Markets may open negative for a second straight session

Overnight, the US stocks took a last minute turn with the Dow industrials finishing slightly lower. However, the S&P 500 and NASDAQ closed modestly higher on the back of a jump in consumer confidence this holiday season. The Asia markets are also seen trading on a weaker note in early trades, following lacklustre global leads as investors digested a mixed bag of data.

The Indian companies’ ADRs traded in the American markets have closed largely on a mixed note, indicating a choppy day ahead for them in the Indian markets. In the IT space, Wipro was unchanged, Infosys was up by 0.39 per cent and Patni was down by 0.48 per cent. In the telecom space, MTNL was up by 0.12 per cent and Tata Communications was up by 1.13 per cent. In the banking space, HDFC Bank was up by 0.34 per cent but ICICI Bank was down by 0.39 per cent. In the other space, Tata Motors was down by 3.21 per cent, Sterlite was down by 2.12 per cent and Dr Reddy’s Laboratories was up by 1.73 per cent.

Back home, among some of the major developments, late last evening the Lok Sabha finally passed the whistle-blower Lokpal Bill after a prolonged debate by voice vote after the government agreed to ten amendments in the bill. However, a legislation designed to confer constitutional status on the anti-corruption watchdog fell through as the government failed to get two-thirds support for it. As for the Anna Hazare-led protest, the agitation seemed to be facing an early closure due to the deteriorating health of the civic leader. The government’s amendments did not impress Hazare-led activists and key members of the civil society were believed to be still advocating the idea of continuing the protest in retaliation of the so-called weak bill.

Now as far as the markets are concerned, the developments that took place last evening wouldn’t bring about much cheer as the bill still stands to be passed in the Rajya Sabha. Also, investors and traders are expected to show their dissent about the parliament not being able to confer the bill with a constitutional status. Hence, although the passing of the Lokpal Bill in the Lok Sabha comes as a positive development, there is still time for one to derive any meaning from it.

In conclusion, we at DSIJ expect the markets to remain volatile with a negative bias as investors, traders and institutions digest the pros and cons over yesterday’s development in the parliament, based on which they will start preparing and building up strategies and positions. We advise our readers to stay cautious.

Stocks In Action

According to Reuters, Adani Power has put on hold its capacity expansion plans for 6,500 megawatts (MW) due to lack of clarity on coal supplies. The company, which operates about 2,000 MW capacities, had chalked out plans to have 6,000 MW capacities by March 2012. Adani, which has been banking on Indonesian and Australian coal mines to meet its coal needs, is likely to feel pressure on its margins because of the price escalation in Indonesian coal. The rising cost of imported coal, coupled with a weakening rupee, has had many financial implications on the power sector at large. This is negative news for the company.

According to Reuters, Varun Industries plans to sell a stake of 51 per cent in an onshore oil block at Madagascar to Daqing Oilfield Co, a unit of state-run Petro China, for USD 150 million (approximately Rs 800 crore). Varun said it will continue to earn revenues from oil exploration at the block, which is spread over 6,884 square kilometers and holds prospective reserves of around 3,067 million barrels. The sale will help Varun boost its capital by increasing liquidity, which it will use for other capex needs. Varun is currently working on a rare earth project and also has a presence in gold mining. This is a very positive development for the company.

According to a BSE press release, Larsen & Toubro’s shipbuilding arm will sign a technological and licensing agreement with Japan’s Mitsubishi Heavy Industries Ltd as both firms look for shipbuilding opportunities in emerging economies. Under the agreement, Mitsubishi will initially train engineers from L&T Shipbuilding Ltd in building vessels and assist in procuring materials from overseas. It will also advise on the potential expansion of L&T’s shipbuilding facilities. Mitsubishi and L&T Shipbuilding will eventually jointly market and sell commercial vessels. The companies will sign a three-year agreement starting early 2012, with an option to extend it. L&T and Mitsubishi currently operate two joint ventures to manufacture power-related equipment, including super-critical boilers and steam turbines and generators, which they signed in 2007.

According to BSE press statement, Tata Power has signed a share purchase agreement with BP Alternative Energy Holdings to purchase the firm’s 51 per cent equity and preference shares in the joint venture Tata BP Solar. Tata Power said it will own 100 per cent of Tata BP Solar once the transaction is complete, which is subject to approval from the Reserve Bank of India and the Competition Commission of India. Tata Power said the company will enter into a technology agreement, which will allow it to continue access to certain BP technologies till 2013. There will also be a transition period for product and non-product related rebranding and certification. Tata BP Solar makes solar photovoltaic cells, solar modules, products and systems at its plant in Bangalore. It also offers solar power applications for village lighting, water pumping, telecommunications, railways, etc. Solar energy is a very effective renewable source of energy but has a very long gestation period with high amount of investments. The benefits of it will be reaped over an extended period of time. Nevertheless it is positive news for the company as it enables them to foray into newer and cleaner forms of energy sources.

According to The Hindu Business Line, cash-strapped Gujarat State Petroleum Corporation (GSPC) is toying with proposals to dilute part of its operating stakes in overseas assets, preferably in Egypt, to part-finance nearly Rs 4,000 crore worth of capital expenditure outlay in India and abroad in 2012. The other options on the radar include anticipated equity infusion by the Gujarat government, private placement of fresh shares of GSPC and unlocking value in unlisted city gas entities like Gujarat Gas or Sabarmati Gas.

According to Business Standard, State Bank of India’s proposed joint venture with Bharti Airtel has fallen through after the Reserve Bank of India expressed apprehensions over letting a telecom player into the banking space through equity participation. The proposed JV in which SBI would have 51 per cent stake and Bharti 49 per cent was announced in January, with the objective of extending banking services in rural areas through the business correspondent model. It is believed that the RBI was not in favour of a non-banking company’s equity participation in the proposed deal. Its reasoning was that allowing a telecom player enter into a JV with a bank may lead to the back-door entry of a non-banking entity in the banking sector. This is a negative development for both SBI and Bharti Airtel.