Markets may open in the red

Opening Bias

The markets may witness a negative opening in line with the weak global cues. The SGX Nifty is trading down by 42 points at 4,883 indicating a gap down opening to the markets.

After Greece and Italy it’s now time for Spain to trigger off a global sell-off. The Spanish Treasury on Thursday sold € 3.562 billion (USD 4.79 billion) of benchmark ten-year papers at a maximum yield of 7.088%, which was the highest yield paid since the Euro’s inception. As a result, the US stock losses intensified as investors sold equities as well as assets more typically used to hedge stock bets even as the rising borrowing costs in Europe unnerved Wall Street. The Asian shares have also seen a heavy sell-off in the early morning trades.

The Indian companies’ ADRs traded in the American markets have closed on a negative note, indicating a weak day ahead for them in the Indian markets. In the IT space, Wipro was down by 3.27%, Infosys was down by over 1.8% but Patni was up by 2.41% on the back of its de-listing offer made by iGATE. In the telecom space, MTNL remained unchanged and Tata Communications was down by 4.1%. In the banking space, HDFC Bank was down by 5.6% and ICICI Bank was down by 4.13%. In the other space, Tata Motors was down by 6.3%, Sterlite was down by 5.3% and Dr Reddy’s Laboratories was down by 4%.

Back home, as expected, food inflation eased to 10.63% for the week ended November 5 even as the prices of agricultural items, barring onions and wheat, continued to rise on an annual basis. Food inflation, as measured by the WPI, stood at 11.81% in the previous week ended October 29. The rate of price rise of food items stood at 11.41% in the corresponding week of the previous year.

Inflation in the overall primary articles’ category stood at 10.39% during the week ended November 5, as against 11.43% in the previous week. Inflation in non-food articles, including fibers, oilseeds and minerals, was recorded at 5.33% during the week under review, as against 6.41% in the week ended October 29. Fuel and power inflation stood at 15.49% during the week ended November 5, as compared to 14.50% in the previous week.

This new set of inflation cool-off may give rise to speculation that the RBI might take a pause in its hawkish stance in December. But we would like to remind our investors that the inflation still persists well above the central bank’s comfort zone. However, given the fact that the economy has seen clear signs of slowdown and the inflation has begun to show signs of taming, the RBI must consider a pause in its stance. In conclusion, we expect the markets to witness yet another negative day as the investors are very jittery to park their funds in such markets, which fails to provide any concrete direction. We advise our readers to stay cautious.

Stocks In Action

Pharmaceutical firm Lupin will acquire Japan’s I’rom Pharmaceutical (IP) for an undisclosed sum as it looks to expand its footprint in the country. The company’s Japanese subsidiary, Kyowa Pharmaceutical Industry Co, has entered into an agreement with I’rom Holdings (IH), an integrated healthcare provider to acquire up to 100% of the outstanding shares of its subsidiary. IP is a specialty injectable company and had clocked revenue of 5.3 billion yen in the 2010-11 fiscal. The acquisition will not only strengthen Lupin’s presence in the Japanese market but would also provide for a stronger growth curve in this priority market.

Production was hit at Dr Reddy’s Laboratories’ Srikakulam unit in Andhra Pradesh for the past 3-4 days as some of the workers went on a strike. The unit, which manufactures active pharmaceutical ingredients, has about 700 employees on its rolls besides about 300-350 contract workers. The protests were triggered due to the scaling down of the number of contract workers to about 85.

A high-level panel of secretaries has recommended rejecting bids by Reliance Industries (RIL) and state-owned Oil and Natural Gas Corporation (ONGC) for the Andaman sea block as they have offered ‘very low’ profit share to the government. An Empowered Committee of Secretaries (ECS), which reviewed the bids recently, felt that the 10.95% profit share offered by RIL was less than the benchmark 15% and therefore was deemed very low, sources privy to the deliberations said. The panel had given the same opinion on ONGC’s 6.7% profit share offer for two other Andaman Sea blocks, where it was the sole bidder.

The government will consult IOC before taking any decision on Kingfisher Airlines’ request for direct import of the jet fuel which will help the crisis-ridden carrier to save taxes and costs. As per the Foreign Trade Policy, only state trading enterprises like IOC are allowed to import the ATF. However, DGFT has powers to grant authorisation to any other person to import any of these goods on the grounds of genuine hardship. This seems quite bizarre, as other airline companies might also ask for such grants given the fact that even they have been facing adverse conditions in the industry.

Everonn Education, India’s largest technology-enabled education firm, is getting ready to enroll more global marquee investors. Two months after the Dubai-based Varkey Group came on board, global private equity majors Carlyle Group and New York Life Capital Partners are in advance talks with the company to pick up a stake, said those following the development. Once completed, it could be the largest private equity (PE) investment in the Indian education space till date. According to these sources, the initial discussions are over and negotiations are underway to formalize the final deal structure, which may see an investment of over Rs 500 cr (USD 100 million) through a combination of primary and secondary market transactions.