A positive opening for the week in line with global cues.

Opening Bias

The markets may witness a positive opening for the week in line with global cues. The SGX Nifty is trading up by 27.5 points at 5169.5 indicating a gap up opening.

Last week US stocks tallied robust gains, with the Dow Jones Industrial Average capping its longest weekly win streak in six months, after a surge in retail sales and Google Inc.’s earnings lifted sentiment. Asian stocks have also witnessed a decent rally this morning, helped by end-of-the-week gains for U.S. shares and rising hopes for a resolution to the European debt crisis post the G20 meet held on 15th Oct 2011, Saturday.

Back home, the headline inflation data for the month of Sept, announced on Friday came in at 9.72 per cent against 9.78 per cent in Aug, which as we said was still twice the RBI’s desired comfort level for inflation.

Now with the dismal Aug IIP growth showing clear signs of continued sluggishness in the economy indicating towards a serious slowdown coupled with slight easing in inflation for Sept, one may expect the RBI to take a pause in its rate hike.

But in realty this may not happen as the central bank has given a clear indication that it may not pause in its monetary stand as the key objective is to arrest inflation, even if it comes at the cost of contraction in economic growth. The RBI governor D Subbarao has also come out and indicated towards the same. According to him, the central bank was conscious of the need to bring down interest rates to boost the economy, but this might take time. He also expressed concern over the rising inflation, but said it could be controlled by the end of this year.

In other major news, The Centre for Monitoring Indian Economy (CMIE) has revised its economic growth forecast for the current fiscal downward to 7.9 per cent from its earlier estimate of 8 per cent. CMIE stated that the decline in the forecast was entirely because of scaling down for the industrial sector. It further added that the reduced forecast could be attributed to a likely sharp fall in growth of the agriculture sector from a rather high 6.6 per cent to 2.9 per cent and a projected slowdown in industrial growth from 7.9 per cent to 7.5 per cent. The Mumbai-based think-tank said growth of the industrial sector is expected to slow to 7.5%, lower than its earlier forecast of 7.8%.

In conclusion, we expect the markets to remain positive for the day, on the back of strong global cues, as investors sentiments improve from the positive out come of the G20 meet.

Corporate News

Robust refining margins—directly co-related to crude oil prices—helped RIL post an excellent bottom-line in line with our expectations. However, revenues from the E&P business fell sharply, offsetting much of the gains from higher volume sales and price hikes. RIL’s Q2FY12 net profit rose 15.8 per cent year-on-year, to Rs 5,703 crore. This was marginally lower than our estimate for the bottom-line at Rs 5,752 crore. Net turnover for the quarter rose 35 per cent to Rs 80,790 crore, better than our estimate of Rs 79,637 crore. The gross refining margins (GRM’s) were at USD 10.1 per barrel against USD 10.3 a barrel in the previous quarter.

Oberoi Realty reported a 17 per cent increase in its consolidated net profit to Rs 111.44 crore for the quarter ended September 30, 2011, on the back of higher sales against a net profit of Rs 95.51 crore for the year-ago period. The Mumbai-based developer registered 45 per cent growth in consolidated revenue to Rs 256.88 crore in the second quarter this fiscal, as against Rs 177.11 crore in the corresponding period of the 2010-11 fiscal. The management commented that the company had witnessed consistent momentum in sales in the past six months despite the tough market conditions and going forward, they expect the momentum to continue and grow. They also said that the company was sitting on surplus cash, which would be utilized to buy land.

After two consecutive price hikes, state-owned OMC’s cut jet fuel prices marginally by 0.5 per cent on Saturday in line with softening in global oil rates. The price of aviation turbine fuel (ATF), or jet fuel, at Delhi's T3 airport was cut by Rs 325 per kilolitre (kl), or 0.5 per cent, to Rs 58,271 per kl. However, ATF in Mumbai, home to the nation's busiest airport, will cost Rs 338 per kl more at Rs 59,021 per kl from as against the old price of Rs 59,359 per kl. Jet fuel makes up for 40% of an airlines' operating cost and the margin cut in prices will bring some relief to the cash-strapped airlines.

Essar Steel, steel producing arm of Essar Group has commissioned a Corex module at Hazira complex in Gujarat having a capacity of 0.87 MTPA. With this, iron making capacity of the company has reached over 9.5 MTPA. A second Corex module of 0.87 MTPA is expected to be commissioned shortly, the company informed in a statement. The move comes as a part of Essar's expansion program for increasing its steel production capacity from 4.6 MTPA to 10 MTPA at the Hazira complex. The overall expansion including downstream facilities at Hazira is being done at a cost Rs 17,000 crores.

International Tractors is in talks with PE players to sell 10 per cent stake for around Rs 450 crore. According to management the fund will be used to fuel production capacity and acquire an overseas company.

Karur Vysya Bank has embarked on a major expansion drive ahead of its centenary in 2016, including aiming to double its number of branches across the country and tripling the business turnover to Rs 1.25 lakh within 5 years. It plans to have 800 branches by 2016.

NIIT, an IT training company has sold its US based subsidiary, Element K Corporation to Skillsoft Corporation for $110 million. Element K is in the business of learning products with the portfolio of e-learning content, virtual labs, and classroom materials. NIIT will now become a content development and technology development partner in e-learning for SkillSoft. NIIT has also added six new clients in the Managed Training Services business in the last one year. We believe this could be positive news for the scrip.

Zenith InfoTech, which recently defaulted on its $ 33 million FCCB payments, could now have to repay $85 million instead of $33 million because of a cross default exchange clause. Of the two lots of foreign currency convertible bonds that Zenith Infotech raised, one for $33 million was due in September 21, 2011 and the other one of $ 50 million is due for repayment in August 2012. Under the cross default clause, all dues to bondholders become immediately payable if the company defaults on $1 million or more of debt. The stock was down 9.98 per cent and we expect further correction in the stock.

Workers from Moser Baer, a solar panel and CD-maker from Noida have gone on strike over their demands related to wages and bonuses. According to company officials this is a very small group of approximately 150 associates from the packaging section of optical disc plants. Company is in talks with the workers and work has not delayed so far. We believe this could trigger other employees if not handled properly. We believe this could be a negative for the scrip.