Markets may witness a mildly positive opening

Morning Update 22thNov 2011

Opening Bias

After eight days of trading in the red zone it seems that the markets may witness a mildly positive opening, judging by the SGX Nifty which is trading up by 15.5 points at 4802.5 throwing indications of a flattish gap up opening.

However, on the global front the mood continues to be somber and the end is far from over. Overnight, U.S. stocks sank, pulling the Dow Jones Industrial Average into negative territory for 2011, as the lack of progress by American lawmakers in reaching a deficit-cutting agreement magnified worry that Europe’s debt crisis would spur a global downturn.

European stocks also dropped sharply, pressured by escalating concerns about France’s rating outlook. Asian shares have however managed to stay clear of all that has transpired in the western countries overnight. While Nikkei and Shanghai are marginally in the red zone, Hang Seng has managed to notch up see early gains.

The Indian companies ADR’s traded in the American markets have closed on a negative note indicating a weak day ahead for them in Indian markets. In the IT space, Wipro was down 3.05 per cent, Infosys was down over 4 per cent as the IT major have scaled down their FY12E targets owing to the sluggishness in the American and Euro economies and Patni was down by a 4.71 per cent. In the Telecom space, MTNL was down 0.96 per cent and Tata Communication was down 0.71 per cent. In the banking space, HDFC Bank was down 4.7 per cent and ICICI Bank was down 4.98 per cent. In the other space, Tata Motors was down 5.75 per cent, Sterlite was down 4.8 per cent and Dr Reddy’s Laboratories was down 2.74 per cent.

Back home the overall market sentiment still appears very gloomy and unclear. With the dollar touching new lows at Rs 52.15, inflation showing hardly any sign of easing out and coupled with a disappointing set of Q2 earnings with weak outlook for Q3 and Q4, the woes of the Indian investors are far from over.

There are expectations in the market that the RBI may intervene soon and restrict the dollar movement back below Rs 50 levels, however we feel that in order to bring back the rupee back to its strong levels, our very own domestic fundamentals have to fall back into line.  Keeping in mind our chief concerns of inflation, high interest rate, widening current account deficit as a result rise in cost of imported crude oil and a weak equity market adding to FII apathy, it will be quite some time before the dollar reverses its movement back to the comfort zone. 

In conclusion, despite the mild positive opening today, we expect the markets to remain volatile as the investors are very jittery to invest in such volatile markets, which fail to provide any concrete direction. Moreover the positive movements to be seen today would be a result of short covering and we advise our readers to not latch on to this rally as the macro fundamentals are still very weak. Stay cautious.

Stocks in Action

Expect some positive movement in Federal Bank and Tata Motors as the two companies have signed MoU for financing Tata's commercial vehicles. The said partnership can be termed as a strategic alliance between a major private sector banks having 823 branches across India and one of the biggest vehicle manufacturer in the country having more than 60 per cent market share in the commercial vehicle segment.

Jammu and Kashmir bank may witness some positive movement as Fitch Ratings affirms ‘AA’ rating, its national rating of very low default risk with a stable outlook on the back of the government of India's support for the lender.

At a time when aviation major Kingfisher Airlines is going through a financial turmoil there have been unconfirmed reports that the civil aviation ministry has forwarded a cabinet note for approval to allow FDI into the sector. While the aviation ministry has proposed a 24 per cent FDI in this sector for domestic carriers, the finance ministry has shown its interest for 26 per cent and in fact it might be open to increasing that to 49per cent. At present sources have told us that the pros and cons over the FDI limit are being discussed by various ministries and a final decision is likely to be announced soon. For now one may expect some positive movement in the aviation counters.

Corporate Action