Markets may open positive tracking higher cues from Asian markets

Morning Update 03rd Jan 2012

Opening Bias

The markets are likely to open on a positive note today tracking higher cues from its Asian peers. The SGX Nifty is trading up by 31 points at 4681 indicating a gap up opening to markets today.

Overnight, the US and most other global markets were closed for trade as a result of the New Year holidays. However, going forward, there are some events coming up this week which would be closely watched by investor’s world wide. U.S. economic data and minutes from the December Federal Open Market Committee meeting are likely to move stocks in the first week of 2012. Markets are also expected to closely monitor the developments in Europe as leaders there get ready to buy time for the Spanish and Italian govt. to wrest their respective debt burdens.

Back home, there are some positive developments in the domestic markets that investors could cheer about. Manufacturing activity climbed to a six-month high in December as new orders rose, reinforcing signs of industrial revival. The HSBC Market India Manufacturing Purchasing Managers' Index rose to 54.2 from 51.0 in November, the highest level since June and the sharpest monthly rise since April 2009. The rebound in manufacturing follows core sector numbers last week that hinted at a pick-up in industrial growth. The index for eight core sector industries, which have a combined weight of 38 per cent in the IIP, expanded 6.5 per cent in November. These are positive signs, as it hints towards an uptick in industrial and manufacturing activity with an ease in the inflation.

In other developments, RBI Governor D Subbarao has hinted towards to possibility that the Central Bank is likely to begin easing monetary policy to address concerns about economic growth going forward. Subbarao reiterated that growth was likely to be a bigger concern in 2012, although the risk of inflation remained, largely because of a weakening rupee. This is a positive development as it shows a change in RBI’s stance from being adamant to control inflation in 2011 to shifting its focus on propelling growth in 2012.

However, global concerns of slowdown in export demand still continue to plague our economy. Exports grew by merely 3.8 per cent to USD 22.3 billion in November 2011 year-on-year due to economic slowdown in western markets of the US and Europe. On the other hand, imports were up by 24.5 per cent to USD 35.9 billion in the month year-on-year, according to the Commerce Ministry data. A muted export growth is mainly due to declining demand from Europe and the US. The country's cumulative exports for the period between April-Nov 2011 now stand 33.2 per cent higher at USD 192.6 billion, whereas imports stand 30.2 per cent higher at USD 309.5 billion leaving a trade gap of USD 116.8 billion. But judging by the sharp revisions seen in trade data over the past few months by the ministry and RBI, it would be to soon to accept these numbers as the final data lest we see some more corrections ahead.

On the commodities front, crude futures (Nymex) notched up healthy gains overnight on the back of concerns raised from the Middle East with Iran at the helm of all controversies. Strong manufacturing data from China and India also helped spike up crude prices.

In conclusion, we expect the markets to remain positive with some volatility towards the latter part of the day as investors are still jittery to enter the markets and prefer to wait and watch the Q3 numbers before taking an investment call. 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 strong rebuttal to telecom operators on the issue of 3G roaming, the government has alleged that service providers have "not come with clean hands" and that they have "suppressed material documents" before telecom tribunal TDSAT. Filing an affidavit before the TDSAT, the DoT has requested the tribunal to dismiss the petition of telecom operators challenging the government directive to stop 3G roaming immediately. DoT has maintained that the 3G roaming pact by operators is in violation of various terms and conditions of Cellular Mobile Telecom Service License. Expect some negative action in the telecom pack today.

In what may seem as a short term respite, the domestic retailers have decided not to raise petrol prices this fortnight. It is believed that the OMC’s were apparently unable to get the all crucial informal nod from the govt. to undertake the Rs 2 per litre hike in rates needed to achieve parity with the imported cost on account of the weakening rupee. Given that there are 5 state elections coming up this year and looking at the fragile support that it has in the parliament, the govt. is very reluctant to give its nod for any price hikes at this moment despite a volatile commodity and currency market. Expect some negative action in the OMC stocks today.

According to Economic Times, RIL is embarking on a major diversification into the media and entertainment sector by agreeing to fund a transaction that will result in a sizeable stake for itself in a company controlling two of the industry's largest businesses, the Network18 Group and the Eenadu Group of channels run by the Hyderabad-based Ramoji Rao. According to sources, RIL  will help the promoter group of Network18 fund the rights issues of its two listed entities, Network18 Media and Investments, which runs the portal moneycontrol.com, and TV18 Broadcast Ltd, which operates a number of business and general news channels, notably CNBC TV18 and CNN-IBN. There have been no conformations from either of the parties, but it’s believed that the deal amount could be pegged at around Rs 1500 crore. Expect some positive action in the scrips of Network 18 and RIL today on the back of these speculations.

According to Economic Times, ONGC plans to invest USD 2.894 billion (about Rs 15,340 crore) in developing its ultra-deep sea UD-1 gas discovery in the KG basin by 2016-17. ONGC believes that UD-1 gas discovery in the southern part of its Block KG-DWN-98/2 can produce for 14-15 years with peak of about 20 mmscmd lasting for five years. UD-1 is the deepest gas discovery ever made in the country and ONGC estimates it may hold 4.257 tcfof inplace gas reserves.

According to press release on the BSE,private equity fund Jacob Ballas has agreed to invest Rs 200 crore in Religare Finvest, an MSME-focussed non-banking financial services arm of Religare Enterprises. The capital infusion will be in form of the compulsory convertible preference shares and would be the second equity investment in Religare Finvest Ltd (RFL) in quick succession after Avigo Capital invested Rs 150 crore in November 2011. Religare has more than 25,000 MSME accounts and its loan book stood at Rs 11,380 crore as on September 30, 2011. The PE funding is expected to help the company meet its growing capital requirements. The deal comes at a time when various regulatory changes are taking place in the non-banking financial sector. Besides, a continuous rise in interest rates has also put pressure on the business margins for the NBFC sector, while the shares of listed companies have been hurt badly in recent months.

Expect some negative action in the scrip of ShasunPharma as the company’s operations at its Cuddalore plant has been interrupted due to severe cyclonic storm "Thane" on December 30, 2011, resulting in temporary suspension of the operations.

Expect some negative action in scrip of EID Parry as the sugar units located at Pondicherry and Nellikuppam and Bio Products unit at Thiyagavalli - Cuddalore, have been temporarily shut down due to minor damages caused by the cyclone.

Corporate Action