.03 to the US dollar.

Mining shares are trading on a mixed note with Coal India Ltd (CIL) and Ashapura Minechem leading the gains while Sesa Goa Ltd and Metals and Minerals Trading Corporation of India Ltd. (MMTC) are leading the losses. CIL has reported its standalone results for the fourth quarter (4QFY13) and financial year ending March 2013. For 4QFY13 CIL's net profit has jumped by 90% YoY on account of dividend paid by subsidiaries. However, CIL's net sales for 4QFY13 have declined by 21% YoY to Rs 1.2 bn, vis-a-vis Rs 1.5 bn in the same period last year. For 2012-13, the coal miner has reported a YoY rise of 21.4 % in its standalone net profit at Rs 97.9 bn, again largely due to dividends paid by its subsidiaries. CIL, which has nine subsidiaries, will announce its results on a consolidated basis next Monday (May 27).

Energy shares are trading on a mixed note with Gujarat State Petronet and Gas Authority Of India Ltd. (GAIL) leading the gains while Petronet LNG and Chennai Petroleum are leading the losses. According to a leading financial news medium, public sector oil and gas explorer, Oil and Natural Gas Corporation Ltd. (ONGC) has added 84.8 m tonnes to its reserves for the year 2012-13, which is the highest reserve accretion by the oil major achieved in two decades. As a result of the discoveries made last year, the company now has much more oil, as well as oil-equivalent gas. Currently ONGC produces 44-45 m tonnes of oil plus oil-equivalent. This puts ONGC's reserve-replenishment ratio for 2013 at 1.9, the eighth consecutive year when the ratio is above 1. ONGC is a premier oil and gas company in India, accounting for 71% of the country's crude oil production and 54% of its natural gas production in 2011-12. It is also a significant producer of value added products such as liquefied petroleum gas (LPG), superior kerosene oil (SKO), and naphtha. ONGC's share is trading up by 0.9%.

This article (Indian share markets shed initial gains) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.]]> Tue, 21 May 2013 06:00:00 GMT http://www.equitymaster.com/tm/tm.asp?date=5/21/2013&title=Indian-share-markets-shed-initial-gains Indian share markets open in green http://www.equitymaster.com/tm/tm.asp?date=5/21/2013&title=Indian-share-markets-open-in-green

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Barring Malaysia (0.4%), all major Asian stock markets have opened the day on a weak note with Hong Kong (down 0.5%) and Indonesia (down 0.5%) leading the losses. However, the Indian share market indices have opened the day on a positive note. Stocks in the oil and gas and information technology space are leading the gains. However, auto and FMCG stock are trading weak.

The Sensex today is up by around 25 points (0.1%), while the NSE-Nifty is up by around 3 point (0.05%). Mid and small cap stocks are also trading in the green with the BSE Mid Cap and BSE Small Cap indices up by around 0.3% and 0.2% respectively. The rupee is trading at Rs 55.09 to the US dollar.

Engineering stocks have opened the day on a weak note with Manugraph India, Voltas Ltd and TRF Ltd leading the losses. Tata Group firm Voltas Ltd has announced its financial results for the quarter and year ended March 2013 (4QFY13). During the quarter, the company's consolidated income from operations rose by 1.4% YoY to Rs 15,971.1 m from Rs 15,744.3 m in the corresponding quarter of the previous financial year (4QFY12). Operating profits were lower by 39.2% year-on-year (YoY) at Rs 830.6 m. Operating profit margins declined from 8.7% in 4QFY12 to 5.2% in 4QFY13. At the bottomline level, net profits plunged by a whopping 91.4% YoY to Rs 89.2 m. During the financial year 2012-13 (FY13), consolidated sales increased by 6.7% YoY to Rs 55,309.6 m, while net profits surged by 28.2% YoY to Rs 2,077.8 m.

