Markets may witness a mildly negative opening

Morning Update 16thNov 2011

Opening Bias

The markets may witness a mildly negative opening in line with mixed global cues. The SGX Nifty is trading down by 14 points at 5052 indicating a gap down opening to markets.

Overnight U.S. stocks closed modestly higher, clearing some of the prior day’s drop, after reports cast a more positive light on the U.S. economy, helping curb concern over Europe’s debt crisis.

In the Euro-zone, expansion in Germany and France helped to keep the economy growing in the third quarter, even as the crisis makes it increasingly probable that the good times will soon come to an end. Third-quarter real gross domestic product (GDP) grew 0.2% from the previous three months. That was the same pace at which GDP had grown in the second quarter. From a year earlier, seasonally adjusted GDP increased by 1.4% in both zones.

Asian share are seen trading amidst a choppy session in early morning trades after opening to the upside, with exporters and airlines among the losers, but mainland Chinese lenders among the gainers.

Back home, in a trend reversal, OMC’s have cut petrol prices by Rs 2.22-2.35 a litre with effect from today. The decrease more than negates the impact of the last price hike of Rs 1.80 earlier this month. The hike had triggered strong political criticism. UPA ally TMC had even threatened to withdraw support to the government. The reasons cited for such a move are softening in global crude prices and a moderate stability witnessed in dollar movement.

But in our belief, that price hike roll back is politically driven move to please the vote bank and douse the anger ahead of the parliament’s winter session, scheduled to begin on Nov 22nd. We see no reason why OMC has to decrease the price of petrol and that too now when their subsidy burden is on the rise.

When last hike in the petrol was done on 3rd November price of crude was at USD  109.65 per barrel and rupee dollar rate was at 49.20 but today crude is at USD 111.50 per barrel and rupee dollar is at 50.61.

The post-tax earnings of the Nifty 50 have fallen by 2.7% year-on-year in the second quarter, while the Sensex companies have clocked a meager 2.1% growth in profit. The midcap companies have been worst hit, as net profit of Nifty Midcap 50 has fallen by 20.1% annually in Q2. The profit after tax of BSE 500 (ex-Nifty), representing nearly 93% of India’s listed universe, has contracted 3.6%.

A sharp rise in raw material costs and interest rates coupled with the weakening rupee have taken out the wind out of India Inc. As a result, margin compression worsened in Q2, with sales growth outpacing EBIDTA growth.

In conclusion, we expect the markets to remain volatile for the day as investors start taking note of what has transpired from the Q2 earnings season and gear up for the Q3 season.

Stocks in Action

State-owned gas utility GAIL India today won rights to lay a 1,550-km natural gas pipeline from Surat in Gujarat to Paradip in Orissa, connecting west to east coast. GAIL beat Gujarat State Petronet Ltd (GSPL) to win the right to lay the pipeline. The PSU bid an astonishingly low pipeline tariff of Rs 0.01 (one paisa) per million British thermal unit to bag the project. The bi-directional pipeline would have a capacity to transport up to 60 million standard cubic meters per day of gas. The 36-inch pipeline would cost Rs 5,500 cr, sources said, adding this will be the first pipeline in the country originating and terminating at a port.

Drug firm Venus Remedies has received approvals from health authorities in the UK and New Zealand for marketing its generic injectable antibiotic Meropenem which is used for treating bacterial infections."Meropenem sales account for USD 906 million across the globe, which is estimated to grow to USD 1,006 million by 2012," Venus Remedies said.

FMCG player Godrej Consumer Products (GCPL) is mulling further price hikes on some products across all segments in the next few months as high input cost continues to put pressure on its profitability. The company, which primarily targets the mass market, is also looking at "premiumisation" of its product categories as part of its plan to enhance its reach to the urban population.

State-run steel maker SAIL today said it has signed an initial pact with Oman Oil Co to jointly set up a 3 million tonne per annum (mtpa) gas-based steel plant in Oman at an investment of around Rs 15,000 cr.SAIL Chairman CS Verma said the final agreement with Oman Oil is likely to be signed within the next six months, after which, it will take 2.5-3 years for the plant to be operational.The shareholding pattern of the proposed venture is yet to be decided, he said, adding that majority of the stake would be with SAIL.Oman consumes around 3-4 mtpa of steel in a year. However, steel capacity in the West Asian country is under 1 mtpa.

IT firm Hexaware Technologies today bagged a contract worth USD 250 million (nearly Rs 1,265 cr) from a UK-based client for a period of five years, starting January 1, 2012. The company will garner an estimated USD 60 million worth of incremental business through this contract. The additional revenue from this engagement will begin to accrue from the first quarter of 2012, Hexaware Technologies said in a filing to the BSE. Under the contract, Hexaware is expected to ramp up the team servicing the client to a peak strength of 800 personnel operating in dedicated global delivery centers.

Tech Mahindra, India's fifth largest software services company, on Tuesday said net profit for the quarter to end-September rose 60per cent from a year ago to Rs 240 cr (USD 47.7 million). Last week, Mahindra Satyam, which Tech Mahindra bought in 2009, saw net profit for the quarter beat estimates but warned the euro zone debt crisis could dent demand for India's flagship outsourcing sector. The company expects a sustained growth momentum in its non-BT business. Tech Mahindra added 807 employees in the second quarter.

Drug firm Strides Arcolab has received approval from the US health regulator to market a generic carboplatin injection for the treatment of ovarian cancer.The approval by the USFDA is for carboplatin injections in strengths of 10 mg/mL, packaged in 50 mg/5 mL, 150 mg/15 mL, 450 mg/45 mL and 600 mg/60 mL multi-dose vials. The company said according to IMS data of June 11, the US market for generic carboplatin is worth nearly USD 35 million. Carboplatin injections are indicated for the treatment of advanced ovarian cancer.

Hyderabad-based logistics company Gati has decided to rope in a global strategic partner. It plans to divest 2649% equity, apart from hiving off its loss-making shipping business by selling a majority stake to another company. The company hopes to complete the process, both divestment and demerger of shipping operations, by June.

Glenmark Pharmaceuticals has signed a 10-year pact with Canadas Immanence IDC to sell cosmeceutical products in eight countries, including India. The other countries covered are Brazil, Mexico, South Africa, Egypt, Vietnam, Malaysia and Thailand. Glenmark has formed a new division – Glenmark CosmoCare for the Indian market.

Everonn Education has said the Dubai-based Varkey Groups open offer, scheduled to open tomorrow, would not happen. The USD 2.5-billion group was planning to acquire another 20% stake in Everonn (it already has 12%) through the offer, for Rs 237 cr. Everonn told the BSE that a revised schedule of activities on the offer would be announced after getting approval from the SEBI. In other developments, the company has reported a 73% drop in net profit at Rs 4.30 cr during the quarter ended September, compared to Rs 15.98 cr a year ago. The company promoters have also pledged 482000 equity shares during the quarter. The company also said 4612489 shares were pledged as on September 30, constituting 24.02% of the total paid up capital of the company.

Corporate Action