Markets may open 2012 on a subdued note

Morning Update 02ndJan 2012

Opening Bias

The markets are likely to open on a subdued and flattish note on this first trading day of 2012. The SGX Nifty is trading up by 12 points at 4638 with very low volumes indicating a flat gap up opening to markets today.

Last Friday, U.S. stocks slid, as investors closed the books on a volatile year largely driven by Europe’s uncertain efforts to stem its debt crisis. The first week of the New Year will now reveal a lot about U.S. economy in the final month of the old year. A string of economic reports this week is likely to reveal that manufacturing and service-oriented companies continue to expand and that businesses are adding jobs at a faster clip. The capstone will be Friday’s monthly report on job creation in December.

The Indian companies ADR’s traded in the American markets have closed on a mixed note indicating a choppy day ahead for them in Indian markets. In the IT space, Wipro was up by 0.79 per cent while Patni remained unchanged and Infosys was up over 0.1 per cent. In the Telecom space, MTNL was down 0.59 per cent and Tata Communication was down 1.00 per cent. In the banking space, HDFC Bank was up 1.62 per cent and ICICI Bank was up 0.65 per cent. In the other space, Tata Motors was up 0.06 per cent, Sterlite was up 1.17 per cent and Dr Reddy’s Laboratories was up 0.58 per cent.

Back home, it’s the first trading day of the year 2012 and we wish all our readers a happy and a prosperous new year ahead. As for the year that’s gone by, one would like to believe it was a bad dream. Indian equities tanked massively in 2011, led by global uncertainties in Europe, slowdown in US and our very own rising inflation and high cost of borrowing scenario. The participation of local and foreign institutions in Indian equity markets was also marginal.

While it is difficult to make any strong convictions at this moment, it seems that the markets have priced in much of the worst scenarios. With inflation showing clear signs of cooling off and RBI simultaneously signaling towards a reversal in its rate cycle, the domestic situation seems to be changing. Now the only challenge in the hands of our regime is to boost growth by reviving govt. expenditure and breaking the supply dead-locks. The only serious uncertainty that lies ahead of us is that from the Euro Zone. However, with a change of guard in leadership seen in most countries there over the past year, one may expect some revival and positive outcomes in future. 

For today we expect the markets to remain flat for the larger part of the day. We advice our reader’s to stay cautious and stick to cheaply available large cap bets as they are more likely to see some positive movements.

Stocks in Action

According to Business Standard, in a move that will provide a huge advantage to old GSM operators and impact the valuation of new entrants in the telecom sector, spectrum allotment beyond 4.4 MHz will now be done through an auction, though older players were spared such additional charges till they had 6.2 MHz. The regulator Trai has been mulling charging operators for additional 1.8 MHz (GSM)/2.5 MHz (CDMA) spectrum, beyond the start-up spectrum of 4.4 MHz/2.5 MHz respectively. This comes as a negative news for listed players like Rcom, Tata Telecom etc. while its positive for players like Bharti and Idea.

Domestic fuel retailers have yet again cut back on Jet Fuel prices in India by 1 per cent in wake of softening of international commodity rates. Jet fuel in Mumbai will cost Rs 64,054 per kl as against Rs 64730.23 per kl, a decrease of over Rs 676 per kl. IOC and other fuel retailers, Hindustan Petroleum and Bharat Petroleum had on December 16 reduced ATF price by 1.3% to Rs 63,739.10 per kl. Expect some negative action in OMC stocks as a cut back in retail prices of petro products lowers their revenue visibility.

Tata Motors' total sales (including exports) of Tata commercial and passenger vehicles in December 2011 were 82,278 vehicles, higher by 22% over December 2010. The company's domestic sales of Tata commercial and passenger vehicles for December 2011 were 76,663 nos., higher by 24% over 61,685 nos., sold in December last year. Cumulative sales (including exports) for the company for the fiscal are 626,770 nos., a growth of 11% over 567,004 nos., sold last year.

According to Business Standard, the mark-to-market accounting rule relaxation order from the Ministry of Corporate Affairs is expected to lift the shares of companies that had taken a beating due to high foreign exchange losses caused by a falling rupee. The sectors especially likely to benefit are oil, metals and telecom who have massively suffered in the recent past due to a depreciating rupee. The latest relaxations by the ministry will allow companies that had booked MTM losses on account of forex loans due to a falling rupee to reverse those losses and show profits, say experts. These companies now have the option of not showing the losses in their December quarter results and of revising their earlier, September, quarter results, too.

We expect Coal India to be in action today as according to media reports, the world’s largest producer of coal, has entered into a new price regime effective today, after its board of directors approved the plan last Friday. It shifts to international pricing, 30 to 60 per cent higher than what the state-run firm’s average price used to be, by benchmarking coal on the basis of gross calorific value (GCV). However, the thermal power generation sector, which is already suffering from short supply of coal and lower tariffs in some states, is set to get yet another blow from Coal India’s monopolistic decision to move to a new system of pricing. This will increase the number of coal category from the original seven to 17, thus increasing the possibility of price rise for almost all categories. Expect some negative action in power pack today.

Corporate Action