Auto stocks have opened the day on a weak note with Tata Motors, Maruti Suzuki and Mahindra & Mahindra (M&M) leading the losses. Earlier, when the gap between diesel and petrol prices had widened sharply, there was a spurt in demand for diesel cars. This led companies to add capacity for diesel variants. However, as per a leading financial daily, the gap between the prices of the two fuels has been narrowing owing to the decontrol of diesel prices since January 2013. Moreover, diesel cars have been costlier by about 15.-20% compared to their petrol variants. As a result, the demand for petrol variants has increased in recent months. This has prompted car manufacturers to rethink their production strategy. As per car companies, more than 57% of the cars sold in April 2013 were petrol variants. This was higher by 4% over the corresponding month of the previous year. It is worth noting that the difference between the prices of the two fuels has dropped to the lowest level of Rs 13.4 per litre. In May 2012, it had reached a high of Rs 32.37 per litre.

This article (Indian share markets open in green) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.]]> Tue, 21 May 2013 04:00:00 GMT http://www.equitymaster.com/tm/tm.asp?date=5/21/2013&title=Indian-share-markets-open-in-green Basics of inflation indexed bonds http://www.equitymaster.com/tm/tm.asp?date=5/21/2013&title=Basics-of-inflation-indexed-bonds

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Inflation erodes purchasing power of money. Hence, there has been an ever increasing need for instruments that provide a hedge against inflation. Inflation indexed bonds (IIBs) are instruments that do this job pretty well. Since, payments of IIBs are linked to inflation they help maintain the purchasing power. IIBs were first launched in India during 1997. And considering the current inflationary scenario Reserve Bank of India (RBI) is all set to re-launch these instruments in the Indian markets. The first tranche of bonds worth Rs 10-20 bn is scheduled to hit the markets on 4th of June, 2013.

First let us understand the basic mechanics of these bonds and its cash flow characteristics. Then we will see whether investing in such bonds provides the necessary hedge against inflation or not.

Since IIBs provide protection against inflation, the first and foremost thing is to decide the relevant inflation measure. The relevant measure for this issue is wholesale price index (WPI) inflation. The base year decided is 2004-05. Second thing to note in such issues is which cash flows are indexed to inflation. Is only the principal indexed, or both principal and coupon are indexed? The upcoming issue will hedge both principal and coupon payments against inflation.

Now let us understand the mechanics with the help of an example. Let's assume the IIBs are issued on 4th June, 2013 at Rs100 (face value) carrying an interest rate of 10% payable annually and have a maturity of 10 years.

On 4th June, 2014 the first interest payment will become due. The interest figure stands at Rs 10. Now let's assume that the relevant inflation over the same period is 8%. And since these bonds are inflation indexed the holder will receive Rs 10 (original coupon payment) * 1.08 (inflation rate) = Rs 10.8 (inflation indexed payment). Considering that the principal was also inflation indexed the Face Value (FV) also increases to Rs 108 (100*1.08).

These indexed payments help individuals maintain their purchasing power. However, not in the strictest sense per se. That's because these bonds are indexed to WPI inflation. And the relevant measure for individuals is the Consumer Price Index (CPI) inflation. To the extent CPI inflation is higher than WPI inflation purchasing power is eroded.

Also, it may be noted that the bond market in India is in nascent stage. And the upcoming IIB issue is one of its kinds. If the issue does not garner enough interest the liquidity of such bonds will be low. Low liquidity means that the investors will have to incur higher impact cost (trading cost) while exiting. This higher cost may offset the indexation benefit to some extent.

Thus, while these bonds are intended to provide the desired inflation hedge we are not sure whether the hedge will really work.

This article (Basics of inflation indexed bonds) is authored by Equitymaster.

Equitymaster is a leading 'independent' equity research initiative focused on providing well-researched and unbiased opinions on stocks listed on the Bombay Stock Exchange.]]> Tue, 21 May 2013 03:00:00 GMT http://www.equitymaster.com/tm/tm.asp?date=5/21/2013&title=Basics-of-inflation-indexed-bonds