Markets may open negative in line with weak global cues

Morning Update 02nd Nov 2011

Opening Bias

The markets may open negative in line with weak global cues. The SGX Nifty is trading down by 59 points at 5230 indicating a gap down opening to markets today.

Overnight, US and European markets tumbled heavily as investors there rushed to sell equities fretting that a referendum over Greece’s latest bailout deal might mean that the hard-fought plan to battle the euro-debt crisis may fall apart. This stunning decision by Greek Prime Minister George Papandreou, to call a referendum on its bailout has reinserted a large dose of uncertainty into global markets and comes ahead of the two-day Group of 20 summit meet in France later this week. Asian share have also tanked in early morning trades tracking global cues. The banking and auto shares have led the decline.

The Indian companies ADR’s traded in the American markets have also closed heavily in the red zone last night indicating a negative day ahead for them in Indian markets. In the IT space, Wipro was down 3.82 per cent, Infosys was down 1.86 per cent and Patni was down 3.58 per cent. In the Telecom space, MTNL was down 4.48 per cent. In the banking space, ICICI Bank was down 3.34 per cent and HDFC Bank was down 0.95 per cent. In the other space, Sterlite was down 3.68 per cent, Dr Reddy’s was down 2.14 per cent and Tata Motors was down 3.34 per cent.

Back home, the October monthly auto sales numbers have been published and just one glance through theses numbers clearly suggests the fact that the diwali festive season failed to bring cheers to automobile companies. Ten of the country’s leading passenger vehicle manufacturers reported a decline of 23 per cent in sales last month at 170,668 units, as compared to the 221,062 units sold during the corresponding period last year. After posting scorching growth rates of 30 per cent in the last financial year, passenger vehicles sales declined by nine per cent and subsequently by six per cent in July and August. Sales had picked up in September with the passenger vehicle industry growing by a moderate 1.43 per cent. But with the RBI increasing lending rates for the 13th time last month, consumer sentiments dipped in the domestic market.

India’s merchandise exports also grew slower than expected at 36.4 per cent in September, reaching USD 24.8 billion from USD 18.2 bn a year before. This is a much lower rise than the previous two months. In July, exports grew 81.8 per cent; in August, these rose 44.2 per cent. Imports in September rose 17.2 per cent to USD 34.6 bn, against USD 29.5 bn in the same month last year. The cumulative growth rate of exports during April-September this year was 52.1 per cent, at USD 160 bn compared to USD 105.2 bn in the corresponding period of 2010-11. Going forward, one may expect further moderation in growth of exports and imports with the slowing of demand, particularly from European markets, which account for a fifth of the country’s total exports.

However, in some good news, private sector manufacturing picked up in India in October even as the European and other major economies struggled. The widely tracked HSBC purchasing managers’ index (PMI) for manufacturing in India grew to 52 points in October, from September’s 30-month low of 50.2, on the back of faster expansion in new business. But, the cost of inputs rose substantially in the month. Now a reading above 50 indicates expansion and below it denotes contraction. However, the rise in the manufacturing index could be attributed to augmented demand during the festive season.

In conclusion, we expect the markets to remain negative for the day tracking weak cues from the global markets. Nevertheless we shall update our readers on a timely basis on the expected direction of the markets.

Corporate News

State Bank of India (SBI), the country's largest lender, has ruled out any immediate hike in savings deposit rates, even as private sector lenders have raised interest within days of the RBI deregulating such rates. "We will not be amongst the first few. We will watch the other banks first. We do not have any immediate plans to hike the interest rates on savings bank accounts," SBI Chairman Pratip Chaudhuri said. According to sources in the banking sector, the total deposits in SBI's savings accounts are to the tune of nearly Rs 3.5 lakh crore, and a hike of 1 per cent in interest would mean that it would cost us Rs 3,500 crore, which will have to be passed on to the customers.

Aditya Birla Nuvo Ltd has reported a two-fold jump in its consolidated net profit to Rs 214.25 crore for the second quarter ended September 31, 2011, on the back of robust growth across its various businesses. Its net revenues increased to Rs 5,285.90 crore in the second quarter of current fiscal, from Rs 4,495.23 crore in the year-ago period.

Reliance Industries has seen natural gas output from its eastern offshore KG-D6 field drop to 42 million standard cubic meters per day. The Dhirubhai-1 and 3 gas fields and MA oil field in the KG-DWN-98/3 or KG-D6 block are currently producing about 42 million metric standard cubic meter per day (mmscmd) of gas, according to the status report filed by the company with the oil ministry here. The current output is a far cry from 61.5 mmscmd achieved in March last year and is almost at the 2009 production levels.

Fortis Healthcare India will acquire the international hospital assets of its promoters for USD 665 million (approximately Rs 3,300 crore) in an all-cash deal. The board of directors took the decision after a committee of independent directors valued the international hospital operations Fortis Healthcare International at USD 695.7 million (approximately Rs 3,427 crore). Fortis Healthcare International is present in nine countries with a multi-vertical presence in primary healthcare, day care specialty healthcare, hospitals and diagnostics. The combined entity will become India’s largest healthcare player in terms of bed capacity and number of hospitals. The combined network will have 74 hospitals, 12,000 beds, 580 primary care centers, 191 day care specialty centers, 190 diagnostic centers and 23,000 employees in the Asia-Pacific region.

Eyeing an increased presence in the technical and non-woven textiles industry, Zenith Fibre is looking at expanding its polypropylene staple fibre (PPSF) manufacturing capacity. Moving ahead from a capacity of 3,000 tonnes per annum of PPSF at its Savli plant in Vadodara, the company is set to commission an additional capacity of 5,400 tonnes per annum by March 2012. Zenith Fibre is investing around Rs 3 crore for enhancing the PPSF capacity at its plant. The management has stated rising demand for PPSF in the global and domestic markets, especially in construction, technical textiles and chemical industries as the main reason to venture into a capex plan. With just another major player in the market manufacturing PPSF at an equally large scale, Zenith Fibre is looking to enhance its current market share of around of 50 per cent by next fiscal.

Information technology training giant NIIT on Tuesday announced it had sold its US subsidiary, Element K, to Ireland-based SkillSoft for USD 110 million. The cross-border deal took eight months to complete, since negotiations involved five countries and two big rivals. The key advisor for the deal was C N Madhusudan, who started NIIT’s US operations in 1991.

State-owned Hindustan Petroleum Corporation Ltd on Tuesday reported a net loss of Rs 3,364.5 crore for the quarter ended September after the government failed to offer any compensation for the losses it incurred on subsidized fuel sales. The Mumbai-based fuel retailer had posted a net profit of Rs 2090 crore in the same quarter last year. Its turnover in this quarter increased by 30 per cent to Rs 39114.8 crores.

Economy News

After a petrol price rise of Rs 3.14 per litre in September, the oil marketing companies (OMCs) are preparing for another rise, of Rs 1.82 per litre, because of the continued rupee depreciation and hardening of crude oil prices. The loss on petrol is currently Rs 1.50 a litre and after including local levies, the desired increase in retail prices was Rs 1.82 a litre. Between the earlier price rise on September 15 and now, the rupee has depreciated by around two per cent. Besides petrol, the three OMCs are losing Rs 319 crore per day on selling diesel, domestic cooking gas (LPG) and kerosene below cost. They lose Rs 8.58 per litre on diesel, Rs 25.66 per litre on kerosene sold through the public distribution system (PDS) and Rs 260.50 per 14.2-kg LPG cylinder supplied to homes for cooking. At the current rate, the industry is projected to lose Rs 121,459 crore in revenue on sale of diesel, domestic LPG and kerosene for the whole financial year.