Markets may open positive in line with global cues

Morning Update 08thNov 2011

The markets may open positive in line with global cues. The SGX Nifty is trading up by 55 points at 5320 indicating a strong gap opening to markets today.

Overnight U.S. stocks Monday ended the session on a firm note as Wall Street monitored events in Europe, where Greece’s latest rescue package was under discussion and Italy’s borrowing costs kept increasing. There were also speculations that Italian Prime Minister Silvio Berlusconi was under pressure to resign as it emerged that Italy too might get engulfed by the long running debt.

The Asian counterpart are seen trading on a mixed note amidst choppy trades with export firms among the notable decliners, as tension looms over the possible outcome to the euro-crisis.

Gold prices also gained nearly 2 percent yesterday after Greece's politicians sealed a deal to form a coalition government, while continued uncertainty about resolving the zone's debt crisis supported safe-haven demand in bullion. News that Italy’s prime minister was under pressure to resign also kept traders on edge boosting the metal’s demand.

The Indian companies ADR’s traded in the American markets have majorly closed in the green zone indicating a positive day ahead for them in Indian markets. In the IT space, Wipro was up 1.8%, Infosys was down by 0.22% and Patni was up by 0.28%. In the Telecom space, MTNL was down by 2.38% and Tata Communications remained unchanged. In the banking space, ICICI Bank was up by 0.68% and HDFC Bank was up 0.77%. In the other space, Sterlite was up by 1.6%, Dr Reddy’s was up 0.21% and Tata Motors was down 0.36%.

Back home, India Inc. seems to have had yet another disappointing quarter. A total of 1,457 companies declared quarterly results for this season, reporting the sharpest fall in net profit in the past 11 quarters. The aggregate net profit of these companies declined 12% y-o-y, lowest since the December 2008 quarter, despite a 23% growth in top-line.

The star performers were ONGC, Reliance Industries, NTPC, NMDC, Infosys, ITC, ICICI Bank, Hindustan Zinc, HDFC Bank and Hindustan Unilever. These 10 posted an average net profit growth rate of 32% and saved the day. The combined net profit growth of the 1,457 companies, which account for 66% market capitalization of all actively traded stocks on the BSE, would have declined by a third if these 10 were excluded from the list.

Of the 30 SENSEX constituents, 18 companies declared their results and 15 of these posted positive growth, while four saw a fall in earnings. Higher input costs, rising interest burden, a global economic slump and a fall in rupee value pinched the bottom lines in this quarter.

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

Stocks in Action

Even as a debate is on over allowing foreign airlines to buy stake in Indian carriers, FIIs are pulling out their investments from the country’s listed airline companies. High crude, falling rupee and dent in the books of majors like Jet, Kingfisher and SpiceJet in Q1 have led to the FIIs exit in them. FIIs, though, are still evincing fair amount of interest in sectors like oil & gas and automobile firms. Jet Airways has seen a decline in FII stake from 5.77% in Q1 to 4.67% in Q2. Kingfisher has witnessed a less than one percentage point decline from 3.02% to 2.11% during the same period. In the case of Sun Group-owned SpiceJet, the fall is huge because of an increase in equity base after allotment of 35.90 million shares to the promoter of the company. The FII stake in the company fell from 10.16% to 6.17%.

There are reports that IT major Infosys has lost a major tax case in Karnataka HC on certain foreign currency expenditure incurred in relation to technical services provided abroad, to be reduced for calculating Sec 80HHE deduction. In a significant ruling, a division bench of Karnataka HC has held that expenses incurred in foreign currency, relating to the technical services rendered by Infosys abroad, ought to be deducted from the figures of export turnover and total turnover for computing deduction u/s 80HHE. The tax impact on Infosys over the last 10 years could run into several hundreds of crs. This judgment overturns the favorable Bangalore ITAT ruling in Infosys case. A final copy of the judgment is awaited.

