Markets expected to open in the red

Morning Update 03rdNov 2011

Opening Bias

The markets may open negative in line with weak global cues. The SGX Nifty is trading down by 35.5 points at 5238 indicating a gap down opening to markets today.

Overnight US stocks advanced, rebounding from a two-day drop in the Standard & Poor’s 500 Index, as the Federal Reserve said economic growth strengthened and it is prepared to take action if needed to safeguard the recovery. In a statement released after the Federal Open Market Committee concluded a two-day meeting, the FOMC did not make any further moves to ease monetary policy and Fed policy makers found the economy has improved in the September quarter, although significant downside risks remain. The Fed also cut its economic growth outlook through 2013, as was expected.

However the Asian stocks are seen trading in the red zone in early market trades as European leaders withheld aid to Greece after the country said it will hold a referendum on a bailout package and as the U.S. Federal Reserve cut its forecast for the world’s biggest economy.

The Indian companies ADR’s traded in the American markets have closed mixed indicating a choppy day ahead for them in Indian markets. In the IT space, Wipro was marginally up 0.4%, Infosys and Patni were up by a good 1.83% each. In the Telecom space, MTNL was down by a massive 5.47% and Tata Communications was up by 0.78%. In the banking space, ICICI Bank was up 0.56% and HDFC Bank was up 2.5%. In the other space, Sterlite was up 0.91%, Dr Reddy’s was up 2.34% and Tata Motors was down 0.15%.

Back home, it seems very likely that the Govt. might undertake another round of hike in retail petrol and diesel prices. The petroleum ministry is pushing for another hike in diesel and domestic LPG prices and an empowered group of ministers (EGoM) will take a decision later this month. It would be the second increase in prices of the two controlled products this financial year. The EGoM may find this an opportune time to raise prices as inflation is expected to start softening from next month and there is still time for the Assembly elections in various states, including the politically significant Uttar Pradesh.

The main reason that has been citied behind the proposal for such hike is to bring down the losses of OMC’s like HPCL, BPCL and IOC. At current rate, the OMC’s are pegged to be loosing around Rs 319 cr daily on subsidized sale of diesel, kerosene and domestic LPG. As a result the industry it projected to loose around Rs 130000 cr in revenue for the year. As the subsidy that is paid to these companies is attached with a lag, the borrowings of OMC’s have also increased considerably adding to debt pile up on their balance sheet.

In conclusion, we expect the markets to remain volatile for the day tracking mixed cues from the global markets. On one side there is rising hope and optimism thanks to the Fed Chairman Ben Bernanke’s comments that the US economic growth had improved and as he vowed to safeguard the economy while on the other side there is growing frustration and confusion over the outcome of the Euro debt crisis. There really doesn’t seem to be any concrete assurance from the Euro Zone leaders to contain their crisis and this really seems to hurt the global economy at large. Nevertheless we shall update our readers on a timely basis on the expected direction of the markets.

Country's largest MFI SKS Microfinance today said it will raise up to Rs 900 crore through issue of shares to institutional investors. The board of SKS has approved issuing equity shares through QIP route to raise up to Rs 900 crore, it said in a filing to the BSE today. The board also approved raising the authorized capital of the company to Rs 135 crore from Rs 95 crore. We would like to remind our investors that the micro finance industry is going through rough weather after the Andhra Pradesh government introduced an act last year to regulate their activities. SKS Microfinance Chairman Vikram Akula had also stated in the annual report that the provisions in the Andhra Pradesh MFI Act were hampering the company's growth in the state, resulting in a 5% reduction in its overall loan portfolio.

Textile conglomerate Arvind Ltd said it has divested its minority stake of 40 per cent in VF Arvind Brands Private Ltd to VF Mauritius for Rs 257 crore in an effort to reduce debt. Arvind had a joint venture with VF Corp for marketing brands like Lee and Wrangler. According to Jayesh Shah, director and chief financial officer, the divestment was done in terms of the joint venture agreement, in which, VF had right to acquire shares from Arvind at end of five years.

Mukesh Ambani led RIL’s USD 3-billion proposal to develop satellite fields to offset fall in gas output from the Krishna Godavari D6 block on Wednesday hit a hurdle when the upstream regulator Directorate General of Hydrocarbon refused to recognize its partner BP in the absence of a signed deal.

UltraTech Cement on Wednesday reported nearly seven per cent decline in October sales at 318,700 tonnes over the same month last year. The company had sold 341,900 tonnes cement last year. Production declined to 327,200 tonnes compared to 346,700 tonnes in the same month last year.

Engineering major Larsen and Toubro (L&T)'s construction division has bagged new contracts worth Rs 1,629 crore in the buildings and factories segment. According to the company, a major design and build order worth Rs 900 crore was secured for the construction of a major IT campus facility during the end of the second quarter. The third quarter ushered in new orders worth Rs 729 crore for the construction of a commercial building, university, residential towers and an automobile factory from various clients, it said.

Mining company Coal India Ltd (CIL) has got the Finance Ministry's nod for acquiring stake in overseas unlisted firms. However, the Finance Ministry has not given complete relaxation to the norm of minimum 12% internal rate of return (IRR) from such acquisitions. CIL chairman N C Jha has stated that the company would now pursue with some of the proposals lying before them.

The country's second largest two-wheeler maker Bajaj Auto (BAL) has reported a 6.46% increase in its motorcycle sales in October at 351,083 units. The company had sold 329,776 units in the corresponding month last year. BAL said exports grew 19.53% during the month at 131,948 units compared to 110,387 units in October 2010. In the three-wheeler category, company said its sales stood at 44,191 units as against 41,040 units in the same month last year, registering a jump of 7.68%. Total vehicle sales of the company in last month stood at 395,274 units compared to 370,816 units in the same period a year ago, a growth of 6.6%, despite some loss of production of about 25,000 motorcycles at the Pantnagar plant due to the curfew imposed in early last month.

NCC Urban Infrastructure Limited, a subsidiary of Hyderabad-based construction major NCC Limited, is lining up over 10 residential and commercial projects, together with a built-up area of 2.5 million sft, in Bangalore, Chennai, Hyderabad and Kochi. NCC Urban, which has so far developed over 2 million sft of residential and commercial space, currently has a land bank of over 400 acre. The company is in the process of launching a 100-acre integrated township, enveloped with commercial space, in Visakhapatnam, besides a 150-unit apartment venture in Guntur city shortly.

According to unconfirmed sources, it is rumored that the Govt. may soon announce its reforms for State Electricity boards (SEBs) which may include hike in tariffs. This will be positive for companies like REC, PFC and PTC.