Global cues may keep the markets guessing

Morning Update 11thNov 2011

Opening Bias

The markets may witness a mild positive opening in line with global cues. The SGX Nifty is trading up by 11 points at 5164 indicating a gap up opening to markets today.

Overnight U.S. stocks recouped some of the prior session’s steep losses after the government reported jobless claims fell to a seven-month low and worries about Europe’s ability to handle its debt crisis abated.

Post Greek woes, now a high-voltage drama over Italian debt is sure to keep the Indian markets guessing for direction over the coming days. On Wednesday Italian Prime Minister Silvio Berlusconi insisted on elections instead of a transitional government. Economists and traders thought this could prolong instability in the region. Italian 10-year maturity bonds were on fire, with yields rising to over seven%, leaving the country almost needing a bailout.

This saw the Asian markets crash on Thursday morning with the Hang Seng losing more than 5% in a single day. However, markets in the US and Europe were buoyed immediately, as ECB stepped in to soothe the nerves. Greece announced that former ECB vice-president, Lucas Papademos, would take over as the prime minister of the country, ending Greeks’ political crisis. ECB announced it would buy Italian bonds to stop the crisis from spreading.

Luckily for India, it was a blessing in disguise that the markets were shut for trading due to a bank holiday. Now given the fact that US and Europe ended their trading sessions on a positive note, we do not see any major cut in the domestic markets today. Other Asian markets have also managed to notch up some mild gains in early morning trades, rebounding from the steep losses reported yesterday. 

The Indian companies ADR’s traded in the American markets have closed on a mixed note indicating a choppy day ahead for them in Indian markets. In the IT space, Wipro was up 0.72%, Infosys was marginally down by 0.02% and Patni was down by a 1%. In the Telecom space, MTNL was down by massive 4.2% and Tata Communications was also down by 2% after dismal performance reported in India for the second quarter. In the banking space, ICICI Bank was up by 0.18% and HDFC Bank was down 1.3%. In the other space, Sterlite was down by 0.32%, Dr Reddy’s was up 0.53% and Tata Motors was down 0.17%.

Back home, in a stark contrast to its peer Moody’s who decided to downgrade Indian banking sector, leading rating agency Standard & Poor (S&P) upgraded India’s banking sector terming the country’s domestic regulations in line with international standards.

S&P said it had ‘classified’ the Indian government as ‘highly supportive’ and expected it to provide timely financial support to banks, thus ruling out pressure on capital. According to the agency, the Indian banking system has a high level of stable, core customer deposits, which limit dependence on external borrowings.

We believe that while the latest re-rating could provide some cushion to banking stocks, the focus would continue to be on them and there could be some more sell-off in banking stocks due to concerns over non-performing assets.

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

Stocks in Action

Tata Steel, the world's seventh largest steelmaker, has posted dismal numbers that might send the stock into shock when markets open today. Tata Steel's consolidated net profit for the second quarter of the current fiscal plunged by 93% to Rs 139 cr as against Rs 1968 last year due to higher raw material cost. The steep fall in net profit is due to lower realization, lower income and a sharp rise in raw material and fuel costs, and, the absence of one-off gains that were seen in the year-ago period.

Hit by unpaid compensation, state-owned Indian Oil Corporation, the country’s biggest oil marketer, has reported an all-time high quarterly loss of Rs 7,485 cr for the quarter ended September 30, in sharp contrast to the net profit of Rs 5,294 cr last year.The company had to absorb Rs 7,800 cr of unmet losses on the sale of diesel, domestic LPG and kerosene. At present, the company is losing Rs 8.58 on a litre of diesel, Rs 25.66 on per litre kerosene and Rs 260.50 on a domestic LPG cylinder. Interest expenditure for the quarter rose nearly threefold to Rs 1,484 cr as the company’s borrowings increased to Rs 73,000 cr.

In what could seems as some sort of a relief, the Petroleum Ministry has asked for a two-year extension of the tax holiday for refineries under the Income-Tax (I-T) Act so that state-owned Indian Oil Corp's (IOC's) much-delayed, Rs 29,777 cr Paradip refinery can avail the benefit.

Natural gas production from Reliance Industries' (RIL's) showpiece KG-D6 fields off the East Coast has declined to a one-year low of less than 42 million standard cubic metres per day. The Dhirubhai-1 (D1) and 3 gas fields and the MA oilfield in the KG-DWN-98/3, or KG-D6, block in the Bay of Bengal produced about 41.68 mmscmd of gas in the week ending October 30, according to a production report filed by the operator (RIL) with the Oil Ministry. The current output is a far cry from the 61.5 mmscmd level achieved in March last year and the production plan of over 70 mmscmd for 2011-12.

According to sources, ONGC has expressed interest in partnering with Rashtriya Ispat Nigam and Bharat Heavy Electricals Ltd (BHEL) on a proposed Rs 2,000 cr, joint venture seamless tubes manufacturing plant at Vizag and talks are on between the parties.While BHEL has already agreed to join as a joint venture partner in the proposed seamless tube mill at Vizag, ONGC has also evinced interest and discussions are in progress.

IRB Infrastructure Developers' consolidated net profit for the second quarter rose better-than-expected 11% from a year ago to Rs 110 cr. The road developer's income from operations increased 50% year-on-year to Rs 735.9 cr in July-September.

IT firm Mahindra Satyam today posted a 10-fold growth in profit-after-tax to Rs 238 cr for the secondquarter of the 2011-12. The company's profit-after-tax (PAT) stood at Rs 23.31 cr in the July-September quarter of the 2010-11 fiscal. On a quarter-on-quarter (q-o-q) basis, Mahindra Satyam's profit-after-tax was up 5.77% from Rs 225 cr in Q1FY12. The company's consolidated revenues surged by 27% during the quarter under review to Rs 1,578 cr as against Rs 1,242 cr in the corresponding period a year ago. On a q-o-q basis, Q2 revenues were up 10% from Rs 1,434 cr in Q1FY11-12.

Eyeing to become a one billion euros (about Rs 6,800 cr) entity in India by 2015, global leading paints and coatings firm Akzo Nobel will invest Rs 200 cr to set up a new manufacturing plant in Madhya Pradesh to ramp up operations in the country. As part of the strategy, the company that is mainly into decorative paints, performance coatings and specialty chemicals, has announced its foray into the wood coatings segment as well in India.

After oil companies and airports, rivals have stepped up pressure on Kingfisher Airlines (KFA). Jet Airways, the leader in market share, has stopped accepting passengers from KFA in case of a cancellation or disruption over a payment dispute of over Rs 20 cr related to passenger transfer, which has not been cleared by KFA. Facing acute cash crunch and mounting losses, KFA has cancelled nearly 30 flights across its network for the next 10 days.

Corporate Action