Markets may witness a positive opening to the week

Last Friday, the US stocks rallied by a good 2% to close a second consecutive week in the green zone as European leaders agreed to closer fiscal ties and the US consumer confidence hit a six-month high. In line with the somewhat positive developments seen in the Euro zone, the Asian markets have also notched up some healthy early morning gains, with exporters and technology shares leading the pack.

The Indian companies’ ADRs traded in the American markets have closed on a positive note, indicating a good day ahead for them in the Indian markets. In the IT space, Wipro was up by 1.85%, Patni was up by 1.18% and Infosys was up by over 3.74%. In the telecom space, MTNL was down by 1.87% and Tata Communications was up by 2.59%. In the banking space, HDFC Bank was up by 1.36% and ICICI Bank remained unchanged. In the other space, Tata Motors was up by 2.68%, Sterlite was up by 0.5% and Dr Reddy’s Laboratories was up by 2.1%.

Back home, the markets have now entered a very crucial week in the course of which a number of key events are set to unfold. These will shape the future course of action in the year 2012. Some of the major events include the IIP data to be announced on December 12, followed by the November monthly inflation data on December 14 and the RBI’s monetary policy review on December 16.

We believe that with the steep fall witnessed in the WPI for primary articles and the stiffness seen in the WPI for fuel and power in November 2011, while maintaining similar inflationary projections for manufactured articles as seen in October 2011, the headline inflation is expected to come in at around 8.7% for November 2011.

As for the industrial output data, according to certain media reports, it is believed that the country’s industrial output declined by 7% in October 2011, dragged down by a fall in the capital goods sector. The output had earlier shrunk to a two-year low of 1.9% in September 2011, as a sluggish manufacturing sector was hit by rising interest rates and a decline in the mining output impacted expansion. However, with more data expected to be collected and accounted for shortly, the final figures may register a 5% decline.  

Finally, on the RBI’s likely monetary stance, looking at the Q2 GDP growth of 6.9% which has shown clear signs of slowdown in the economy coupled with a cooling off in inflation, we at DSIJ expect the central bank to take a pause in its monetary stance on December 16, 2011 and adopt a dovish approach thereon.

In conclusion, we expect the markets to remain highly volatile in anticipation of the effects of the announcement of the IIP data today. Our advice to readers is to therefore stay cautious and apply a ‘wait and watch’ approach as the markets turn volatile ahead of a crucial Euro week and build up to the RBI’s monetary policy review.

Stocks In Action

According to certain media reports, it is believed that the oil ministry is contemplating on the idea of taking some strict action against oil & gas major RIL based on the advice of the Solicitor General of India (SGI). It seems that the oil ministry reckons that RIL’s claims of lagging output in the KG-D6 basin as a result of geographical problems in not entirely true. Expect some heavy action today.

Looking at the huge potential, auto component manufacturer Rane Group is believed to be looking at diversifying into defense and aerospace. Moreover, with a view to look into the vast opportunities offered, they have recently gone on to tie up with Bangalore-based Sasmos. However they have maintained that the main focus will continue to be on the automotive sector.

The Civil Aviation Ministry has agreed to the proposal of allowing foreign carriers to buy 26% stake in private airlines. Earlier the ministry had proposed fixing a cap of 24% on foreign direct investment (FDI) by overseas carriers. No further details have been divulged yet, but one may expect some action in the aviation stocks today.

Media reports suggest that state-owned gas utility GAIL India has signed an agreement to buy 3.5 MT per annum of LNG for 20 years from a US firm to meet India’s growing energy needs. Supplies may start as early as 2016. The SPA has a term of 20 years commencing upon the date of the first commercial delivery and an extension option of up to 10 years. The LNG from Sabine Pass shall form a part of the basket for feeding LNG to the Dabhol terminal in Maharashtra and Kochi in Kerala.

Essar Oil Ltd has proposed setting up a 6 million tonne refinery in Uganda even as it plans to invest USD 1 billion in more than doubling the capacity of its Kenya refinery. If accepted by Uganda, this would be the second refinery of Essar Oil in Africa. In July 2009, the firm had acquired 50% stake in Kenya Petroleum Refinery Ltd which operates in Mombassa. Essar has a 14 million tonne refinery at Vadinar, Gujarat and had recently acquired 2,96,000 barrels per day Stanlow refinery in UK. The Mombasa refinery had a capacity of 3.7 million tonnes but was operating at 1.6 million tonnes only.

BPCL is planning investments of Rs 18,000-20,000 cr over the next five years for setting up a petrochemical plant and expansion of the Kochi refinery. The company is looking at diversification into petrochemicals by building a niche speciality chemical project at a cost of Rs 5,000-6,000 cr at Kochi, and plans to rope in a multinational partner for the project. As for the expansion plan of its refinery, the PSU major plans to take it to 15 MT from its current capacity of 9.5 MT. The expansion will help BPCL manufacture propylene derivatives, which are currently imported and not manufactured in the country. The petrochemical project would use feedstock from the expanded refinery and the projects are likely to be completed in the next five years.

According to media reports, Flexituff International has earmarked some plans to enter into the Rs 30,000 cr geo-textile sector at an investment of Rs 70 cr