Markets likely to recoup yesterday’s losses, open positive

Morning Update 10thJan 2012

Opening Bias

The markets are likely to recoup yesterday’s losses and open positive today. The SGX Nifty is trading up by 22 points at 4,779, indicating a gap up opening to the markets today.

Overnight, the US stocks ended their trading session on a marginally positive note amidst a very moderate and subdued trading session, as investors hoped for a better corporate Q3 earnings season on the back of some improvement seen in the recent economic data. Europe continues to struggle as recently it has come to light that German Chancellor Angela Merkel has warned that the second aid package to be given to debt-ridden Greece would not be possible unless the country seeks its private lenders to restructure part of its debts. This development was taken in a negative stride by investors there and consequently the market fell in Europe. The Asian shares are however seen trading on a positive note in early trades on the back of some positive cues from China and US overnight. This has managed to outplay the euro concerns for now.

Back on the Indian turf, the markets are pretty much expected to remain volatile ahead of the kick-off of the Q3 earnings season by Infosys and few government data to be announced mid-week. Of late, it has been seen that trading in government bonds has surged as risk-averse domestic investors and FIIs have queued up to buy gilts, lured by the high yields. The rush for safe government bonds has pushed the yields on a benchmark ten-year government paper lower despite the government’s borrowing shooting past the budget target. The yields on ten-year bonds have fallen to 8.18 per cent from a high of 9 per cent on October 11, 2011.

Bonds have also gained interest among investors, including foreigners, after the equity index fell by 25 per cent last year. With the limit on government debt holding for the global funds raised to USD 15 billion from USD 10 billion, fixed income securities are in demand. It has been noted that the RBI’s change in policy stance from pro-inflation to pro-growth has led to some softening in yields and a rise in the bond prices.

In conclusion, we expect the markets to remain volatile 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 Reuters, Adani Group, a consortium of state-run companies led by GAIL India and Gujarat State Petroleum Corporation are likely to bid for BG Group’s 65 per cent stake in Gujarat Gas. The interested companies will submit non-binding bids for the stake in the gas distribution company today. Sources also said that Reliance Industries Limited (RIL) had been keen on acquiring the stake, but a company spokesman denied any interest in the deal. Two European companies are also expected to submit bids, but again there is no clarity on this front. We expect Gujarat Gas to be in action today and over the next few days as the heat intensifies over the proposed exit of BG and its new buyer. 

According to The Hindu Business Line, Hindustan Zinc has commissioned a 350 TPA silver refinery at Pant Nagar in Uttarakhand with an investment of Rs 100 crore. The refinery dispatched its first consignment of silver ingot of 99.99 per cent purity last month. The company’s silver production has grown multifold from 47 tonnes in 2002 to 180 tonnes last fiscal and in the first half of this fiscal it was up by 10 per cent at 96 tonnes. The company’s revenue from silver has more than doubled to Rs 467 crore (Rs 209 crore) in the first half of this fiscal while it logged an increase of 58 per cent to Rs 544 crore last fiscal. The company’s mined metal production was at 8,40,000 tonnes in 2010-11 while it rose by 3 per cent to 3,98,000 tonnes in the first six months of this fiscal. Its revenue from silver is expected to rise further with production at the Sindesar Khurd zinc mines expected to achieve full capacity of 1.5 million tonnes this fiscal.

According to Economic Times, HPCL will double the volume of Saudi crude it imports in an annual deal beginning in April in a move that could replace some of its Iranian supplies. Indian refiners are looking for ways to gradually replace their imports of Iranian oil. This is a positive development of sorts for the company as it ensures safe supply of crude into the country in the aftermath of the US-imposed sanctions on Iran crude.
 
India’s state-run oil companies have reported a revenue loss of Rs 34,000 crore in the third quarter ended December 31 for selling subsidised fuel, according to industry sources. At Rs 19,000 crore, the bulk of under-recovery was that of Indian Oil Corp, they added. This is a negative development for the OMC packs, but given that the government has indicated towards a hike in diesel prices shortly in a phased manner we expect the OMCs to gain today.

Corporate Action