Test - Sujay 5 Oct 2011

Morning Update 05^thOct 2011

Opening Bias

The markets may open sideways in line with global cues. The SGX Nifty is trading down by 0.5 points at 4779.5 indicating a flat opening.

Overnight the major global stock indices have showcased a mixed bag of sentiments. U.S. stocks trimmed their steep losses, and sent the S&P 500 Index booming up, on comments that Fed Reserve Chairman Ben Bernanke was ready to take more steps to help the fragile recovery there. However the Asian counterparts fell as a downgrade of Italy’s credit rating by Moody’s form Aa2 to Aa3 overshadowed signs that European officials may reach consensus on recapitalizing the region’s banks to protect them from the sovereign-debt crisis.

Back home, with the Q2FY11 earning season coming close we recommend our readers to closely watch the management commentary at the time of announcement of Q2 September 2011 results, which will provide cues on futures earnings outlook. A poor set of advance tax payment by top 100 companies in Q1FY12 suggest corporate profit growth is likely to be muted in the second quarter.

We would also like to bring to notice of our readers that India’s external debt data has thrown up some disturbing numbers. As much as USD 137 billion of it comes up for maturity in the next one year and if the current global turmoil persists, their rollover, which is normally a routine process, can cause severe pain to borrowers. A depreciating rupee coupled with rising credit spread for dollar bond issuers has made things very difficult.

In conclusion, we expect another day of volatility. While there are some positive cues to be taken from the optimistic sentiments witnessed in US yesterday, there is still the issue of the euro debt crisis looming at large with the recent downgrade of Italy by Moody’s. Moreover one must also keep in mind that our country’s very own credit worthiness is also in question today.

Corporate News

The highlight of the day is that Moody’s Investors Service on Tuesday cut the stand-alone rating of SBI, flagging concerns over capital and rapid deterioration in asset quality at the country’s biggest bank. The agency cut its rating on SBI’s financial strength to D+ from C-, while it also lowered its hybrid debt rating on the bank to Ba3 from Ba2, following the reduction in financial strength rating. The revised stand-alone rating carried a stable outlook and the hybrid rating a negative outlook. We believe the downgrade would make SBI’s overseas borrowings a costly affair. It will also affect other banks as SBI is seen as a representative of the Indian banking system. However the bank has maintained that its rating is in line with the ratings of other PSU banks post the downgrade and there is no real cause of concern.

Close on the heels of acquiring 50 per cent stake in Australia's Legacy Iron, NMDC has expressed desire to close three more overseas buys in the current fiscal. The company said that deals with Minemakers, an Australian firm having Phosphate deposits; Brazilian mining firm Greystone Mineracao do Brasil and Vincy Coal project in Russia are in advanced stages of negotiation and may be sealed in the current fiscal.

Mozambique has granted Jindal Steel & Power to build a 2,640 megawatt coal-fired power plant in the northern province of Tete, home to some of the world's largest untapped coal reserves. The estimated cost of the project is USD3 billion and would start operating in 2015. The power will be sold domestically and to the rest of southern Africa.

ONGC will fast-track its plans to develop new oil and gas fields, so as to raise its sagging output and increase crude oil output by 15 per cent in two years, according to Sudhir Vasudeva, the new head of the nation’s biggest energy explorer. Vasudeva also believes that the new and marginal fields can help raise crude oil production by about 15 per cent to 28 million tonnes by 2013.

With an eye to grow as a complete retail entertainment provider, theatre chain operator PVR Cinemas plans to invest around Rs 580 crore to set up six entertainment cities and add 350 screens to its existing 154 across the country over the next three years. The first of the entertainment cities will come up in Noida, which will house a state-of-the-art, 15-screen multiplex, with four gold class theatres, a 24-28 lane bowling alley, an Olympic size ice skating rink, food courts, casual dining restaurants and a microbrewery, based beer island.

As expect by us cement sales in September showed signs of revival with monsoon subsiding in most parts of the country. Dispatches for ACC rose to 9.5 per cent year-on-year to 1.73 million tonnes However, it declined month on month by 8 percent due to the ongoing unrest over Telangana issue in Andhra Pradesh. Ambuja cement dispatches for September month grew by 2 per cent but however its cement production declined marginally at 1.46 metric tonnes as against 1.48 metric tonnes. JP associate also reported growth in dispatches by 16 per cent year on year. UltraTech Cement, which has an annual production capacity of 52 million tonnes, has not yet announced the production and sales numbers for September.

Corporate Actions