Logistics major Transport Corporation of India will invest Rs 40 cr in the second half of FY12 to acquire 100 trucks and a ship, according to a senior company official. The senior official also added that Rs 68 cr has already been invested in the last six months towards increasing the felt size.

Footwear manufacturer Liberty Shoes plans to raise Rs 500 cr for various projects within the ambit of the shoe industry. The company is looking at large expansion of its retail stores apart from modernizing infrastructure in terms of distribution and warehousing over the next three years. There is however no clarity at this point of time over the funding route to be adopted by the management. However the company which has a 10% market share in the Rs 3,000-cr organized shoe market, growing at 10% annually has indicated very robust revenue guidance for FY12E of 15-20% growth.

German cement major Heidelberg and domestic giants including Ultratech and Reliance Cements have evinced interest to be the joint venture partner in state-run Rashtriya Ispat Nigam's proposed Rs 1,000-cr, 3 mtpa cement plant at Vizag. Sources said Zuari Cements, Bhavya Cements, JP Cements and Binani Cements have also shown interests in the joint venture. These firms responded to the Expression of Interest issued by RINL earlier. According to public data, the proposed venture would use fly ash and slag, two key raw materials for making of cement, generated from RINL's Vizag plant, where the capacity would shortly be increased to 6.4 mtpa from 3 mtpa. Around Rs 1000 cr investments would be required to set up the cement plant.

State-run explorer Oil & Natural Gas Corp beat street estimates with a 60% jump in quarterly profit, bolstered by lower subsidy payments and gains from high crude oil and gas prices. ONGC’s net profit for its fiscal second quarter ended September rose to Rs 8,642 cr, compared with Rs 5,389 cr a year earlier. Net sales rose to Rs 22,620 cr from Rs 18,190 cr a year earlier. Net realizations on crude oil improved by 33.4% to USD 83.70 per barrel.

Atul Auto Limited, the three wheeler auto rickshaw major from Rajkot, is now considering changing its plan of setting up the production unit of its four wheeler light commercial vehicle (LCV) project from Ahmedabad to another place as the company is facing problems in acquiring land near Ahmedabad. Atul auto had aims to start LCV production by the end of December 2012 but the project is said to be delayed by at least three to four months. The company is also looking for a partner whose technology will help it to enter this segment. The three-wheeler major is also contemplating the establishment of a four-wheeler facility in Gujarat, with an investment of around Rs 200 cr. Initially, the company plans to manufacture 10000 LCVs and later has plans to double the capacity. The process of expanding production from 24000 units to 48000 units is going on and it will be completed by March 2012.

The country's largest power generator NTPC has chalked out ambitious plans to take its capacity to over 128,000 Mw by 2032. Currently, the total installed capacity of NTPC is 34,854 Mw, with 15 coal-based, seven gas-based power stations and six joint-venture power projects located across India. It is currently working on projects with a cumulative capacity of 40,000 Mw, of which 14,000 Mw is in various stages of implementation. These plants generated 220.54 billion units (BUs) of electricity during 2010-11, contributing more than 27% of total electricity generated in India with about 18% share of country’s total installed capacity.

According to our sources, Jaypee Group, the Rs 15,000 cr engineering and construction conglomerate, is in talks to sell a stake in its cement unit Jaiprakash Associates. Sources also added that the company has approached a number of investors including Singapore state investor Temasek Holdings regarding a stake in Jaiprakash. The stake sale is said to be part of a fund raising plan to reduce the group's debt, which stands at around USD 8 billion.

The Asian Development Bank will provide Rs 221 cr to Reliance Power for its Rs 700-cr 40 MW solar project in Rajasthan. The US Exim Bank has already agreed to fund Rs 304 cr. With this, RPower has completed the financial closure of the project. The debt to equity ratio of the project would be 75:25 and RPower will infuse Rs 175 cr to address the equity portion. The foreign financing route entails significant savings to RPower considering that foreign loans have a tenor of 18 years with lending rates of 3 to 4%, while those from domestic banks generally have a 13 year tenor with interest rates of about 13.5%.