The Nifty and Sensex Indicating a Quiet Start Today

The markets may open negative in line with global cues. The SGX Nifty is trading down by 14 points at 44880 indicating a flattish gap down opening.

U.S. stocks ended lower Friday, denting weekly gains, as credit-rating cuts for Italy and Spain offset a better-than-anticipated payrolls report, prompting caution over the market scenario. The Asian stock opened on a positive note after the heads of Europe’s two biggest economies pledged to shield banks from a debt crisis easing concern the region’s troubles will derail a global economic recovery. But this positive sentiment was short lived and the markets are seen in the red now, as the two leaders could not provide any concrete details on how the EFSF would be utilized and also did not divulge much on the proposed treaty revision for euro zone countries raising concerns over Greece’s membership in the zone.

Back home, India Inc is likely to post a muted earnings growth in Q2FY12, largely due to fall in rupee value, rising interest costs, high inflationary pressures and a global economic slump. We at DSIJ, expect the rupee's sharp depreciation alone to severely impact the corporate earnings, on account of losses suffered due to their forex exposure such as overseas loans. Besides, the global economic slowdown, as also headwinds in domestic macroeconomic scenario, might have a ripple effect on the Q2 results. Making things worse for the corporates, inflation remains at high level despite softening commodity prices, and this has already led to the Reserve Bank hiking its key rates 12 times in the past 18 months to control the price rise. While the RBI’s hawkish policy has started hurting business growth, inflation remains meaningful high despite the recent softening in commodity prices.

However one can expect the Q2 earnings season to gather some momentum as IT major Infosys unveils its numbers on Wednesday (12th Oct 2011). Now IT companies had a disappointing Q1, as wage hikes and an uncertain business environment in the US and Eurozone ate away at the operating margins. A depreciating rupee could provide some relief to these companies now, but forex gains will be limited and could even lead to MTM losses due to currency hedges taken by several companies. Overall the outlook for the sector remains hazy given the continuing global economic problems leading to expectations that clients over the world over may cut their IT budgets because of the sluggish growth, which in turn will hurt earnings of Indian software service providers.

In conclusion, we expect volatility to be the order of the day as the forthcoming Q2 results season may give rise to market speculation on the outcome of individual company results. Concerns such as depreciating rupee, rising interest cost and high inflation will weigh heavily on the mind of investors as this could severely impact the markets and could have a crippling effect on the economy.    

Corporate News

The Anil Ambani led, Reliance Capital has completed the sale of a 26 per cent stake in its life insurance venture Reliance Life to Japan's Nippon Life for Rs 3,062 crore. The transaction, pegs the total valuation of Reliance Life Insurance at approximately Rs 11,500 crore ($2.6 billion). Following the deal, Reliance Capital will hold a 74% stake in Reliance Life.

PFC is hoping to raise nearly Rs 16,800 crore in the coming months through issue of securities, including tax-free bonds. The state-run lender for the power sector has already started the sale process for tax-saving infrastructure bonds and tax-free bonds, which together could raise up to Rs 11,900 crore. Further, PFC has received regulatory approval for $1 billion (about Rs 4,900 crore) Medium Term Note (MTN) program that would tap international bond market.

Sterlite Industries has reported production growth in the second quarter of current fiscal in almostits entire product basket -- zinc, lead, silver, copper and power -- on improved plant efficiency. The production of silver, zinc and lead in India, run by its subsidiary Hindustan Zinc, rose by 12%, 5% and 6% to 49,000 kg, 1.85 lakh tonne and 17,000 tonne, respectively. However, the production of aluminum at Balco dipped by as much as 8% during the quarter. The company has sold 1,748 million units of power during the July-September quarter compared to just 463 million units in the corresponding period last year.

CIL has blamed its failure to keep to production targets in Q1 this fiscal on rains and delays in securing green clearances, but the Coal Ministry is in no mood for excuses and has called a meeting this week on the issue, where it is likely to berate the Navratna PSU's top brass. CIL had envisaged a target of 98.7 MT for Q1 and could only clock production up to 96.3 MT. Even for FY11 the company had guided that it would clock and output of 440.21 MT but in reality it ended up at 431.25. Now with current ongoing scenario in relation to the profit sharing bill, mining delays due to environmental issues etc. we believe the company would face serious hurdles in meeting its current fiscal target of 452 MT.

Sintex Industries is going to announce its Q2FY12 results today. This company has seen some heavy selling pressure in the markets off late due to concerns over its FCCB’s. Also its Q1 numbers were very disappointing. Investors should wait and watch out for these numbers and the management’s guidance as it would provide some valuable cues on its coming quarters.

L&T is planning to sell stake in IT Subsidiary and is in talks with Japanese firms like Hitachi, Mitsubishi and Fujitsu. The sale of the infotech business could fetch L&T anything between USD 700 million to 1 billion.  

HPCL is likely to acquire a oil and gas block in Africa through its subsidiary, Prize Petroleum. The company is in talks with a local player’s for a discovered asset so that it can have a ready cash flow in one or two years. HPCL’s move is part of the overall attempt by oil marketing companies to venture into more lucrative oil and gas producing business. Acquisition of discovered fields helps in reducing risks with the business to some extent. However HPCL’s venture into the upstream sector without much experience has not much success so far as compared to BPCL and IOC.

Renowned investor Mr Rakesh Jhunjhunala, along with his wife Ms Rekha, has hiked his stake in drug-maker Lupin to nearly 3 per cent by adding 14.04 lakh shares, worth about Rs 65 crore, to his holding in past three months.

Investors will soon get the option of investing in tax-free infrastructure bonds worth Rs 10,000 crore, as the National Highways Authority of India (NHAI) plans to come out with a public issue by the middle of November.

Corporate Actions