Markets may open negative, cut back on last week's gain

Back home, after witnessing a good run on the bourses for the first week of 2012, the markets will now enter a crucial week, which is likely to shape a picture of the year ahead. The week is likely to be flagged off on a quiet note with no major developments, but we expect the overall scenario to intensify mid-week. With IT bell weather Infosys and banking major HDFC bank expected to announce their Q3 results this Thursday one may expect some action in their scrips over the coming days.

While the markets already expect Infosys to report a good set of numbers in Q3 on the back of the depreciating rupee, the actual driver for the scrip in the near future would be its revenue guidance going forward. We advise our readers to closely watch the management commentary at the time of the announcement of the results.

We also expect some heavy action on the macro front with the government expected to announce the November IIP data followed by the December inflation figure mid-week. An assumption that can be made here is that there may be some improvement in both the data. While the November IIP data should bounce back into the positive zone on the back of good growth seen in the core industries’ pack recently, the December inflation numbers are also likely to ease off significantly as a result of the recent cool-off in inflation witnessed in the weekly numbers.

Finally, the crude price movement in the aftermath of the Iran tensions coupled with dollar volatility will provide vital cues going ahead. In a nutshell, markets can look forward to the coming week to be action-packed.

In conclusion, the markets may remain volatile with a negative bias as investors adopt the wait and watch approach before the Q3 numbers’ announcements. We advise our readers 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, Tata Power has announced the commissioning of its first 800 MW unit of the Mundra Ultra Mega Power Project (UMPP). The project at Mundra in Kutch district of Gujarat shall have five units of 800 MW each, generating 4,000 MW of power using super-critical technology. The Tata Group firm, which currently has power generation capacity of 3,797 MW, has ambitious plans for enhancing the capacity to 25,000 MW by 2017. Of this, 4,000 MW will come from Mundra. However, given the current difficulties faced by the company on account of the rising input prices and low power rates, the Mundra project is slated to incur losses.

According to CARE Ratings, despite an expected average increase in the global aluminum prices, the profitability of the domestic aluminum producers is likely to remain under pressure in the December quarter. CARE adds that apart from a rise in raw material prices, the increasing cost of power, following a rise in coal prices, continues to remain a major concern for the domestic aluminum players, thus bringing down their margins. Expect some negative action in Hindalco, Sterlite and other aluminum-oriented companies.  
According to sources, after penalizing KFA and Air India for its lapses, aviation regulator, DGCA has pulled up some other airline carriers like IndiGo, SpiceJet, Jet Airways, GoAir, Alliance Air and JetLite for issues like non-reporting of incidents, lack of pilots, improper and irregular training, and absence of qualified safety officials and non-compliance of safety audits. A financial surveillance carried out by the Directorate General of Civil Aviation (DGCA) found widespread sickness in the sector. Noting that this was seriously impacting the safety of flight operations, it recommended action against them under the Aircraft Rules and Civil Aviation Requirements (CARs). The airlines have been given time till next week to come up with time-bound plans to rectify and resolve the problems identified in the financial audit. This is bad news for the overall sector and we expect some negative action in the aviation packs today.

According to Economic Times, state-run Northern Coalfields (NCL) has agreed to surrender land required to mine two blocks attached to the Sasan ultra mega power plant to Reliance Power giving it the benefit of over Rs 6,000 crore over the life of the venture. NCL’s decision, subject to a final nod by the coal ministry, will give Reliance Power access to 58 million tonnes of coal worth Rs 6,264 crore at the current prices. This is a positive development for the Anil Ambani-led power company and we expect some positive action in the scrip of RPower today.

Expect some negative action in scrips of MRPL and Essar Oil as the private refiners, which buy Iranian crude oil, struggle to find other suppliers in the wake of the US-imposed sanctions of Iran crude. MRPL is the biggest importer of Iranian crude oil at about 1,50,000 barrels a day. Iran is India’s second-biggest crude oil supplier after Saudi Arabia, meeting about 12 per cent of the country’s import needs. Though the supplies have not been affected as yet, concerns have been raised following the geo-political situation. Looking for new sources would mean the refiners would have to turn to the expensive spot market, as most of the long-term contracts have already been tied up.